News of the Week

Wave 2 Funding Commitment Decision Letters (FCDLs) for FY 2015 will be released on Monday, June 1st while Wave 3 FCDLs will be released on Friday, June 5th. The commitments are for approved requests for all service types and at all discount levels. To date commitments total over $238 million.

Based on a number of PIA inquiries we’ve seen on FY 2015 applications, there is an indication that USAC is taking a hard look at duplicate services. To be more precise, a “duplicate service” question may actually be addressing one of two distinctly different issues. Redundant products or services are an eligibility issue. Contract awards to two or more vendors for the same service are a competitive bidding issue. It is important not to confuse the two issues.

It is also important to understand that USAC’s PIA review system has been programmed to identify and flag potentially duplicative sets of products, services, and/or vendors. Once an application is flagged, more likely than not, an applicant will receive a “duplicate service” question from a PIA reviewer. Sometimes a simple explanation will resolve the problem.

Duplicate Services:

Fully redundant — or “backup” — products or services are not E-rate eligible. But there are many situations in which two or more of a product or service are required and are eligible. Eligible examples include:

• Multiple circuits (or Internet packages) required to serve multiple locations or to meet aggregate bandwidth requirements. PIA questions on these services can often be addressed with a network diagram.
• The same or similar equipment installed to serve the needs of multiple schools or libraries. The Item 21 Managed Entities section of FY 2015’s version of the Form 471 application should indicate when equipment is duplicated across multiple sites, but greater clarity may be required.

Duplicate Service Providers:

The two-vendor problem stems from the FCC’s 2007 Macomb decision (FCC 07-64) that, only more recently, has been applied more strictly to other multi-vendor situations. In the Macomb case, the applicant had awarded contracts for three T-3 Internet circuits to three separate providers. As far as the FCC was concerned, this was not a duplicate — or actually triplicate — service issue. The applicant needed the aggregate bandwidth of three T-3s. The problem, as seen by the FCC, was that the applicant had chosen three vendors. How, argued the FCC, could three separate bids (and, in this case, at widely disparate prices) meet the most cost-effective requirement of the FCC’s competitive bidding rules?

Following this logic, an applicant’s use of two or more vendors to provide the same or similar products or services may not be a competitive bidding violation if, for example:

• Services are being provided in different geographic areas, each served by a different carrier.
• Contracts for additional products or services were awarded to a different vendor in a subsequent procurement process as the applicant’s needs (e.g., bandwidth) increased — and when the second vendor had made the most cost-effective bid at the later time.

Network Sustainability:

As USAC begins to focus more on “duplicate service,” it’s time to start thinking about updating the E-rate rules. Given the growing criticality of broadband, the FCC needs to consider the importance of network sustainability, not just bandwidth. Path diversification — even vendor diversification — is important. Schools, in particular, need more fail-safe networks, whether supported by E-rate or not. At a minimum, E-rate must explicitly support ring, rather than star, WAN architectures for new or upgraded networks. If E-rate isn’t going to recognize some degree of redundancy as eligible, the effective percentage level of E-rate support of viable broadband networks will be reduced significantly.

One vehicle the FCC has to rethink network design is a set of filings by the New York City Department of Education (“NYCDOE”), including:

1. An FCC Request for Review filed by the NYCDOE in January 2014, seeking to reverse a USAC decision to deny funding for one of two Internet services being provided by separate providers; and
2. NYCDOE’s comments filed in September 2014 on the FCC’s draft Eligible Services List for FY 2015.

In some ways, given the size of its network, NYCDOE can be viewed as the poster child for network sustainability. Other large networks — be they school districts, library systems, or state and regional networks — have similar reliability issues. NYCDOE, however, points to specific experiences including:

1. The complete failure of its network following the 9/11 attack on the World Trade Center in 2001 that knocked out the single Internet provider’s NOC.
2. The avoidance of a complete blackout of services during and after Hurricane Sandy in 2012 when one of two Internet providers lost service.
3. Ongoing reliability problems, even with two providers, during the 2013-2014 school year resulting in “1,136 system outages that affected 422 DOE school buildings” and “85,355 hours of downtime.”

In its appeal, NYCDOE argues that use of two Internet provider networks was not redundant — both provider’s routes were utilized at 89% capacity each — and that its award of two contracts was the most cost-effective way to achieve the required level of reliability.

Unfortunately, given the current interpretation of E-rate rules, and the need to fully fund its Internet service, NYCDOE has returned to a single vendor Internet contract for FY 2015. How and when the FCC eventually responds to NYCDOE’s appeal and ESL comments will be watched with interest by many in the E-rate community.

Starting with FY 2015, E-rate rules permit applicants to purchase Category 2 equipment as early as April 1 prior to the start of the funding year. Schools and libraries that are taking advantage of this new rule should be aware of the additional requirements and steps that come with Category 2 funding. It is assumed that the school or library making the early purchase understands that it is not contingent on E-rate funding and that the school or library plans to pay for the equipment in full, and seek E-rate reimbursement after the Funding Commitment Decision Letter arrives.

The following are Category 2 rules and reminders:

• Engage in the purchase of equipment prior to receipt of the E-rate Funding Commitment Decision Letter (FCDL) only if the school or library’s budget supports payment in full without E-rate funding.
• In the event of an early C2 purchase, and the E-rate FCDL is received prior to July 1, 2015, the earliest that the Form 472 BEAR can be submitted is July 1 (the start of the FY 2015 E-rate funding year). The Form 486 may be submitted only after the FCDL arrives, but before the Form 472 BEAR is submitted.
• If there is a purchase of some of the equipment on an FRN before receiving the FCDL and other equipment after you receive your FCDL, the same payment method must be used for the entire funding request. In other words, if the payment method is the BEAR reimbursement process for some of the equipment in the FRN, the remainder of the purchase must also use the BEAR reimbursement process for the equipment on that FRN. The USAC invoicing system does not allow two different billing methods on a single FRN.
• It is advisable to have a separate purchase order for each FRN. If possible the purchase order should also note the Form 471 number and reference Funding Year 2015.
• Verify that the equipment you order matches exactly what you requested on the FRN(s) in the Form 471. If there is a need to substitute functionally equivalent equipment, a service substitution must be submitted.
• When the equipment order arrives, label each piece of equipment with "FY 2015, FRN xxx" listing the FRN number. USAC’s on-site auditors will ask to see the installed equipment. Labeling each piece of equipment purchased with E-rate funding at the time of the purchase/installation satisfies the asset tracking program requirements and will assist in responding to audit inquiries in a timely manner.
• Record each piece of equipment in your school or library's asset (inventory) register or create an E-rate asset register (recommended). The asset register must contain the following information:
  • Make & model
  • Serial number (if available)
  • Physical location of equipment (building/room number)
  • Date installed
  • Funding Year
  • Funding Request Number
  • Purchase order #
• Use the USAC Sample Asset Inventory worksheet to create an Excel file that lists the required data for the E-rate funded equipment. It is always better to have more detailed information than required. Detailed records of the purchase, installation and payment of the equipment avoid the need to gather the information after-the-fact when the USAC auditors request it. Timely data input also avoids errors.
• Equipment must stay at the location indicated on the Form 471 for a period of three years after the date of purchase. After that, the equipment can be transferred to other eligible entities. If a location closes within the first three years, equipment from that closed location can be transferred to another eligible entity; however, USAC must be notified of such equipment transfers. After five years from the date of installation, equipment can be disposed of, sold, transferred, or traded with no notification required to USAC. If equipment is sold, no funding is required to be returned to USAC.

USAC Fall Applicant Training:

USAC announced the dates and locations of its fall E-rate applicant workshops last week. As in recent years, there will be eight regional one-day training sessions beginning Friday, October 2nd in Washington, DC. Registration is now open and attendance is building quickly. The full training schedule with registration links is as follows:

USAC Spring Service Provider Training:

This year’s spring USAC E-rate training, designed primarily for service providers, will be held in Phoenix on Tuesday, June 2nd, and in Tampa on Tuesday, June 16th. Both sessions are fully subscribed, but USAC is accepting waiting list registrations.

The S&L News Brief of May 29, 2015 focuses on how and when to invoice USAC for recurring services provided during FY 2015. The Brief reminds applicants they must have a successfully certified Form 486. Applicants are required to certify their compliance with CIPA, while service providers must have a successfully filed a Form 473 (Service Provider Annual Certification or SPAC). There are two invoicing modes that applicants may use. The applicant must use the same invoicing mode for the entire funding year; USAC does not permit changing the invoice mode during a funding year.

The two invoice modes are:  (1) the Form 472 (Billed Entity Applicant Reimbursement, or BEAR, form), is filed by the applicant and approved by the service provider after the applicant has paid for the eligible services in full. BEAR Forms can be filed online or on paper; and (2) the Form 474 (Service Provider Invoice, or SPI, form), is filed by the service provider after billing the applicant for the non-discount portion of the eligible services. SPI Forms can be filed online, electronically, or on paper.

To assure prompt processing of invoice submittals the eligible costs must have supporting billing documents. It is important to check that reimbursements are not requested for a month that may already have been submitted under the prior funding year, especially the June/July time frame.