Delivering for Best-in-Class Wholesaler-Distributors
July 6, 2020

Section 846 of the FY’18 National Defense Authorization Act (Public Law 115-91) established a framework for determining whether commercial e-commerce portals would be appropriate for government agencies use to make non-contract purchases of commercial off-the-shelf (COTS) products. The law charged the General Services Administration (GSA) with establishing and managing the testing of three e-commerce models.

In the spring of 2017, NAW organized an Online Procurement Working Group (“NAW Working Group”) comprised of NAW members who have significant sales of commercial products to federal agencies. The mission of the Working Group is to keep Amazon from controlling government procurement. We achieve this through our lobbying advocacy efforts with the Administration and on Capitol Hill. We are providing solutions, educating, and offering advice grounded in our commercial and e-commerce expertise to the procurement professionals in the Executive Branch and to Members of Congress.

As originally introduced, the language of Section 846, the so-called “Amazon Amendment,” could be met by only one existing commercial e-marketplace provider, that being Amazon. Due in part to NAW’s advocacy meetings with key Members of Congress and senior committee staff, Congress instead directed GSA to go beyond a single e-marketplace model and include multiple commercial e-commerce portal providers in three distinct pilot tests to validate their suitability for federal agencies.

Despite this, GSA chose to ignore the Congressional mandate. Even though GSA acknowledges the requirement to study three distinct models, they decided to pilot them one at a time sequentially rather than all three simultaneously, with the Amazon e-marketplace model being the initial pilot.

On June 26th, GSA awarded proof-of-concepts to Amazon Business, Overstock.com and Fischer Scientific to provide agencies access to their commercial e-commerce platforms for purchases below the micro-purchase threshold of $10,000. The following agencies are participating in the proof of concept with a small subset of their purchase card holders:

  • Department of Veterans Affairs
  • Department of Justice
  • Department of Labor
  • General Services Administration
  • Environmental Protection Agency

Under GSA’s plan, the e-marketplace portal provider may pursue multiple roles. The provider may own, operate and manage a platform made up of third-party sellers who are chosen by the provider and who will pay a fee to the provider. The platform provider can also list its own products on the platform. GSA provides no guidance to protect third-party proprietary information. Instead, it designates the e-marketplace portal provider as the gatekeeper to sell COTS products to federal agencies.

GSA’s solution will deny government customers the benefits of competition. NAW members’ hard experience with Amazon’s e-marketplace ultimately results in fewer choices available to purchasers. Amazon has used its position to appropriate and misuse supplier information and transactional data to favor Amazon products. The platform provider’s ability to favor its products over the platform competitors is unchecked in the GSA pilot.

To date, Sec. 846’s implementation challenges several core principles – adhering to the law’s direction, best serving the government customer, fair opportunity for small and large businesses and that decisions be based on public comment and accompanied by reasoned explanations. Preeminent concerns to NAW Working Group members include:

Analyze and Balance Competing Policies

The government must balance the need to improve the purchaser’s experience (“ease-of-use”) with ensuring that it has purchasing systems that deliver products in compliance with current requirements for ethics, procurement integrity, and range of choice; explain how “trade-off” determinations (e.g., price v. quality, price v. availability) will be made; and state what it proposes to maintain/eliminate.

Portal features

Supplier access to the portals must be fair and promote competition and choice among vendors. In particular, access of third-party suppliers to the portals and their placement on those platforms to which they are admitted; various antitrust, cyber security and national security concerns; the fees that may be charged by portal providers; and promoting portal specialization based on product category must be addressed with clarity.

Proprietary information/transactional data

FY’18 NDAA Sec. 846(h) limits a portal’s ability to use proprietary information/transactional data derived from third-party suppliers. Portal providers must not be able to use third-party supplier data to gain a competitive edge over those suppliers or to favor one third-party supplier over another. That proprietary information/transactional data of third-party suppliers is protected by clear and enforceable standards is critical to the success of the program.

GSA’s latest Request for Proposal (RFP) acknowledges the limitation on the use of data by e-marketplace providers set forth in Sec. 838(b)(3) of the FY’19 NDAA. However, NAW remains concerned that the RFP does nothing to explain or provide further information on how these provisions will be enforced in the proof of concept. That proprietary information and transactional data of third-party suppliers will be protected by clear and enforceable standards is critical to the credibility of the program.

GSA’s Product Choice Presents Real Supply Chain Security Risk

Section 846 requires GSA, during its market analysis, to assess “the products or product categories that are suitable for purchase on the commercial e-commerce portals…” In stakeholder meetings and reiterated in blog postings, GSA has noted that “health and IT products have unique supply chain requirements and warrant special consideration.”

Contrary to Section 846’s direction, GSA does not address in the Phase II report those product categories not suitable for its e-marketplace platform, it only conveys “it does not intend to start with specialized marketplaces” for IT or medical devices. And, in a public forum last year, GSA representatives stated that IT/medical devices could be sold in the pilot if such items were offered for sale in the e-marketplace. GSA’s equivocating and conflicting positions ignore its own finding – “there are real concerns focused primarily around supply chain security” as to health care and IT products.

Counterfeit and grey market IT products, from software to equipment, can cripple agency systems; they are the entry way to those with malicious intent to harm the United States. Federal IT providers adhere to rigorous standards to reduce this risk. Healthcare products serve individuals the federal government cares for; agencies with this mission impose heightened supply chain standards. These standards, as to both IT and healthcare, are not replicated in the e-marketplace. GSA’s equivocation increases risk; IT and healthcare products should not be part of the pilot.

 

On July 1st, the House Armed Services Committee marked up H.R. 6395, FY’21 NDAA. Rep. Veronica Escobar (TX-16) offered an amendment addressing Section 846 of the 2018 NDAA, the e-commerce portal program relating to commercial off-the-shelf products (COTS). Weeks leading up to the HASC markup, the NAW Working Group worked closely with Rep. Escobar’s office to ensure that her amendment would remedy a serious flaw in GSA’s contract award for the commercial e-marketplace.

Rep. Escobar’s amendment would amend GSA’s Commercial E-Commerce Portal pilot program requirements to clarify that a contracted e-marketplace portal provider may not sell its own manufactured, sourced, or developed products on the commercial e-commerce portal. Instead, the amendment enables competing supplier solutions that promote choice and innovation across the government market.

This amendment is significant because it is the first-time legislation has been introduced to stop the ongoing abuse of third-party sellers on e-marketplace platforms like Amazon. Unfortunately, Chairman Adam Smith (WA-9) insisted that Rep. Escobar withdraw her amendment from consideration.  Without the Chairman’s support, the amendment would have failed.  However, he did publicly state that he fully understands her concern’s regarding the treatment of third-party sellers and vowed to work with her on this issue moving forward. It is important to note that Amazon is headquartered in Chairman Smith’s congressional district.

In her remarks, Rep. Escobar thanked NAW for our support of her amendment.  This amendment is the first step in a long battle to stop Amazon’s abusive treatment of third-party sellers and their anticompetitive practices in the B2B marketplace.

In a final comprise with Chairman Smith, Rep. Escobar was able to insert report language into the bill requiring the Government Accountability Office (GAO) to report on GSA’s e-commerce portal data usage.

Offered by Rep. Escobar of Texas

In the appropriate place in the report to accompany H.R. 6395, insert the following new Directive Report Language:

GAO Report on GSA E-commerce Portal Data Usage

The House Armed Services Committee directs the Comptroller General to submit a report to the committee by January 31st, 2021 on compliance with subsection (h) of section 846 of the National Defense Authorization Act of Fiscal Year 2018 (Public Law 115–91; 41 U.S.C. 1901 note). The report shall describe how platform providers within the General Service Administration’s (GSA) e-commerce program are complying with subsection (h) and GSA’s ability to monitor providers’ activities and data uses for compliance with subsection (h).

Sec. 846(h) limits a portal’s ability to use proprietary information/transactional data derived from third-party suppliers. This report is important because portal providers must not be able to use third-party supplier data to gain a competitive edge over those suppliers or to favor one third-party supplier over another.

NAW has arranged and participated with members of our Working Group in dozens of meetings on the Hill with key Committee and Member staff, in particular the Senate Armed Services Committee, the Senate Homeland Security and Government Affairs Committee, the House Armed Services Committee, the House Oversight and Reform Committee and the House Judiciary Committee. The Working Group is currently meeting with House and Senate Members and will continue to push for more Congressional Oversight hearings regarding Sec. 846 throughout this year and into the next Congress.

NAW has submitted multiple written critiques of the GSA plan to the Congress, taken our concerns directly to the White House and filed comments with the GSA on behalf of the Working Group. NAW sent letters to the Federal Trade Commission and the U.S. Department of Justice requesting their agencies investigate GSA’s Section 846 program and Amazon’s unfair and anti-competitive practices and processes.

In March, NAW worked with House Oversight Committee staff to help prepare them for the first ever Congressional oversight hearing on GSA’s Sec. 846 program. Several of the questions NAW provided to the Members on the committee were asked during the hearing and the rest were submitted for the record.

In the House version of the FY’20 NDAA, NAW was successful in including an amendment that directs the GSA to conduct their upcoming pilot with multiple e-commerce models, not just the Amazon e-marketplace model. In both the FY’19 NDAA and FY’20 NDAA, NAW was also successful in preventing the GSA’s legislative request to increase the Micro-Purchase Threshold from $10,000 to $25,000. This was a big victory for NAW and the Working Group. These victories were only achieved because of the Working Group’s direct and constant advocacy efforts with both Member of Congress and committee staff on the Hill.

As the battle moves forward with the flawed and anti-competitive GSA pilot program, NAW remains active and engaged with the Members of the House and Senate, key committee staff, and Administration officials to stop Amazon’s abuse of third-party sellers in the B2B marketplace.

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