Staples has revealed to opi.net that it will not be signing an off-contract product amendment for the State of Florida office supplies contract similar to the one agreed last week by Office Depot and Florida’s Department of Managed Services (DMS).
Staples and Office Depot are the two power channel players who were awarded the new Florida statewide office supplies contract earlier this year. Last Friday 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 is a big play for Office Depot as the National IPA agreement will now be its main go-to-market piggyback contract for its government business following the expiration of its US Communities contract at the end of this month.
However, concerns have been raised by an amendment to Office Depot’s Florida contract which was posted on the National IPA website on Monday.
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 which effectively enables Office Depot to set its own pricing.
"This situation is very distressing to us," Jay Baitler, EVP Staples Advantage, told opi.net.
"The Florida bid process began [earlier this year] 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.
"We believe that the amendment was put into place to broaden the appeal of the agreement outside the borders of Florida. We feel that it is an invitation to dissatisfaction and accusations of inappropriate pricing, and we do not want to be in that situation. We intend to sell vigorously in the State of Florida under the terms of an agreement that we felt were good terms."
Office Depot revealed its Florida/National IPA agreement on Friday after San Diego, the lead agency on the existing National IPA office supplies contract, had suddenly cancelled its request for proposals (RFP) a day earlier.
While San Diego’s RFP cancellation came as a surprise, so did the speed with which Depot was able to announce an alternative National IPA solution.
Office Depot spokesperson Jason Shockley revealed to opi.net that the company had actually withdrawn from the San Diego bid prior to the RFP cancellation.
In an email to opi.net, Shockley said: "Office Depot withdrew its bid prior to cancellation of the solicitation by San Diego; accordingly, we were proceeding down a separate track regardless of whether San Diego cancelled its solicitation. In fact, Office Depot and National IPA finalised their agreement prior to the cancellation of the solicitation by San Diego, as well."
Nevertheless, the lack of any documentation on the National IPA website until early this week would suggest that the Depot/Florida/National IPA agreement had been put together fairly quickly, perhaps once it was known that the San Diego RFP was not panning out as expected.
Germaine Howson of San Diego’s Department of Purchasing and Contracting told opi.net that she was unable to provide any details as to why her department had cancelled its RFP.
There are suggestions that San Diego had cold feet about awarding the new contract to Office Depot – which was reportedly the lowest bidder by some margin on the 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.
The RFP cancellation is certainly not all bad news for San Diego (or National IPA for that matter). The continuation of the existing contract with Staples until mid-2012 maintains a contract worth in excess of $100 million a year, with the associated administrative fees. There are certainly customers on that contract – San Francisco being a prime example – who would not have switched to a new National IPA contract being run by Office Depot. Therefore, there appeared to be no real incentive for San Diego not to continue with its Staples contract.
The sticking point here appeared to be Staples’ own position and its other, larger piggyback contract with the National Joint Powers Alliance (NJPA).
Jay Baitler confirmed that Staples would "not be involved in a going forward basis" with National IPA due to certain terms and conditions. "However, that does not negate the pre-existing relationship; that relationship exists and continues to exist," he told opi.net.
Baitler added that Staples certainly intended to participate in any RFP issued by San Diego once the current contract expires.
"We wish to see our relationship with the county continue," he said.
The continuation of the San Diego contract enables Staples to continue to present two of the major national piggyback contracts to potential public agency customers: National IPA and its NJPA contract.
opi.net understands that some of the conditions and the pricing structures of the two contracts are different, while the fact that NJPA is a not-for-profit organisation and National IPA is a for-profit organisation can sway the decision of some agencies in the favour of NJPA. On the other hand, the fact that National IPA has an actual lead public agency – something which is not the case with NJPA – can be more appealing to certain customers.
"Our job when talking to customers is to present them the best offer that meets their own needs and requirements," Staples Advantage SVP Neil Ringel told opi.net.
"Often, that is up to customer interpretation and, at the end of the day, it’s a customer choice that will rule the decision."
One thing that the recent developments highlight is the mutual desire for Office Depot and National IPA to work together.
As already mentioned, the timing of the San Diego RFP – coming shortly after Office Depot revealed that it would not be bidding on the new US Communities contract – did appear to be an opportunistic move designed to provide National IPA with a potentially large source of income and to give Office Depot a vehicle with which to try to keep its US Communities customers. The Florida/National IPA agreement would only appear to confirm that theory.
It also underlines the shortcomings of Office Depot’s much-publicised agreement with The Corporate Purchasing Network (TCPN) back in July. There was some controversy at the time that Depot was awarded the contract a full six months after four other companies (including OfficeMax and Staples via its Quill brand), and there have been subsequent pricing arrangements between Office Depot and TCPN that would appear to undermine the pricing integrity of that contract. That, and the fact that TCPN is turning over a fraction of the sales volumes of other larger and better known piggyback contracts, made it imperative for Depot to seek an alternative solution.
It has now found one and, as such, is better positioned to compete in a sector where it was once seen as the dominant player.
"We have always felt confident that we would have solutions that meet our customers’ needs," commented Office Depot’s Jason Shockley.
"With the addition of National IPA to our existing cooperative purchasing strategy, which includes TCPN and two other US Communities programmes (one for technology products and one for school supply products), we feel that Office Depot now has the most comprehensive product, pricing and service offerings to the public sector."
That remains to be seen, of course. Depot has claimed on a number of occasions that it was confident of switching existing US Communities customers over to its new piggyback agreements. We shall see if it turns out that way now that it finally has this new National IPA agreement in place.
However, Depot is still basically starting from scratch with the National IPA contract and US Communities still has some attractive rebate terms for the high-spending customers that Depot will no doubt be targeting.
The picture should become much clearer during the first few months of 2011, realistically at first quarter results time at the end of April.