Doubts over Depot TCPN award

 

Concerns over TCPN piggyback contract could leave Depot without a credible vehicle for formerUSCommunities customers.

 

With controversy continuing to surround Office Depot’s National IPA piggyback contract and the pricing amendment made with the Florida Department of Management Services (DMS), it would appear that the company is banking on its contract with The Cooperative Purchasing Network (TCPN) to transition customers from its now-expired US Communities contract.

 

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 The Cooperative Purchasing Network (TCPN) to continue providing great value to public sector agencies across the country."

 

Whether the TCPN contract will be a credible alternative to public agencies is debatable.

 

The award of the contract to Office Depot in July 2010 – just a few days before it announced that it would not bid on the new US Communities RFP – was made in unusual circumstances.

 

The original award had been made in February 2010 to four suppliers: OfficeMax, Staples’-owned Quill and two Texas-based independent dealers (TCPN is based in Houston, Texas).

 

Office Depot had not been awarded the contract after achieving a score of 74 out of 100 in the bid evaluation dated 20 October 2009. However, a few months later Office Depot’s score was revised up to 82 and the company was recommended for an award at the beginning of July 2010. Documents currently on the TCPN website show an Office Depot score of 82 with the original date of 20 October 2009. There is nothing to suggest that Depot was in fact awarded this score about eight months after this date.

 

In an email to opi.net at the time, TCPN’s explanation was the following:

 

"TCPN already had a contract in place with Office Depot, which was set to expire January 2011. TCPN made the first round of awards in February 2010 on the new office supply RFP and continued to evaluate the Office Depot response. We continued to review the proposal to ensure that their offering would be beneficial and bring value to our membership. After some clarifications from Office Depot on TCPN programme pricing the bid tab was revised and Office Depot awarded a contract."

 

However, according to documents received by opi.net, the reason that Office Depot was scored down in the original evaluation in October 2009 was because of TCPN concerns over Depot’s financial stability and the company’s credibility due to bad publicity surrounding its contract investigations and refunds. By June 2010, the management at TCPN felt that Office Depot’s financial health was on a better footing and that contract investigations were not "sticking".

 

By this time, Depot had also come back to TCPN with revised pricing based on fluctuations in paper and toner/ink prices that, interestingly, undercut what it was then offering on US Communities, and had offered up to $100,000 to TCPN for contract "marketing costs".

 

That, coupled with TCPN’s apparent dissatisfaction with main contractor OfficeMax – which it felt was giving preference to its other cooperative contracts with key TCPN targets and not achieving significant results – meant that Office Depot was becoming an attractive proposition.

 

TCPN realised that a decision to award a contract to Depot could appear "mercenary", but was aware that there could be "fallout" whether it decided to make an award to Depot or not, presumably fearing some kind of legal challenge from Depot if no award was made.

 

It should be noted that there is nothing to suggest that TCPN was aware that Office Depot was not going to bid on the new US Communities contract. In fact, it appears that TCPN’s management was convinced that Depot "will always have US Communities" and that US Communities "is not smart enough" to take the independent dealer route.

 

What all this does highlight is the apparently arbitrary way in which the contract award was made to Office Depot, and questions must be raised about TCPN’s decision-making processes and whether they are acceptable in the public procurement arena.

 

Another potentially controversial issue with Depot’s TCPN contract is a pricing amendment that the office supplier and TCPN agreed in August 2010.

 

Similar to the flexibility allowed to Office Depot in the Florida/National IPA contract, the TCPN amendment appears to enable Depot considerable leeway outside the contract framework.

 

For example, one clause on new customers, which would appear to be aimed squarely at US Communities customers, states: "In the event an agency eligible to purchase under the TCPN program chooses to purchase under this Contract, Office Depot may, in its sole discretion, offer the same or similar pricing that the agency was receiving immediately prior to joining TCPN."

 

Notwithstanding the fact that this would appear to be a highly unusual pricing arrangement in itself and make the contract almost impossible to audit, with Depot’s revised TCPN pricing purportedly lower than US Communities this would allow Depot to continue to charge customers higher prices than if they were immediately moved to the new TCPN pricing.

 

Another clause states: "Products may be discontinued at any time, without notice

 

to TCPN or Participating Agencies."

 

While there are some aspects to the amendment which do appear to present some creative solutions for public agencies, such as the ability to create customised core lists, the above two clauses are sure to set alarm bells ringing amongst procurement officials as contracts come under closer scrutiny.

 

As a sweetener to US Communities customers, Depot is offering enhanced rebates for the first six months and attractive pricing on the key cut-sheet paper category should agencies switch to TCPN.

 

It will be interesting to see how many agencies are tempted by these offers or whether they are more spooked by the contents of the TCPN contract amendment.

 

Documents suggest that TCPN itself was concerned whether Depot’s aggressive pricing was "just smoke and mirrors", but they don’t appear to have done themselves any favours by the way they made the award and by agreeing to the controversial contract amendment.