Government’s Big Move to Electronic Marketplaces

I was recently involved in a research discussion with Chris Yukins of George WAshington University’s Law School’s Government Procurement Program, and Thomas Kull from Arizona State University, exploring the impact of the rise of electronic marketplaces in government procurement.  In the Thomson Reuters publication “The Government Contractor“, we review some key changes coming to government acquisition.  Electronic marketplaces are a massive change for agencies such as the General Services Administration, who are poised to award contracts to commercial companies that host “electronic marketplaces” online (at sites such as Amazon.com and Walmart.com). This “commercial platforms” initiative could radically reshape Government procurement in goods and services, as federal users will be able to make direct “micro-purchases” (typically up to $10,000) directly from these commercial platforms.  Recall, up until now, government as always required the “three bids and a buy” mentality, and this will make make a gargantuan step change in the annals of government acquisition.

Congress called for action in part because of the dominant role that Amazon and other online vendors play in the commercial marketplace; Congress did not want the Government to be left behind, especially since Government studies have shown that federal buyers already use Government-issued purchase cards to make hundreds of millions of dollars in micro-purchases from online commercial marketplaces every year.

For the most part, Congress left it to GSA to shape the commercial platforms initiative. Online market providers have submitted solicitations to GSA for no-cost contracts, which will allow those providers to open their online marketplaces to federal users, subject to certain requirements. GSA estimates the contracts will result in $6 billion annually in micro-purchases by federal users, though other studies suggest that the total market may be several times that size. GSA will receive a .75 percent fee on those purchases, but the ultimate contractual relationship and fulfillment will be entirely between the federal purchasers and the vendors—GSA will have no direct role in the sales.

Another big bonus of these platforms will be the ability of government buyers to access supplier past performance, as well as increased transparency as to the source of suppliers.  As we noted in our recent report Bloomberg New Economy Forum 2020, supply chain resilience also depends on stability of demand and strong operational performance. This is particularly important for small volume buys. The platform can provide a catalogue of authentic suppliers, and avoid buyers having to reach out to dubious and unproven sources that have doubtful performance histories. Such was the case with regard to the N95 and personal protective equipment situation during the pandemic, when suppliers of N95 masks that were not approved by the National Institute for Occupational Safety and Health or the Food and Drug Administration began selling to state agencies.

Increased training will also be important.  One of the challenges in training will be to en-sure that federal purchasers on the new commercial platforms—who typically will not be procurement officials—fully understand the special challenges facing federal procurement today. One of those challenges, as Professor Yukins notes in the following section, stems from contractor qualification and the threat of counterfeit goods on commercial platforms.

Understanding the advantages of online platforms for public procurement presents an incredibly timely problem, as the COVID-19 crisis has certainly spawned an interest in the need to introduce electronic marketplace “solutions,” which can increase Government resilience in responding to emergency situations and facilitate purchases by lowering transaction costs, diversifying suppliers, optimizing user experience and expediting order fulfillment.