Amazon partners with American cities on multi-billion-dollar deal

In
this Tuesday, Feb. 24, 2015 file photo, former US Education
Secretary Arne Duncan visits with 9-year-old Nadia Garcia in a
third grade classroom at McGlone Elementary School in
Denver.
AP

• In 2017, Amazon
  signed a national contract with a co-op that buys products
  (e.g. school and office supplies, electronics, and library
  books) for 1,500 cities, counties, and school districts across
  the US. Public funds, often through taxes, pay for these Amazon
  products.
• The co-op says that Amazon could receive up to $5.5
  billion over the next 11 years.
• A new report from the Institute of Self Reliance looks
  at purchasing totals from 60 cities, counties, and school
  districts in 2016.
• The report’s authors argue that relying on Amazon to
  buy public goods undermines local retailers or national chains
  with local stores. 

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When cities, counties, and public school districts need to
buy office and classroom supplies, computers, musical
instruments, and library books, they often consult purchasing
co-ops. One of the largest of these co-ops
is 
US Communities, which negotiates contracts
with retailers. Cities then use public funding to buy the
products.

In 2017, Amazon signed a contract with US Communities to
provide its products to 1,500 public agencies, ranging from
Atlanta Public Schools to the Mesa, Arizona police department.
According to the co-op, Amazon could receive up to $5.5 billion
over the next 11 years (or $500 million a year) as a result.
While not every Amazon product is available through the deal, it
includes
a range of categories for products from Amazon Basics and
various brands.

The contract could hinder local or national retailers
that would otherwise be able to sell their products to local
governments. It may also help Amazon fortify its
position as the dominant platform for online commerce, especially
among local governments.

Amazon already sells to tens of thousands of local
governments and agencies, The Washington Post
reports. And while public agencies can still purchase from
local companies through Amazon Marketplace, the tech giant takes
a cut through fees it charges sellers.

“Amazon is changing the rules for how local governments buy
goods — and putting cities, counties, and school districts at
risk,”
write Stacy Mitchell and Olivia Lavecchia of the
Institute for Local Self-Reliance, a nonprofit that advocates for
strong local economies. 

The group recently submitted public records requests to over 90
local governments and school districts across the US, and
received info on the total amount of money spent on Amazon
products from 60 of them. Although the data is from 2016
(before the new contract went into effect), the following
agencies are continuing to partner with Amazon. These
figures can hint at local governments’ Amazon spending habits
going forward.

Here were the top 10 spenders, which span most regions of
the US, in 2016:

• Denver Public Schools — $1,560,726
• Portland School District, Oregon — $629,031
• Denver City and County — $548,419
• Salt Lake County, Utah — $515,686
• Austin, Texas — $501,724
• Portland, Oregon — $493,677
• Montgomery County, Maryland — $455,011
• Pittsburgh, Pennsylvania — $289,128
• Hennepin County, Minnesota — $233,819
• Los Angeles County, California — $217,850

Based on the sample the institute collected, Denver Public
Schools is the biggest Amazon spender by far. While the city has
a higher student population than a place like Rutland, Vermont
(which spent less than $3,000 on Amazon in 2016), Denver Public
Schools reported the third highest purchases per capita ($2.29).
Following the contract, Amazon spending by the school district
increased 77%. In the city and county, it rose by 49%.

Unlike most agreements that retailers have signed with local
governments in the past, Amazon’s contract does
not include price guarantees or volume discounts. 

The contract could signal Amazon’s broader ambitions to capture
public sector spending. In 2016, the company hired Anne
Rung, who held top roles in procurement in the Obama
Administration, to lead its government division. Last year,
Amazon began working with the General Services Administration,
which supplies federal agencies with commercial goods. That
multi-year contract is worth up to $5.5 billion.

Amazon did not respond to a request for comment.

In
an interview earlier this year with Bloomberg, Rung said
smaller businesses that have online marketplaces
will benefit from the new law that allows federal
agencies to buy from online retailers.

“Today, a small and medium-sized business has to market
themselves to 3,200 different separate … units across the
federal government,” Rung
told Bloomberg. “Highly decentralized. That’s enormously
costly and time-intensive.”