State Purchasing

April 26, 2012

Q: I have an annual contract from the VA that is a standing purchasing contract as product is needed. They now say they found the devices cheaper and have sent us a termination notice. They have also implied seeking a reimbursement for the difference. Can they actually do this?

A: Apparently so. How they get around an ethics violation is to simply not order off the original contract issued to you (unless minimum quantities were specified). They simply issue another purchase order and start ordering from a different supplier. Check the contract or purchase order carefully for the terms related to quantity as you may be able to seek reimbursement for them not meeting the quantities you anticipated on your original proposal. I doubt they have any grounds to seek reimbursements from you unless you agreed to supply products for Minimum Advertised Pricing (MAP). Check your PO for that. If so, then yes.

I heard a similar story yesterday at the state level. It seems that several state purchasing groups continue to shop for lower pricing even during the contract period. The scenario from yesterday was even more troubling as the state agency upon delivery of the products from our integrator member contacted the manufacturer direct for the alternative pricing. In my humble opinion the manufacturers have to say NO to any direct pricing requests. Instead they felt pressured into giving direct pricing and unfortunately gave a lower number than our member had been supplying the product for.

Two things went wrong in this situation. One, the manufacturer will stumble as they do have some installation and onsite work. Two, they just traded a very loyal integrator customer for a very price sensitive end user customer who may decide to switch product lines at any time down the road. Managing channel conflict has become an enormous headache for manufacturers and they are under pressure from buying groups and agencies to sell direct. I don’t envy their position. CW

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