In the US and the UK, questions are being asked about Amazon's public sector contracts and competition
In the US and the UK, questions are being asked about Amazon's public sector contracts and competition

Threat or big break?

7 September 2018

US schools and local governments are warned against purchasing agreements with Amazon.

Working with Amazon is an opportunity to bring innovation to public procurement, but could also be a Pandora’s box of issues.

While the tech firm has much to offer, from its large product range to its world-beating logistics infrastructure, the public sector will have to answer questions about how it manages competition and how compatible working with Amazon is with social value obligations.

These questions have already been raised in the US, where Amazon has an agreement worth up to $5.5bn with US Communities, a public sector purchasing alliance. “Cities and school districts would be smart to reject this contract, or stop using if they’ve already signed on,” said Stacy Mitchell of research organisation the Institute for Local Self-Reliance (ILSR).

Mitchell co-authored a report for ILSR that questioned both how Amazon was awarded the contract and whether it provided value for money. One of the report’s main allegations was that US Communities’ request for information was framed in such a way that Amazon, with its dominant market position, was the only firm large enough to meet specifications. (Neither Amazon nor US Communities responded to a request for comment.)

Colin Cram, one of the architects of the UK’s Crown Commercial Service, raised similar concerns in the UK, where YPO, the Yorkshire-based purchasing organisation, has been the first to take the Amazon plunge.

YPO confirmed this month that Amazon had been chosen to deliver the organisation’s online marketplace after the tech giant was the only firm to submit a compliant submission of interest. The two parties are still in talks over the contract, which could be worth up to £600m over five years.

YPO said it followed an “EU Procurement Regulations process to appoint an online marketplace partner”, and that the deal will allow it to expand its offering to meet customer needs. However, Cram raised concerns that enough may not have been done to meet competition regulations and the contract could potentially be open to challenge.

“I am concerned that there would only ever have been one winner,” he said. “I would have thought there may have been other potential providers but obviously Amazon is the most established and the one people are used to. There’s a good reason for going for Amazon, but you’ve got to be very careful with how you frame the tender.”

Cram and Mitchell also shared concerns over the impact on local suppliers. In the US, Amazon stands to take a 15% cut of revenues from suppliers on its marketplace. It is unclear if a similar arrangement will exist for YPO’s deal. In the UK local councils must also abide by the Social Value Act, which requires them to consider the impact of procurements on local businesses. “There’s worries that local suppliers might lose out – equally they might do very well if they embrace it,” said Cram.

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