Will Amazon dominate government procurement?

As online retail giant Amazon sets up its Australian operations, serious concerns have emerged in the US about its potential dominance of Federal Government purchasing.

The new US National Defense Authorization Act, which has been passed by the House of Representatives and is currently before the Senate, will move Defense Department purchasing to unspecified ‘online marketplaces’.

The bill covers ‘commercial’ purchasing only, which includes office supplies and all manner of mundane items. The sheer size of the Department makes this significant.

The US Defense Department is the largest employer in the world, with 1.3 million service personnel and 742,000 civilian employees. There are also over 800,000 reservist and National Guards. The Pentagon, outside Washington DC, is one of the largest office buildings in the world.

Section 801 of the new Bill, inserted by House Armed Services Committee Chairman Mac Thornberry, a Republican from Texas, says the online purchasing programs should be large enough to ‘enable Government-wide use of such marketplaces’. It says any marketplace should have the following characteristics:

  • is used widely in the private sector, including in business-to-business e-commerce
  • provides dynamic selection, in which suppliers and products may be frequently updated and dynamic pricing, in which product prices may be frequently updated
  • enables offers from multiple suppliers on the same or similar products to be sorted or filtered based on product and shipping price, delivery date, and reviews of suppliers or products.

The procurement section of the National Defense Authorization Act is being called ‘the Amazon amendment’ by some critics. “It’s like Amazon wrote the specs,” says Stacy Mitchell, from the Institute for Local Self-Reliance (ILSR), a US non-profit and advocacy group that encourages community involvement.

“It will accelerate the transfer of more and more government spending to Amazon.”

ILSR has been highly critical of Amazon and megaretailers like Wal-Mart. “Amazon is far more than a big, aggressive retailer,” it wrote in a report earlier this year. “Amazon increasingly controls the underlying infrastructure of the economy.

“Its Marketplace for third-party sellers has become the dominant platform for digital commerce. Its Amazon Web Services division provides the cloud computing backbone for much of the country, powering everyone from Netflix to the CIA.

“Its distribution network includes warehouses and delivery stations in nearly every major US city, and it’s rapidly moving into shipping and package delivery for both itself and others. By controlling this critical infrastructure, Amazon both competes with other companies and sets the terms by which these same rivals can reach the market. Locally owned retailers and independent manufacturers have been among the hardest hit.”

Now, says ILRS, this new Bill extends Amazon’s reach into government procurement.

In 2015 Amazon launched Amazon Business, to increase its presence in the business market. In October it launched Amazon Business Prime, “for multi-user business customers, so you can pick from multiple shipping options to suit your business needs. Business Prime Shipping offers fats two-day shipping for every user on your business account.”

Shares in major US business supply companies WW Grainger and Fastenal dropped sharply on the announcement.

In September 2016 Amazon hired Anne Rung, formerly US Chief Acquisition Officer, out of the US Office of Management and Budget, to be head of Amazon Business’s public sector division. US Government disclosures show that Amazon’s lobbying expenditure has leapt eightfold in the last four years.

Amazon is currently in the process of setting up shop in Australia. There has been significant press coverage, bit it has all focussed on its retail operations. The growth of Amazon Business in the US shows that commercial – and government – sales will not be far behind.

Comment below to have your say on this story.

If you have a news story or tip-off, get in touch at editorial@governmentnews.com.au.  

Sign up to the Government News newsletter

Leave a comment:

Your email address will not be published. All fields are required