VARs under pressure from proposed federal reverse auctions

OTTAWA — I’m in the nation’s capital this week for the CompTIA workshop at the picturesque Chateau Laurier. And, as it happens, so are some of the top government VARs. They are also at this hotel for what the government calls a Bidders Conference.

The hot topic at this conference is the government’s new idea for reverse auctions for IT products.

A reverse auction works like this: It is 1 p.m. when the auction opens; it closes at 2 p.m. The starting bid is $100 for ABC hardware product. The first bidder bids $99. Second bidder offers up $97. Whatever the lowest price is at 2 p.m. wins the majority of the contract. Whoever has the second lowest bid wins the minority of the contract.

Also up for discussion is the squeezing out of channel partners. Rumour has it that Public Works and Government Services want to cut down the number of authorized partners for each vendor from 500 down to two.

This is nothing more than a squeeze play from the feds. Public Works and Government Services has gone public with its 10/10/50 plan, which aims to cut about $2.5 billion over the next five-years. In this plan they want to cut by 50 per cent the time it takes to buy goods and services and reduce its internal procurement cost by 10 per cent.

At the bidders conference, according to one source that attended the meeting, the sparks were flying from a room packed with upset resellers and vendors.

The feds backed off on the reverse auction plan for a period of 10 days, the source said.

Roger Kent of Onix Technical Service, an HP and government VAR who was at the meeting, believes Public Works is picking on commodity products suppliers where there aren’t a lot of margins.

As he explained, when a reseller signs a Master Standing Offer sheet it means the government is getting the lowest price possible. “Now they want an even lower price,” he said.

What the government is interested in doing is holding a reverse auction where the lowest two bidders will get the business.

Now Kent, who is an HP VAR, is worried he may be completely shut out if HP is not one of the bottom two bidders.

He claims this is very unfair. He says he understands that Public Works, which is also thinking about a controversial single-sourcing plan, wants to cut down on expenditures, but he is puzzled why it is starting on commodity products, which are already cheap and hold little margin.

Companies such as HP or Lexmark, which have close to 100 per cent of the government printer business, run the risk of losing that position if one of their lesser-known competitors bids one dollar.

The four-letter word

The other squeeze play uncovered at the CompTIA conference is what Dell is doing with its printers. Dell, which unceremoniously dumped HP as its printer partner back in 2003, has been offering its own branded printers from Lexmark on an OEM agreement.

Stuart R. Crawford, principal at IT Matters, calls Dell the four-letter word of the industry. He claims Dell is selling printers that are valued at $400 for $25 when a customer buys a server or workstation.

Dell hopes to make up those dollars through Dell-branded toner supplies, where most of the margins are.

Dany Viens of CS CompuService claims the value-added software bundles that come with the Dell printer are only 90-day evaluation units that expires, leaving the customer holding the bag.

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Jim Love, Chief Content Officer, IT World Canada

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Paolo Del Nibletto
Paolo Del Nibletto
Former editor of Computer Dealer News, covering Canada's IT channel community.

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