Amazon has been supplying school districts and government bodies in the US for over a year ©Amazon
Amazon has been supplying school districts and government bodies in the US for over a year ©Amazon

Should the US public sector ‘reject’ Amazon contract?

17 August 2018

Amazon’s successful bid to provide YPO’s new online marketplace, a contract worth potentially £600m, is the tech giant’s first foray into the UK public sector.

In the US however, the Seattle-based company has been supplying school districts and government bodies for over a year, most notably through a contract agreed with US Communities (a public sector purchasing alliance that covers a number of local governments).

The deal, agreed in February 2017, gave participating school districts, higher education institutions and local and state governments the opportunity to buy goods directly off Amazon’s dedicated business marketplace. So far, more than 1,500 jurisdictions have adopted the contract, which is estimated to be worth $5.5bn.

But not everyone involved is happy. A report published last month by research organisation the Institute for Local Self-Reliance (ILSR) outlined concerns about the tender process, value for money and impact on the existing supply base. 

“Cities and school districts would be smart to reject this contract, or to stop using it if they’ve already signed on,” said ILSR co-director Stacy Mitchell, who co-authored the report.

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

The report, which ILSR compiled by reviewing contract documents, said its analysis “suggests [the RFI] was tailor made to favour a single company – Amazon”.

It added only five firms were able to put together proposals “deemed even minimally responsive” to the requirements. Of these companies four received low scores ranging from 2.5 to 36.7 out of 100. The fifth, Amazon, scored 91.3.

The report also said Amazon won the contract without having to compete on price or provide volume discounts, a “remarkable departure from standard practice”.

Buyers using the Amazon system do not benefit from guaranteed pricing, instead the contract adopts Amazon's dynamic pricing, which are “constantly changing”.

A price analysis conducted on behalf of ILSR suggested buyers in the California school system would have payed 10-12% for supplies had they used Amazon rather than their local supplier. 

The report also raised the concern that – by telling public officials they would still be able to buy from local suppliers if these businesses joined the Amazon Marketplace – the deal has allowed Amazon to leverage public spend to induce more local businesses to join its Marketplace and bolster its market position.

“Amazon takes a 15% cut of their revenue and sets the terms by which they’re allowed to operate on the platform, all while competing against them,” the report said.

Neither Amazon nor US Communities have responded to a request for comment.

As yet it is still unknown exactly how Amazon will work with YPO, whether Amazon will build a stand-alone marketplace for YPO, or if the marketplace will be integrated into Amazon’s existing business-to-business platform.

Amazon was awarded the contract after YPO deemed it was the only firm to submit a compliant expression of interest, however the final contact has not yet been signed.

When it initially confirmed it had awarded the contract to Amazon, YPO told SM the partnership was needed to meet the growing needs of its customers. “YPO is proud to have created a forward-thinking, innovative solution for its public sector customers,” said managing director Simon Hill.

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