As a part of its goal to simplify the E-rate process, the FCC’s E-rate modernization Order created three exemptions from the broader competitive bidding and contract rules. We urge applicants to avoid — or, at a minimum, be very careful — using these exemptions. If used improperly, these exemptions could lead to funding denials. We think of these “simplification” measures as “FCC Exemption Traps.”
Competitive Bidding Exemptions:
Traditionally, every E-rate funding request had to be based on a competitive bidding process that included the filing of a Form 470. The 15-digit identification number of that Form 470 was a required field on the associated Form 471 Block 5 FRN.
When you create an FRN using the new online Form 471, the “Establishing FCC Form 470” section starts with the question: “Did you post an FCC Form 470 for the product and/or services you are requesting?” The two options to answer this question are: “Yes, I posted an FCC Form 470 for the services” or “No, because this FRN [is] exempt from the FCC Form 470 requirement.”
There are two allowable exemptions. The first exemption is for what the FCC classifies as “commercially available business-class Internet access service.” There are several key components to this classification, namely:
- “Commercially available” appears to mean that the carrier is providing service broadly to other commercial customers — i.e., that the service is not being tailored just for E-rate applicants;
- There are minimum speed requirements of 100 Mbps downstream (from the Internet provider to the customer) and 10 Mbps upstream (from the customer); and
- The annual cost, including installation charges, cannot exceed $3,600 per school or library.
Our concern with this exemption is that USAC might subsequently decide (either upon application review or post-commitment) that the service does or did not meet all three criteria — i.e., that the service was not “commercially available,” failed the speed tests, and/or had a higher annual cost (e.g., with taxes and surcharges added). Without first having posted a Form 470, the applicant would have no fallback position and would risk a funding denial. Our recommendation, therefore, is to always submit a Form 470 for Internet service (as well as all other services). Most applicants already file at least one Form 470, so adding an additional service does little to increase theri workload.
The second exemption is for Category 2 equipment purchased under a “Preferred Master Contract.” A “PMC” is a new purchasing vehicle envisioned by the FCC as a nationwide master contract negotiated to provide highly attractive equipment pricing for E-rate applicants. As such, the new FCC rules would not require an applicant to post a Form 470 for Category 2 equipment purchased off a PMC.
There are three possible areas of confusion that may lead to funding denials with the PMC exemption. From a technical standpoint, the first is that the FCC has not actually negotiated any such contracts, and has indicated that none will be available by the time applications are due for FY 2015. Accordingly for FY 2015, this exemption is not available.
The second potential problem is that applicants might mistake a non-exempt master contract for an exempt PMC and, as a result, fail to file a Form 470. Last summer, for example, as a possible source of confusion, the FCC announced that it had established a blanket purchase arrangement (“BPA”) with the General Services Administration (“GSA”) for Wi-Fi equipment (see our newsletter of June 30, 2014). However, the BPA is not a PMC.
A third possible problem is that the purchase of equipment from a PMC may not be enough to satify state procurement rules for certain public applicants. Again, our recommendation is to always post a Form 470 for Category 2 equipment.
Contract Signature Exemption:
Prior to the E-rate modernization Order, all contracts for E-rate services had to be signed (at least by the applicant) before the applicant filed their Form 471. As it did last week (see below), the FCC has periodically issued decisions waiving the actual signature requirement when it recognized that an applicant had basically agreed to a service arrangement, but had had trouble getting a signature on a formal contract. The new rule exempts applicants from having signed contracts, instead requiring only that applicants have “legally binding agreements” in place prior to filing their Form 471s.
The obvious question is: What is a “legally binding agreement” and how will USAC interpret the FCC rule? The FCC has provided the following guidance:
Absent the existence of a signed contract, in determining whether a legally binding agreement is in place, we direct USAC to consider the existence of a written offer from the service provider containing all the material terms and conditions and a written acceptance of that offer as evidence of the existence of a legally binding agreement. For example, a bid for the services that includes all material terms and conditions provided in response to an FCC Form 470 would be sufficient evidence of an offer and an email from the applicant telling the service provider the bid was selected would suffice as evidence of acceptance. In addition, after a commitment of funding, an applicant’s receipt of services consistent with the offer and with the applicant’s request for E-rate support will also constitute evidence of the existence of a sufficient offer and acceptance. A verbal offer and/or acceptance will not be considered evidence of the existence of a legally binding agreement.
The “agreement” part of the phrase is fairly broad; it’s the “legally binding” part that may raise issues. If pushed on “legally binding,” USAC may rely on individual state contract law. If so, we question whether an email, for example, would be considered documentation of an enforceable contract. Even the FCC has warned “that, although no longer required, a signed contract will constitute the best evidence that a legally binding agreement exists.”
We continue to recommend, therefore, that applicants get signed agreements for services on or before their Form 471 filing dates. If a signature on a formal detailed contract cannot be obtained prior to filing a Form 471, one viable alternative is to sign a less formal contingent agreement. As an example, see our Draft Vendor Contract Letter for Planned E-Rate Purchase.
Form 471 Certification Trap:
Although not an “Exemption Trap,” we should also remind applicants to be careful when checking the certification boxes in Block 6 of the Form 471. The certifications include a “trap” of their own. In particular, the second certification concludes with the following language and checkbox:
Item E, to which this language refers, is the amount of funds that the applicant has budgeted to pay for its non-discounted portion of E-rate services and for all other necessary technology support. An E-rate service provider cannot pay for any portion of these expenses. By checking this box, the applicant is effectively certifying that they are violating the E-rate competitive bidding rules. At the very least, a check in this box will generate a PIA review question. Do not check this box!