When the US federal government (and many state/local governments) buy stuff, they do it through middlemen. This was the premise of the movie War Dogs. When the Army needed Beretta pistols, they didn’t buy them directly from Beretta, the manufacturer. Instead they put the purchase up for bid, and a bunch of small businesses placed bids, and the winner of the contract sold the guns to the Army (which they had to first buy from Beretta).
This middleman purchasing is true for a lot of products. If your government agency needs computers, database software, trucks, or a generator, then you don’t buy direct from Dell or Oracle or Mack or Briggs & Stratton. You will buy the same things from a reseller, and you’re steered towards small businesses that are minority owned, woman owned, or owned by someone who’s genetically from an Alaskan or Hawaiian tribe.
Why is government procurement set up this way? It increases the cost of everything by a couple of percent markup, and for equipment purchases the resellers don’t add any value.
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In my limited experience, the resellers have the GSA schedule in place, their employees have the required security clearances, and the resellers are more capable of doing any professional services that need to be done.
To prevent coruption.
If the government or more specificly some guy in procurement could just choose a supplier and buy from them it would be incredibly easy to bribe that person and get the contract.
So there is a bidding system. Also your assumption that they dont directly buy from suppliers is wrong. They buy from anyone that takes part in the bidding. Sometimes the original supplier doesnt want to take part because government contracts can be a lot of work for little profit but other times they absolutly do buy from the big companies directly.
Because you make the middle man deal with warranty, repairs, and holding inventory, on hand, for you to order off of (ie: order today, get it tomorrow, not in 6 months).
Also, the middleman may do more than one product line … eg Dell (computer, laptops) and Zebra (printers, scanners)
costs money up front, but saves effort in the long run.
edit, and for the record, they’re call Value Added Resellers. Cuz they’re supposed to add valuable services as well as the product.
It depends on manufacturer’s willingness and ability to bid on government contracts. Some manufacturers (Boeing, Lockheed Martin, etc.) have the resources and know-how to service government contracts directly. Other, smaller manufacturers, may not be familiar with government procurement procedures. If you are a small manufacturer and you don’t want to bother with legal compliance – you don’t bid on government contracts. This creates an opportunity for resellers to step in and become a middleman.
This is the nature of liberal trade.
If the government were to source these items directly, it could dictate prices.
By going through resellers, they set up a competitive market.
Yes, the government ends up paying more, but if the government dictated the price the value of the good would be less.
For the sake of letting the economy gain value, the government would rather source things from a competitive market.
There are several problems with not having a competitive market. Like if the government was dictating a price lower than the competitive market, then vendors would be less incentivized to work with the government. At that point, they would either switch businesses to one that the government wouldn’t demand or they would be forced to work for the government in a nationalized industry, which reduces innovation and agility.
The middlemen are market makers. You can call them war profiteers, you can say that they aren’t adding value, both have some amount of truth to them. But the fact of the matter is, the only alternative to resaling these thing is commanding them.
It’s not just the government, it’s the OEM that has it set up this way.
A dirty little secret about the Federal government is one of its functions is to put money into the economy at different levels. This might be literally spending money locally, or buying from businesses that help keep people employed.
Buy your pistol direct from Beretta, and you’re saving a little money, but sending it all to Beretta… A non US company.
Use a US middle man, and now you’re dumping a little money (by big government budget standards) into the US economy too.
Same goes for everything. The federal government could save money by just sending a procurement officer to Walmart and buying cheap Chinese notebooks (well… Historically cheap anyway), but paying a little more and buying them from a company that employs primarily people who are blind or visually impaired, and now you’re spend money in the US and keeping people employed who might otherwise have a lot of trouble finding work. Money spent in the US and employment numbers.
And then there’s all the insider political benefits of contracting work out to big businesses in your region/state/etc. as well. Still technically the same as above, but not always as well intended…
But yeah… Bottom line is it’s about making sure at least some money spent by the government on everything gets spent on Americans, who in turn spend that money in the US.
Because resellers have the logistics of moving stuff from factories to the government’s warehouses figured out already.
If the government buys 100,000 beretta pistols directly from beretta, then they either have to pay beretta extra to deliver them, or commit their own resources to go pick them up from the factory. The arms dealer’s entire job is to buy them from beretta and deliver them.
It’s the same reason why you buy milk at wal-mart instead of driving out to a dairy farm and paying the farmer directly.
The manufacturer typically relies on the resellers to handle customer relations. They expose the product. They deal with all the legal stuff that is involved in arms sales, that differs depending on where the reseller is located. They sell. They handle the initial warranty claims.
The manufacturer operates in a symbiosis with all of its resellers. The resellers do the hard work (because, believe me, customers ARE the hard work) and the manufacturer does what they do best; provide the product. And as a result, they get a cut each on the money.
What happens if the manufacturer allows themselves to bid on large orders is that the manufacturer automatically undercuts all the other bidders. And the bidders ALL have an ongoing business relation with the manufacturer. It just doesn’t look good.
Instead, the correct approach is to reach out to a reseller and have them work with the manufacturer to provide an attractive bid. On a contract of that size, multiple resellers will try to make a bid and as long as the manufacturer treats all the resellers equal on the order the bid will be about which of the resellers are willing to undercut themselves the most.
It’s reasonably fair, if you think about it like that.
I mean this isn’t a given. I worked in a government organization and we ordered all of our computers directly from Dell or Apple
But, the wider answer is that purchase contracts are put up to bid, and whoever wins the bid gets the contract. Often times the manufacturers do not sell directly to anyone except distributors, or are not willing to undercut their distributors. The bottom line is, whoever wins the bid is who gets the contract