Hey. That's me... I'm the guy who designed this dispenser, and many others like it.

This is actually an electronic version of the handsfree dispensers, but same principle.

So, a lot of times, when the dispenser isn't working properly, it isn't a dispenser issue, it's a paper or janitor issue. We designed this specific dispenser for a customer. That customer gives the dispenser to the company using it for free, in exchange, they lock them in to a paper contract, so they have to buy the paper from the company who gave them the dispenser.

The company who gave the dispenser away builds the price of the dispenser into the price of the paper, so if the company using it, switched to another brand to save money, the company who gave it away and installed it for free loses.

So, we designed the dispenser in such a way, that it locks out other brands of paper. This means, it is designed to put massive friction on the paper roll if the proper roll isn't purchased from the company who gives away the dispenser for free. It's called a lockout mechanism and it ensures the company who bought it from us, gets a return on their investment.

Unfortunately, the end user with wet hands doesn't see what is going on inside the dispenser, they just know that they get tiny little pieces of paper instead of full sheets. It sucks that we needed to punish the end user for the transgression of the building who is trying to cheat the system, but it's the only way to be alerted to the fact that they are trying to cheat the system. People complain, the building manager calls the paper company, they send out a rep, the rep looks, sees they have violated their contract and forces them to either buy the proper paper, or they pull the dispensers off the wall.

EDIT to add more reasons why the dispensers don't work properly.

Sometimes, the dispensers are mounted to an uneven surface, which torques the base. That causes the rotating drum to be out of alignment and have friction. Any amount of friction when using paper as the belt that drives the engine is obviously bad. Mix in wet hands, and you get little tabs or paper in your hands. They need to be mounted flat against the wall. (What I mean by this, is I've seen dispensers mounted with half the plate for the light switch under the base. The unit was so torqued, you could barely get the lid to open or close.)

Paper unrolling inside the cabinet causes quite a bit of paper dust to accumulate inside the dispenser. We designed the dispenser to deal with the dust, and designed flow channels to keep it from accumulating in the moving portions of the dispenser. However, some janitors will try to clean out the dust, and spray window cleaners and stuff inside the cabinet. This causes a very sticky, paper mache that can gum up the internal mechanism. Really, just use air or a rag if you're a janitor, not water and def not cleaning products

Also, with the lockout mechanism, sometimes the paper company who makes us put that into the dispenser can't hold their own tolerances and make out of spec paper. The company using the paper hasn't broken the contract, but the paper is so large, or too short and it activates the lockout mech. If the dispenser works, works work, then stops, it's probably the roll is out of spec. Should be fixed with the next time it's refilled.

EDIT #2 GOLD! Paper towels baby! Ticket to gold! Thanks to that person!