Exposed: Dangers of the Gray Market

Robert Castro, president of American Data and Computer Products, shares his office with two pallets of Cisco Catalyst 3750 switches. He has 53 switches in all, at least three of which are suspected of being counterfeit. His company is out roughly $500,000, and much of his days are spent dealing with legal proceedings that he hopes will end with a court verdict that helps him recoup some of his losses.

The future of American Data, in fact, may ride on whether Castro's lawyer can convince the court that Largo, Fla.-based Gulfcoast Workstation, a division of Relational Technology Services of Rolling Meadows, Ill., sold him gray-market merchandise as new.

As if that weren't tough enough for a small disabled veteran-owned business, American Data must also figure out how it can compete in the federal market without authorization to sell one of the most sought-after brand names out there--Cisco Systems. The vendor terminated American Data's indirect partner agreement because it went outside normal product-sourcing channels to find a lower-cost supply of switches.

American Data's tale unveils the challenges faced by many small government solution providers that must deliver the lowest-price products, which aren't always available through authorized channels. While they can win solid contracts with government agencies and prime contractors by going through alternative sourcing, solution providers run the risk of getting caught up in the gray-market morass, just as American Data did.

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