Back to top Jump to featured resources
ILSR Press Room filed under Independent Business

The Intercept Covers “Amazon Amendment” on Government Procurement

| Written by Nick Stumo-Langer | No Comments | Updated on Nov 2, 2017 The content that follows was originally published on the Institute for Local Self-Reliance website at https://ilsr.org/the-intercept-covers-amazon-amendment-on-government-procurement/

In the News: Stacy Mitchell

November 2, 2017

Media Outlet: The Intercept

Amazon is now on the verge of winning a multi-billion dollar contract to win government procurement over other retailers in America. David Dayen of The Intercept, a frequent (and excellent) writer on all things monopoly, spoke with the Institute for Local Self-Reliance’s co-director and Community-Scaled Economies initiative director Stacy Mitchell on the topic.

Here are her contributions:

Section 801 stipulates that the program should be designed “to enable Government-wide use of such marketplaces.” Scale, then, is key. Over time, this change would give platforms like Amazon access to all $53 billion in federal government commercial item purchases.

“It seems like Amazon wrote it,” said Stacy Mitchell of the Institute for Local Self-Reliance, which has written critical reports about Amazon in the past. “It will accelerate the transfer of more and more government spending to Amazon.”

The online marketplace provision, which still has to get through a House-Senate conference, coincides with a significant ramp-up for Amazon Business, which only launched in 2015. Last week, the company introduced Amazon Business Prime, a $499 membership that comes with free two-day shipping for its business-to-business products. The announcement tanked the stock prices of its main industrial supply competitors, Fastenal and W.W. Grainger. …

THE DEFINITION OF an “online marketplace” merely refers to a commercial, non-government portal selling products. And GSA, under the law, must select more than one online marketplace for this purpose. But eligible platforms must offer multiple suppliers for the same product, with constantly changing selection and prices. “I don’t think Grainger does that,” said Mitchell. “Every reference implies we’re talking about a platform where third parties are selling. If that’s the case, we’re talking about Amazon, Walmart [through its e-commerce site Jet.com], and not really anybody else.”

Indeed, Section 801 has been informally dubbed the “Amazon amendment,” and experts believe only one or two companies would have the wherewithal to participate. That means monopoly or duopoly control of $53 billion in federal purchasing.

The online marketplaces, which can be given no-bid contracts, explicitly eliminate the need for government procurement officers to seek out competitive bids for commercial products. As long as they visit the marketplace, that would satisfy any rules about competition, because of the multiple sellers on that platform. But that assumes the platform is a neutral arbiter of what gets purchased.

Amazon not only hosts third-party sales, it competes against those third parties with its in-house brands. Amazon places costs and parameters on third-party sellers on its platforms that can inhibit their ability to compete. And the company has mastered the technique of driving buyers to preferred products, by adjusting search results, or controlling what gets into the “buy box,” the top option it suggests for purchases. Often those preferred suggestions cost more than rivals.

“I don’t think what’s happening on Amazon is a market,” said Mitchell. “It’s a private arena that Amazon controls.”

Even if Amazon always served up the best alternative for any product, it extracts money from third-party sellers for the privilege of using the platform, of anywhere between 15 and 20 percent. If Pentagon procurement, and potentially all federal procurement, shifts predominantly to Amazon, it would collect billions of dollars annually without doing much of anything. The online marketplaces would satisfy small business purchase requirements as well, meaning that a significant portion of what small businesses earn from government spending would leak through to Amazon. A 15 percent skim could represent as much as half of a small business profit margin.

Holding data on regularized federal spending decisions can also prove valuable. “I can imagine Amazon saying, we looked at the data and can make a lot of money selling the Defense Department chairs,” said Mitchell. “We’ll either arbitrarily or through a rule change or increase in fees induce the fiercest competitor in making chairs to leave the portal. And we’ll own that business.”

Amazon has targeted government purchasing at the local level. In January, the company won a contract with U.S. Communities, a coalition of 90,000 local governments. Amazon famously spent years denying the payment of sales tax to local governments; now it’s a major supplier of local government office supplies. Federal agencies also have accounts with Amazon, including at the Department of Homeland Security. “They want to be the go-to source at every level of government,” Mitchell said.

The Senate version of the NDAA, one of the few bills Congress passes every year, does not include the online marketplace provision, meaning a compromise will have to be reached. Negotiations in the conference committee began two weeks ago, and in earnest in the last week. There’s no timeline on when that might be completed.

The Coalition for Government Procurement, an assembly of federal acquisition experts, recommended last month that Section 801 be made into a pilot program, calling the proposal “the most consequential procurement policy changes in a generation.” CGP wants to test compliance with statutory requirements, impact on small business, the use of data and fees, and other unintended consequences.

“Don’t hand over all our purchasing to Amazon,” Mitchell said, referring to the conference committee. “The lack of transparency and accountability is astonishing. Whatever problems there may be with the GSA, this would only compound the same issues.”

Read the full story here.