Federal Government Steps Up Takeover of Dealer Market in 1999

FEDERAL GOVERNMENT STEPS
UP TAKEOVER OF DEALER MARKET
IN 1999

by Kenton Pattie 703 280 4622
NEEDA Executive Director

The US government has begun 1999 by expanding the Federal role in the police and emergency business.

For example:

• The General Services Administration has expanded by 500% the categories of products available to state and local governments. Virtually anything a public safety department wants can be purchased without bids from a long list of goods and prices previously available only to US agencies.
• GSA has now authorized state police to order directly from manufacturers with GSA contracts so local governments get Federal prices without channeling their order directly through GSA.
• The Defense Logistics Agency has just created regional master-contractors which are responsible for handling the military base purchases that were previously filled by local dealers. If you serve any military installations, expect a drop in business in 1999.

At the 1999 NEEDA Convention in Orlando, GSA defended what it is doing in a new paper titled "Top Ten Reasons For Supporting 1122." Section 1122 is a five-year old drug interdiction act of Congress which GSA has expanded to cover all products used by law enforcement.

Local and state police may buy under 1122 to get prices GSA offers Federal agencies. All manufacturers with GSA contracts are being asked to sell factory-direct to local and state police -- by-passing their local dealers. (Manufacturers were required to fill all orders until the end of 1998 when NEEDA got GSA to make factory sales optional.)

Top Ten Reasons GSA is Competing With Dealers. In the new "Top 10 Reasons for Supporting Section 1122" GSA says:

• Local government lobbying groups for counties and towns want GSA to serve local governments.
• Cooperative purchasing is not new and is similar to consortium buying in the commercial marketplace.
• GSA is "just another store on the mall."
• 21 states already have formed buying cooperatives and 10 states piggyback their purchasing on the GSA multiple awards schedules. In these states, the "GSA price" is automatically OK for state and local government buyers; no bids are needed.
• GSA is delighted that the Coalition for Government Procurement (202 331 0975), representing major manufacturers with US government contracts, wants manufacturers to have one GSA contract to set prices and terms for all government buyers -- Federal, state and local.
• The "one contract for all governments" concept would lower contract costs, GSA says. GSA offers 5-year renewable contracts, giving manufacturers a way to lock up markets previously open to dealers.

Meanwhile, the US military is shifting from local dealers to regional master distributors. These distributors must pledge they can deliver the products of most manufacturers in the industry. Master distributors give the government discounts on everything; local dealers are excluded unless master distributors have side deals with dealers. But such side deals are unlikely, as manufacturers will give better prices to master distributors on the basis of volume than to local dealers.

Both GSA and Defense Logistics earn income from these two schemes. GSA earns 1% of gross from each manufacturer plus 4-5% from local government buyers. The DLA earns 5% from the manufacturer, but no administrative fees from the buying agency. This income pays for salaries and overhead in both agencies. GSA and DLA argue that even after these add-on fees, the Feds get better net prices for local buyers than dealers can offer.

What Does All This Mean for NEEDA Members?

1. Public Safety Dealers Are Victim #1. Despite objections from NEEDA and others, the Federal bureaucrats are very committed to increasing Federal domination of the state and local government market. Federal bureaucrats, having been defeated in 1997 when Congress repealed Federal Centralized Cooperative Purchasing are attacking the public safety market as a model for future Federal domination of the government market in other product areas.
2. Dealers Already Losing Sales. The problem is immediate. State buyers in Virginia told me they directed over $100,000 in sales through GSA (and away from local Virginia dealers) in the few 1998 months Section 1122 was in effect. Thus over $5.2 million has probably been diverted in 50 states from dealer sales in 1998; expect that number to double in 1999.
3. Government Said "No" to Dealers in 1998. Dissuading GSA and DLA won't work. We tried in 1998, but they are adamant in pushing ahead. Further, asking manufacturers to insert dealers into their Federal contracts is not working. (See paper on this site elsewhere on this NEEDA website.)
4. Weak Legal Legs. What they are doing flies in the face of the 1997 repeal and stands on questionable legal legs.
5. New Congress Priority? Time is running out for mounting a campaign to stop this Federal takeover of the dealer's market.

   The new 106th Congress is setting its priorities to appeal to the voters in 2000 when Congress and the White House will be on the ballot.