WASHINGTON ― Amazon stands to become a dominate player, if not the dominant player, in the federal procurement marketplace based on the recent National Defense Authorization Act.
The Intercept reports that this factor is a result of Section 801 of the House-passed NDAA, which moves Department of Defense purchases from off-the-shelf ― or products readily available to the general public ― to online marketplaces.
In this context, “online marketplaces” are defined as outlets that can offer a diversity of product options. What gives Amazon ― specifically its commercial sales platform Amazon Business ― the edge is the General Service Administration‘s policy of such outlets being required to offer multiple suppliers for the same products, with perpetually changing selections and prices.
According to the Intercept, as a result of the GSA policy in conjunction with Section 801, “experts believe only one or two companies would have the wherewithal to participate,” Amazon being one of them. The company stands to gain more than its competitors due to its prior contracts with federal agencies and the 90,000 local government coalition U.S. communities.
Furthermore, Section 801 eliminates the need for the government to look for competitive bids, meaning that agencies could stick primarily with Amazon for an indefinite period of time.
The current policy for federal procurement involves government agencies signing long-term contracts with suppliers or utilizing GSA schedules, which catalog set prices for procurement.
Section 801 came about as a result of the House Armed Services committee believing that the current policy was too costly and cumbersome and that GSA schedules housed higher-costing IT products than the open market. The idea behind the NDAA‘s “online marketplace” provision was to allow the federal government to interact with online commercial sites in the same manner as private businesses.
However despite Amazon being a large hub for third-party sellers, the company can impose costs and guidelines that can stifle third parties’ ability to compete. For example, Amazon can extract up to 20 percent of third-party profits and can drive buyers to preferred products via the adjustment of search results.
As a result, the Intercept states that “if Pentagon procurement and potentially all federal procurement, shifts predominantly to Amazon, it would collect billions of dollars annually without doing much of anything.”
Furthermore, Amazon could take advantage of federal spending decision data ala the bill’s demand for dynamic pricing. For example, should Amazon know that procurement officials buy specific products during a certain time period, the company could beef their prices up for that period.
The Senate version of the NDAA currently does not have an online marketplace provision, thus a compromise will have to be made as to the ultimate fate of Section 801.