Amazon quietly signed a $5.5 billion deal to sell its products to American cities - here are some of the biggest spenders
- 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.
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."
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