New Report Sheds Light on Amazon’s Contract to Supply Local Governments

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A new report from the Institute for Local Self-Reliance (ILSR) indicates that government agencies and public schools that purchase from Amazon may be paying more than they should.

Last year, Amazon was awarded a contract by U.S. Communities, an organization that negotiates purchasing agreements for local governments, to provide cities, counties, and schools with such commodities as office and classroom supplies, library books, and electronics. The ILSR report, Amazon’s Next Frontier: Your City’s Purchasing, examines the risks associated with the contract, which has an estimated value of $5.5 billion over a potential 11-year term and has been adopted by more than 1,500 jurisdictions, including government agencies and public schools.

These risks include “four ways that the contract fails local governments,” as identified by ILSR: process, cost, service, and terms and transparency.

Perhaps most striking is the difference in pricing between Amazon’s contract and the established norms in public procurement. Whereas the norm is to guarantee fixed pricing, Amazon’s uses dynamic pricing, meaning that local governments are locked into a contract in which prices can fluctuate and, quite possibly, become inflated. The report analyzes data from a school district in California, finding that the district would have paid 10-12 percent more if they had bought from Amazon rather than through its local supplier. It further examines the additional cost of shipping and signing up for an Amazon Business Prime account, which could be avoided by purchasing from a local vendor.

Amazon’s Next Frontier additionally notes that Prince William County Public Schools’ (on behalf of U.S. Communities) request for proposal that prompted companies to compete for the contract, which was ultimately awarded to Amazon, was written in such a way that no other company could meet the requirements — and thus was not a truly competitive request for proposal. The report also highlights the anticompetitive nature of the Amazon Marketplace. While Amazon argues that its Marketplace allows governments to purchase commodities from local businesses, Amazon would receive a percentage of any such sales. The ILSR report argues that the 15 percent fee Amazon charges Marketplace sellers effectively constitutes a private tax. It serves to suppress competition, since third-party sellers — who often make thin margins on sales — would likely have to raise their prices to compensate for this fee.

Another cause for concern, according to ILSR, is that the contract exempts Amazon from the standards of transparency usually mandated by public procurement agreements. U.S. Communities allowed Amazon to rewrite its contract terms, including a provision that would require that Amazon be notified when citizens make a public information request about the contract, and would permit the company to intercede and lobby that the information not be disclosed.

Through an examination of these substantial costs and potential risks to the public, ILSR concludes that “as Amazon uses its market power — with the help of U.S. Communities — to warp the process of local government procurement, local governments and their citizens are being exposed to new risks. There are concrete issues like fewer safeguards to ensure low prices and tax dollars leaving the community that generated them. Looming underneath that, though, there’s something else…an economy in which, increasingly, there’s less competition and less opportunity, and where the only way to participate is by going through Amazon.”

Booksellers who would like to take action to ensure that their local government fully understands the implications of the Amazon-U.S. Communities contract can find more information in ILSR’s action sheet.