News of the Week

Funding Status

Wave 48 for FY 2010 will be released on Tuesday, April 26th, for $31.0 million.  This will raise cumulative funding for FY 2010 to $2.47 billion. Priority 2 funding is still being awarded at 81% and above, and denied at 79% and below. The status of Priority 2 funding at 80% is pending an FCC decision.

No funding wave for FY 2009 is scheduled for release this week.

Vendor Equipment Loans and the E-Rate Gift Rules

The Hewlett-Packard Company filed an interesting request with the FCC last week asking the Commission to clarify that products can be loaned to customers for demonstration, test, and evaluation purposes without violating the new gift rules. HP’s concern stems from the FCC’s Sixth Report and Order (FCC 10-175) issued last year that includes numerous gift restrictions, including the following language:

…an eligible school, library, or consortium… may not directly or indirectly solicit or accept any gift, gratuity, favor, entertainment,loan, or any other thing of value from a service provider participating in or seeking to participate in the schools and libraries universal service program. [emphasis added]

The FCC’s apparent concern is that service providers might, under the guise of a “loan,” effectively give equipment to applicants. HP notes, on the other hand, that such a “reading distorts the fundamental nature of a demo program, which is part of the sales process between vendors and customers and is an important feature of IT procurement.”  It permits “existing and potential customers [to] use these demo programs to evaluate whether products meet their needs or are compatible with their existing equipment or systems.”

To be consistent with the new gift rules, HP suggests that the FCC clarify that demonstration loan programs would be acceptable as long as the following conditions are met:

1. Products are loaned pursuant to a clearly defined demo/loan program;
2. The program is applicable or available regardless of the class of customer, i.e., education, commercial, government, etc.;
3. Products are loaned for a specified and reasonable period of time, with the length of time determined by the complexity of the product and its expense, but generally not exceeding 180 days;
4. At the end of the defined loan period, customers must return the products or may purchase them;
5. If a discount is applied either to the purchase price of the demo products and/or to purchases of the type of products tested/evaluated pursuant to the demo program, the process for approving and applying discounts is the same as that generally used outside of the education context as well as within; and
6. If a School or Library purchases products at a reduced price in an E-rate transaction, the price reduction is properly accounted for in the pre-discount price.

Applicants who have received demonstration equipment on loan without consideration of the E-rate gift rules may want to reexamine their situations — particularly if the loans are inconsistent with the reasonable principles suggested by Hewlett-Packard.

E-Rate Updates and Reminders

Sprint E-Rate Billing Details Report:

Sprint launched an automated system last week to provide all its certified E-rate customers with quarterly reports detailing their monthly charges. The reports show total pre-discount charges, including eligible and ineligible components, and the eligible discount amount for each of the twelve months in the funding year. The following is a sample report (obviously now showing $0.00 for the last two months of FY 2010).

Proposed Billing Details for Customer [Applicant Name]: FY 2010-2011

Reports are being sent to Sprint’s customers whether they select discounted bills or BEAR reimbursements. For applicants using the SPI process, the reports provide a simple way to confirm the monthly and total amounts of discounts realized. For applicants filing BEARs, the reports provide an equally simple way to calculate the total pre-discount and discount BEAR amounts. In either case, we suggest that applicants at least spot check the billed amounts and ineligible allocations.

We believe that these reports provide a real value to Sprint’s E-rate customers, and we have already complimented Sprint on the initiative. Hopefully, other service providers will take note.

FCC Appeal Decision on Competitive Bidding:

The FCC released another decision last week (DA 11-723) addressing 19 appeals related to competitive bidding. At issue were USAC findings that the applicants either had failed to consider price as the primary factor or did not carefully consider all bids received. In 7 cases, the FCC found that there had been no violation; in the other 12 cases, the FCC found reasons to waive its rules. The following points should be noted:

1. The FCC clarified that an applicant can satisfy the competitive bidding requirements by taking service under a state master contract (and the associated state Form 470), but only if that state contract had been competitively bid. Not every state contract meets this criterion.  A state contract awarded to two or more vendors (for the same product and geographic area) — often more of a “terms and conditions” contract — is not considered a competitively bid (or “one winner”) contract. To obtain service under a state multi-winner contract, the applicant must undertake its own competitive bidding process.
2. In one case, the applicant’s bid evaluation had included two price components. One was for the initial price and the other for the long-term cost. Neither of which, by itself, was the most heavily weighted. The FCC, however, accepted the bid analysis because the combined weight of the two price components was higher than any other factor. The lesson here is that applicants should clearly identify the total weight of all pricing factors.
3. In 11 cases, the FCC found that USAC had correctly determined that price had not been the most important factor, but waived its rules when it found that applicants had actually “selected the least expensive service offering.”  Since price appeared to be the important element in these cases, the applicants could have saved themselves a lot of trouble, including a time-consuming FCC appeal, if they had appropriately identified price as the most important component at the outset.
4. In one other case, the applicant assigned 80% weighting to performance and 20% to price, and then selected the higher-priced of two bidders after determining that the other bidder could not provide district-wide coverage. The FCC showed understanding and waived the rule, but noted that the district “could have used a multi-tiered bid evaluation process in which the first tier could have assessed whether a proposal satisfied minimum technical capabilities…”  In our view, this is overly-simplified, and therefore, dangerous advice. The SLD’s guidance on multi-tier evaluations states that “If you use a multi-tiered or multi-round evaluation process, the price of the eligible products and services must be the primary evaluation factor in EACH tier or round of the process.”  A better approach, also covered in the same SLD guidance, is to clearly establish vendor selection disqualification reasons “prior to any substantive bid evaluation.”  In SLD parlance, pre-qualification standards and multi-tier bidding are permitted, but separate, actions.

Schools and Libraries News Brief dated April 22 – Incomplete Form 471 Reminders

As discussed in our last newsletter, USAC will be sending out reminder letters this week to FY 2011 applicants who have not yet certified their Form 471s or may not have submitted required Item 21 attachments. The SLD’s News Brief for April 22, 2011, indicates that these letters will be sent Wednesday, April 27th. Responses, if required, are due by May 17th, twenty days later.

If these certification are not made or if attachments are not submitted for each FRN by the due date, those applications and/or FRNs will be treated as out-of-window and will be denied.

USAC will be sending just under 660 “Notification of Form 471 with No Certification” reminder letters to applicants who filed online within the application window, but who have not certified their applications (or, at least, had not certified them by the time the letters were processed). Certification is easy; it can be done online or by mail.

The Item 21 attachment reminders are likely to prove more problematic for many applicants. Unlike in recent years, applicants can no longer wait for PIA to request Item 21 attachments. Technically, they were due to be filed before the close of the window. If they are not submitted within the grace period, the associated FRNs will be denied.

Unfortunately, except on a case-by-case basis, the SLD apparently has no systematic way to determine who has not already submitted all of their attachments. As a consequence, USAC will reportedly send out over 15,500 “Item 21 Attachment Urgent Reminder Letters” to every applicant who did not include online attachments for every FRN of an online Form 471 or who filed a paper Form 471. This is likely to cause considerable confusion and fear, especially for applicants who have already filed their Item 21 attachments, albeit not online. Since the SLD occasionally loses offline attachments, this fear is not entirely misplaced.

For those receiving Item 21 reminder letters, we recommend carefully reviewing the status of their Item 21 attachment for every FRN.  Then do the following:

1. Submit missing attachments as soon as possible. This can be done online, by e-mail, by fax, or on paper. In any case, be sure to document the submission.
2. If Item 21 attachments have already been submitted, we strongly recommend verifying receipt by the SLD. This can be done by e-mail, using Submit a Question, or by calling the Client Service Bureau (888-203-8100). If the SLD confirms receipt, document that response. If the SLD cannot confirm receipt, submit them again (and document that).