State uncovers Depot contract flaws


Office Depot has been warned that its exclusive office supply contract with the state of Georgia is "in jeopardy" following a review, which revealed a string of "performance problems".
The news will provide cheer to a group of independent dealers which has heavily lobbied state officials to carefully examine the contract.
However, chiefs at Delray Beach have argued that they are being frustrated in their obligation to subcontract ten percent of the contract to small local businesses after a number of independents jointly agreed not to work with Depot.
In a letter sent by officials at Georgia’s Department of Administrative Services, and seen by OPI, the retailer is warned that if it doesn’t rectify a list of five faults, the state "will be forced to consider all options including, but not limited to, termination of the contract".
And, the department adds that it may also authorise "other suppliers to provide office supplies to the state".
Earlier this year, OPI revealed that state officials in Georgia had agreed to review their decision to award their ten percent ‘ring-fenced’ small business contract through the big-box giant.
Office Depot was awarded the entire office supplies contract, worth more than $30 million a year, with a clause that a portion of the transactions must be diverted through small, locally owned businesses each year.
But the decision sparked anger and resentment from several local dealers, who lodged a number of appeals against the contract award.
The state review discovered that out of 2,632 core items in its product catalogue, Office Depot had underpriced 18 items and overpriced 437 core products. Although in mitigation, the state acknowledged that the pricing errors had undercharged the state on a net basis by $24,582.
The state inquiry also highlighted a problem with discontinued products. A letter from Georgia’s Department of Administrative Services to Depot VP Bob Cetina cited: "While we understand that discontinuation of products is a part of the process of weeding out manufacturers which provide products that are not priced competitively, the failure to provide advance notice… is unacceptable."
One campaigner, Rick Marlette, told OPI of his delight that the state review had confirmed his fears, and the fears of many  independents, that there were problems surrounding the contract.
He said: "It’s the first chink in the chainstore armour. Most independents suspected foul play with these huge contracts, some independents knew it for a fact. The problem has been that the independent ends up looking like a sore loser and troublemaker when it tries to address these problems alone.
"Now we have two states, with reliable and knowledgeable officials, crying foul! It’s a once-in-a-lifetime opportunity for independent dealers."
"Most customers trust what you tell them. This may be especially true for the customers of very large companies that advertise heavily. It was clear from the start that few outside the independent dealer community could believe it when they were told that prices bid by these so-called big boxes were not being honoured. Perhaps the largest hurdle to overcome was the ‘But they are so well known, this can’t be true’ reaction.
Marlette praised the professionalism and courtesy shown by Georgia state officials throughout the review. "Everyone that I dealt with (at the state) showed genuine interest in the taxpayers being properly represented," he said. "Never once did I see the all too common protectionism or even the slightest hint of concealment. They were all kind, courteous and helpful."
When asked what he thought the implications would be for other big-box federal and state contracts, Marlette replied: "I think that’s the big story here. If the so-called big-box retailers are so grossly out of line with their government contracts, and I am speaking of five major violations in Georgia and the pricing discrepancies reported by the State of North Carolina Auditor, then how can any of their customers, government or otherwise, place any confidence in the prices they are being charged-
In May, the National Office Products Alliance (NOPA) revealed an investigation into North Carolina’s (NC) office products contract had confirmed suspicions of overcharging by Depot.
An NC state audit performance report into its P&C department found that Office Depot, the state provider of office products, had overcharged NC agencies. As a result of the audit, Depot has credited NC agencies with $40,887 in back charges.
A spokesman for Office Depot told OPI that the company refused to comment on pending legal matters.