Amazon’s Government Procurement Contracts Spawn Criticism

The U.S. government is increasing its use of eMarketplaces like Amazon for procurement at the local and federal levels, but Amazon’s government contracts are raising some eyebrows over competitiveness of the deals.

On Wednesday (July 11), the Institute for Local Self-Reliance (ILSR) published a paper arguing that Amazon’s agreements with the government, forged last year, could put local cities at risk.

“A national contract that Amazon Business secured last year to provide local governments with office and classroom supplies lacks standard safeguards to protect public dollars and public transparency,” the ILSR declared in its announcement of the report, Amazon’s Next Frontier: Your City’s Purchasing.

Amazon secured the contract through U.S. Communities, a government purchasing alliance that includes local governments. The ILSR said that so far, more than 1,500 jurisdictions have adopted the contract, estimated to be valued at $5.5 billion with a potential to last 11 years.

The report warns that the government contract may undercut competition, with the biggest red flag raised over the contract’s use of dynamic pricing, instead of fixed, when local governments procure goods via Amazon Business. The ILSR also pointed to terms of the contract that allow governments to procure from local suppliers if they become third-party sellers on Amazon Business.

“Amazon is thus leveraging its growing relationship with local governments to induce more businesses to join its Marketplace, fortifying its position as the dominant platform for online commerce and taking a cut of every purchase,” the ILSR’s announcement stated.

In a statement, Olivia LaVecchia, a senior researcher at the ILSR, said that local governments should reject the contract.

“There’s even more at stake than higher prices and a lack of public accountability,” she said. “There’s also the danger of a less competitive economy, in which companies must go through Amazon in order to do business.”

Expanding at the Federal Level

As Amazon expands its presence at the local level, the eCommerce conglomerate is also focusing on federal procurement services, with analysts saying that Amazon could secure dominance in facilitating $53 billion worth of federal procurement.

According to April reports in The Wall Street Journal, in 2017 Amazon worked with 2,300 government entities both in the U.S. and abroad, up from 100 in 2011. Estimates from GBH Insights say that Amazon’s government operations will reach a $2.8 billion valuation this year, and $4.6 billion in 2019.

That’s compared to less than $300 million in 2015, reports noted, adding that Amazon’s lobbying budget has also expanded from $2.1 million in 2010 to $13 million in 2017.

Amazon is also currently in the process of negotiating a 10-year contract with the Department of Defense that could be worth $10 billion, WSJ said.

Separate reports in The Intercept last November noted that language in Section 801 of the National Defense Authorization Act moves Department of Defense procurement to “online marketplaces,” and outlines a program that could support “government-wide use of such marketplaces.”

“It seems like Amazon wrote it,” said ILSR’s Stacy Mitchell in an interview with the publication at the time. “It will accelerate the transfer of more and more government spending to Amazon.”

The Intercept noted that Section 801 has since been nicknamed the “Amazon amendment,” with concerns over competition stemming from the legislation’s language, which says multiple sellers on a single online marketplace platform eliminate the need for government entities to issue a request for proposal (RFP) and competitive bidding process.

Last year, the Coalition for Government Procurement (CGP) issued a recommendation that Section 801 be piloted to test the competitiveness of its structure. The Coalition did not point to Amazon specifically, but did warn that only a few eMarketplace providers have the ability to compete.

“As it stands, Section 801 of the FY18 NDAA embodies the most consequential procurement policy changes in a generation,” the CGP stated. “Considering the requirements of the eCommerce proposal, it is likely that only one or two providers would possess the capability and potential regulatory compliance necessary to participate. Thus, the proposal could result in monopoly or duopoly control over access to the federal market for commercial items.”

Amazon’s Response

Last April, Amazon responded to concerns raised by the Coalition that it would undercut competition in government procurement.

“I have deep conviction that Amazon Business can solve a lot of the issues that the Coalition has raised as pain points for their members,” said Anne Rung, director of government for Amazon Business, in an interview with Bloomberg Government at the time. She added that smaller companies will have a greater chance of securing government business via Amazon Business, instead of having to individually reach out to each of the 3,200 procurement units in the federal government.

Further, Rung added, Amazon Business would heighten transparency for buyers.

Today, there is a “lack of transparency about what you’re buying and who you’re buying it from and how much you’re paying. Today, many government agencies have to turn to suppliers to get that information.” Amazon Business’ platform, however, can provide government procurers with data and analysis to increase visibility into purchases and spend.

“Governments are using that information to better plan for future purchases; to better track rogue spend against contracts; to think smarter about where they can leverage the spend and gain volume discounts,” she told the publication.