As a tax paying citizen and a member of the office products industry, I find it especially hard to stomach allegations that have surfaced recently in regards to government contracts and alleged overcharges.

This article below, written by Jin Kwon, is particularly interesting.

[Pass Through Sales Allegations in California]

There has been information floating around for several weeks about a passthrough office supply company in California by the name of Epylon.  If you don’t know what a passthrough is it is an company that poses as a small business or maybe even a minority owned business that takes orders designated for small/minority business from state and deferal governments earmarked for those businesses and sends those orders over to a larger corporate company such as Office Depot.  In the case of Epylon, a California company, they pose as a small business and when state employees call and place their orders their online system actually send them back to the Office Depot website.

The Mercury News in California has an excellent investigative story that ran on the front page of their April 6, 2008 issue. Reporter Kimberly Kindy has been following the California audit and has done a great job in exposing the overcharges and passthrough issues relating to the Office Depot state contract.  In a prime example of raising the actual M.S.R.P. retail price in order to show on paper and higher discount off list the paper noted “On these items, Office Depot promised to apply a fixed discount rate, but raised the price on which the discount was applied.”  Also as found in the Georgia contract you and I could walk into an Office Depot store and buy many of these contracted items for less than the State of California is paying.  “…the Mercury News went onto the Office Depot retail Web site and found dozens of items, including data storage tapes, toner cartridges and batteries, that were either the same price or cheaper than the special rates stated in the California contract.”

Now we’re seeing charges of “poor performance” coming from many investors and shareholders in Office Depot.  Woodbridge Equity Fund and Levitte Corp. have mailed letters to shareholders calling for the removal of CEO Steve Odland.  In their letter they state “OD’s management and board have had ample time to enact change and deliver improvements in operational and financial performance and have failed to do so. As we have stated before, OD has significantly underperformed its primary competitor, Staples, Inc., in all key retailing metrics. This demonstrates that OD’s performance issues go well beyond the current macroeconomic environment to which OD attributes all of its problems.”  The letter continues “The board’s weak oversight of management has not only allowed the Company to continue to underperform operationally, but also has raised several corporate governance concerns. Recent SEC investigations, multiple earnings restatements and the recent departure of top executives all point to failed oversight and a lack of fiduciary responsibility towards shareholders.” 

They have even began a web site devoted to this at RebuildOfficeDepot.com .  I would encourage you to read the supporting links and read the information present and make your own judgement.  Investigations and audits have now been announced in the State of New York regarding the Office Depot contracts and the states of Nebraska and Wisconsin are also looking into their contract performance.  What is your opinion? Do you think this is typical of big business greed or do you think Office Depot is the victim of poor judgement?

The last word:  “In the process of trial and error, our failed attempts are meant to destroy arrogance and provoke humility.”

References/Credits
Article by Jin Kwon, Hill on Sales Contributor