Depot contract causes a stir



Depot contract causes a stir


Staples hits out at "distressing" amendment to Florida contract


Staples has told OPI that it will not be signing an off-contract product amendment for the State of Florida office supplies contract similar to the one agreed in December by Office Depot and Florida’s Department of Management Services (DMS).


Staples and Office Depot are the two power channel players that were awarded the Florida statewide office supplies contract last summer. In December Office Depot revealed that it was using this contract – which allows government agencies across the US to piggyback onto it – as the vehicle for a new agreement with cooperative purchasing organisation National IPA. This move followed the surprising decision by National IPA’s lead agency, San Diego County, to suddenly cancel the bid process for its new contract, maintaining its current contract with Depot’s rival Staples.


However, concerns were voiced over an amendment to Office Depot’s Florida contract that gives the office supplier considerable flexibility in the pricing of off-contract products.


Under the terms of the amendment, Office Depot can now offer customers any products from its Business Solutions Division (BSD) website irrespective of whether these products are included or not as core or non-core items on the original contract product list.


Furthermore, the wording of the amendment allows Office Depot to sell these off-contract products at "market competitive prices," a surprisingly vague term that effectively enables Office Depot to set its own pricing.


"This situation is very distressing to us," Jay Baitler, EVP of Staples Advantage, told OPI. "We feel that it is an invitation to dissatisfaction and accusations of inappropriate pricing, and we do not want to be in that situation."


He continued: "The Florida bid process began [earlier in 2010] because the State wanted absolute transparency – they didn’t want any room for variability in pricing or misunderstanding of pricing. And now the amendment they have signed allows Office Depot to sell them anything that is not part of the bid at ‘market competitive’ prices."


Baitler revealed that Staples had an option to sign a similar amendment with Florida DMS, but refused to do so.


Trade association NOPA also commented on the amendment, with President Chris Bates stating: "It is regrettable that Florida has taken a major step backward with this amendment."


Cold feet


Securing the National IPA agreement was an important step for Depot as it looks to hold on to its former US Communities customers. It is currently the third-largest of such piggyback contracts behind US Communities (awarded to and the National Joint Powers Alliance (NJPA) agreement, serviced by Staples.


Why San Diego County cancelled its bid in the first place is the subject of much speculation. There are suggestions that it got cold feet about awarding the new contract to Office Depot – which was reportedly the lowest bidder by some margin on the request for proposals (RFP) – due to the allegations of overcharging and price switching that have been swirling around the company for some time now.


That’s a possibility. However, those same allegations existed at the time the San Diego RFP was issued in August. Furthermore, the timing of that RFP does suggest that it was issued with Office Depot in mind and the prospect of picking up former US Communities contracts. However, a major stumbling block did appear somewhere; whether it had anything to do with ongoing investigations into Depot is now a redundant issue given the new arrangement with the Florida contract.


Now National IPA has two office supplies agreements – the current agreement with Staples/San Diego that runs until 2012 and is thought to be worth around $100 million in annual sales, and the new agreement with Office Depot/Florida that Depot will be using in tandem with its The Cooperative Purchasing Network (TCPN) contract (see box ‘Depot offers TCPN incentives’).


Whether the controversy surrounding the Florida amendment will throw a spanner into Depot’s National IPA works remains to be seen.


To add a bit of spice into the mix, Florida has a new Governor in place and is set to appoint a new head of DMS following the departure of former Secretary Linda South. And activists such as David Sherwin are keeping the pressure on the new Governor, Rick Scott, to throw out the Depot contract amendment.


Depot offers TCPN incentives


With the controversy surrounding the Florida contract amendment and National IPA agreement, there is some speculation that Office Depot will be using its TCPN contract as its main go-to-market offering to public agencies post-US Communities.


In a letter sent to its US Communities customers in December, Depot’s Business Solutions Division (BSD) President Steve Schmidt stated: "We are excited to share with you that Office Depot will leverage its enhanced partnership with [TCPN] to continue providing great value to public sector agencies across the country."


The company refused to be drawn on the question whether it would be pushing one piggyback agreement in favour of the other.


"It is the customer’s preference as to which cooperative will be the most beneficial to their specific business needs," Depot stated to OPI.


It did seem at one stage that the TCPN contract could be dogged with controversial pricing issues on top of everything.


An amendment between TCPN and Office Depot in August 2010, presumably agreed with US Communities customers in mind, allowed for Depot to move customers to TCPN on "the same or similar pricing that the agency was receiving immediately prior to joining TCPN".


However, this amendment was superseded by a second amendment dated 6 December 2010 that allows for a new fixed pricing structure and details clearer provisions for price changes in key categories such as paper and ink/toner.


This later amendment also provides for more attractive rebates for TCPN customers – up to 5% for agencies with an annual spend of over $3.5 million – and includes a "double rebate" offer as an additional sweetener for the first six months for agencies that move over to TCPN.


Money talks, as they say, and these aggressive rebates are clearly aimed at some of the larger US Communities customers. The question now is whether these incentives will outweigh the damage to Depot’s reputation after almost three years of negative publicity surrounding contract investigations and repayments.