Amazon Contract to Supply Schools and Localities Attracts Criticism

A box gets an address label during a tour of the Amazon fulfillment center Thursday, May 3, 2018, in Aurora, Colo.

A box gets an address label during a tour of the Amazon fulfillment center Thursday, May 3, 2018, in Aurora, Colo. AP Photo/David Zalubowski

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About 1,500 schools and local governments have adopted a deal to buy goods from the online retailer. One group is raising concerns.

A contract Amazon secured last year to provide local governments and schools with office and classroom supplies and other goods is drawing scrutiny from a watchdog group.

The Institute for Local Self-Reliance issued a 34-page report this week that is critical of the deal. The contract is available through U.S. Communities, a cooperative organization that offers joint purchasing agreements for members that include cities, counties and schools.

“Amazon is moving to capture public sector spending,” Stacy Mitchell, one of the report’s co-authors, said Wednesday.

"It's looking to change the rules for how cities and schools buy goods," she added during a conference call. "This contract departs in striking ways from the norms of public sector procurement."

U.S. Communities said Wednesday that about 1,500 local governments and school districts have so far adopted the contract with Amazon Business, an arm of the online retailer.

The Institute for Local Self-Reliance suggests the deal could generate upwards of $5.5 billion of sales in 11 years. Asked to confirm this figure, U.S. Communities said the “initial potential value” was estimated at $500 million annually and the initial term of the contract is five years. The group indicated it could not comment on the potential for extending the contract, which was announced in 2017.

Christine Gilbert, a U.S. Communities spokesperson, said by email that if a local government adopts the contract, it does not prevent them from buying goods from other vendors instead of Amazon.

“As with all contracts under the U.S. Communities program, they are nonbinding and nonexclusive,” she said.

The authors of the new report say that the request for proposals, or RFP, for the contract was written in a way that favored Amazon and undermined competition in the bidding process.

Amazon disputes this claim and says that the contract was “competitively-solicited.”

Gilbert, the U.S. Communities spokesperson, said the cooperative itself did not have a vote in the request for proposals process, or vendor selection process, and that these processes were handled by a “lead public agency,” Prince William County Public Schools, in Virginia.

“The RFP was very broad in scope to potentially have the opportunity for multiple awards by category and there were 12 responses submitted,” Gilbert added.

In 2016 Prince William County Public Schools solicited a contract for an “online marketplace for the purchases of products and services,” according to the Institute for Local Self-Reliance report says,

The RFP covered categories that included goods like: office and school supplies, home and kitchen wares, books, musical instruments, audiovisual and electronic equipment, and clothing.

Nobody could be immediately reached at the school system late Wednesday afternoon. But Anthony Crosby, the school district’s acting purchasing supervisor, told The Washington Post Amazon has become a “one-stop shop” for school administrators.

“Before this contract, people were out here independently setting up Prime accounts and making purchases,” he added. “All this does is create a legal pathway for them to do so.”

The Institute for Local Self-Reliance also makes a case that Amazon won the contract without having to compete on price, and without providing a discount based on the volume of sales.

An Amazon spokesperson said in response to this criticism that “Amazon Business offers single-unit and quantity discounts on millions of eligible items, in addition to our dynamic marketplace pricing which helps to ensure competitiveness and best-value pricing.”

For routine, high-volume purchases, like office supplies, many local governments tend to solicit contracts that call for guaranteed fixed pricing, according to the Institute for Local Self-Reliance report.

In contrast, Amazon’s “dynamic pricing” can fluctuate even over a day’s time.

U.S. Communities counters that dynamic pricing enables agencies to receive the best price available in the market at a given time and that fixed pricing does not account for changing market conditions that could put agencies at a disadvantage when locked in.

“The Amazon Business contract helps lower the total cost of procurement through lower prices paid, streamlined end-user discovery and buying experience,” Gilbert said in her email.

“Additionally, agencies have access to tools that help adhere to public sector procurement regulations, and controls that drive adherence to organizational policies and preferences to deliver improved compliance and reporting,” she added.

The Institute for Local Self-Reliance raised other concerns as well.

For instance, the report contends that the contract has terms heavily rewritten by Amazon’s lawyers, and that it includes provisions that will give the company opportunities to block public records requests.

The report also suggests Amazon is establishing itself as a middleman for suppliers that have sold to governments in the past, pushing them onto its platform as “third-party” sellers.

As third-party vendors, those businesses would have to hand over a cut of their earnings to Amazon. The Institute for Local Self-Reliance pegs this share at 15 percent of a seller’s revenues. An Amazon spokesperson could not confirm that figure on Wednesday.

U.S. Communities is overseen by a group of sponsors that include the National Association of Counties, the National League of Cities, and the National Governors Association. It is staffed and managed by a private firm, OMNIA Partners.

There are over 55,000 agencies, education institutions and nonprofits that use U.S. Communities contracts, according to the organization. It says that these contracts cover more than $2.7 billion in procured products and services annually.

Bill Lucia is a Senior Reporter for Government Executive's Route Fifty and is based in Washington, D.C.

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