News of the Week

Wave 5 for FY 2015 will be released on Friday, June 19th. Funding for FY 2015 is available for both Category 1 and Category 2 at all discount levels. Cumulative funding for FY 2015 through Wave 4 is $301 million. This compares with $976 million in funding for FY 2014 at approximately the same time last year.

Wave 92 for FY 2013 will be released Wednesday, June 17th. Funding for FY 2013 is available for Priority 1 services only. Priority 2 funding is being denied at all discount levels. Cumulative funding for FY 2013 is $2.16 billion.

Prior to the close of the FY 2015 application, we published a series of articles on Category 2 budget strategies including:
            Part 1:    Introduction to Category 2 budget strategies
            Part 2:    Strategies dealing with eligible project costs exceeding Category 2 budget caps
            Part 3:    Multi-school cost allocation and FRN filing strategies
            Part 4:    Multi-year budget strategies
            Part 5:    Basic maintenance of internal connections
            Part 6:    Recurring vs. non-recurring expenses

One critical unknown, the focus of Part 2, was how USAC would deal with the five-year “per student” or “per square foot” Category 2 budget limitations during PIA review if an applicant’s request(s) exceed the cap(s) for one or more schools or libraries. Now that such applications are under review, the answer is clearer.

The following is a sample of one recent PIA request:

I. Category 2 Budget

Issue

Per the FCC Order 14-99, each eligible school is eligible for Category Two services up to a pre-discounted amount of $150 per student or $9,200.00 (“funding floor”) over a period of five years. Each eligible library is eligible for support for Category Two services up to a pre-discount price of $2.30 per square foot or $9,200.00 (“funding floor”) over a period of five years.

Based on the review of your Funding Year 2015 FCC Form 471 application [Number], the Category Two budget for [Entity Name and Number] is $39,000.00. However, the pending and/or committed Category Two funding requested for this entity is $63,500.00. Therefore, this entity’s pending and/or committed Category Two funding exceeds its budget by $24,500.00.

For additional information on Category Two Budgets, see:  http://www.usac.org/sl/tools/news-briefs/preview.aspx?id=564

Listed below are the applicable pending and/or committed Category Two FRN(s):

Questions:
To assist us in the review of your application, we need the following information:

Please submit the necessary information within the 15 calendar day deadline of this request. Failure to respond may result in a reduction or denial of your Category Two funding request(s).

This particular example involves a single entity, application, and FRN. As is clear from the structure of the FRN table and the language in the Questions table, this process could quickly become more complicated if over-budget Category 2 requests involved multiple entities, applications, and/or FRNs.

Beginning next year, the process could be further complicated with funding commitments and/or requests for different funding years. USAC is currently working on the development of a tracking tool that should show Category 2 budget information across multiple applications and funding years. If an over-budget condition for a given entity is triggered by multiple FRNs (e.g., one for new Internal Connections equipment, and another for Basic Maintenance of Internal Connections), the total must be reduced to fit within the budget cap before any new funding is committed.

Short of cancelling an FRN (or removing an entity and the associated funding amount from a multi-entity FRN), the only way to resolve an over-budget request is to select Option 1, reducing the pre-discount eligible cost allocation for the entity(ies). This can be done by eliminating or reducing the pre-discount costs associated with one or more of the related Item 21 lines until the per entity total falls to or below the remaining Category 2 budget cap for that specific entity. Three important points should be noted.

1. Before committing to an Option 1 change, we suggest confirming with the PIA reviewer that the remaining Item 21 entries are deemed fully eligible. It would be a mistake to remove otherwise eligible costs from an FRN only to find that some of the other requested costs are to be considered ineligible.
2. If changes are to be made to an FRN involving multiple entities, it is critical to first review the revised cost allocations for each entity. Remember that the online application system had provided default allocations options to split FRN costs equally, based on the number of entities served, or proportionally, based on student population (or library square footage). Changing a cost for a single entity will affect the costs for the FRN’s other entities if the same default allocation option is used.
3. Assuming that an applicant reduces requested funding to fit within an entity’s budget cap, it is still not clear how USAC might handle post-commitment invoicing for different configurations of fully eligible equipment upon actual installation. For example, the following question was asked on USAC’s service provider conference call last week:

   A school applicant went to bid for five wireless access points and a switch. The wireless access points cost $1,000 apiece and the switch costs $5,000, so the total contract was for $10,000. However, the school’s Category Two budget is $8,000 so the school was only able to apply for 80% of the total contract costs as eligible. On its FCC Form 471, the school applied for 80% of the cost of each of the five wireless access points and the switch. Now the school finds it does not need the switch after all and only intends to order and install the five wireless access points. Can the service provider invoice USAC based upon the full cost of the five wireless access points, or only 80% of their cost because of the cost allocation on the application? Can the school do this without filing and getting approved for a service substitution?

   USAC deferred an answer to this question. This suggests, as we have been expecting, that Category 2 budget constraints raise a number of implementation issues that have not yet been addressed in USAC’s procedures.

Note that another way in which the applicant could have met the $8,000 budget limit (in this particular example) would have been to reduce the number of access points from five to three. Ultimately, if the switch wasn’t needed, the question would then be whether the service provider could invoice USAC for all five WAPs?  It will be interesting to see how USAC ultimately answers these types of questions. To provide maximum flexibility in the interim, we favor lowering Category 2 budget totals as necessary by reducing the cost of eligible components rather than eliminating line items entirely.

Service Provider PQA Certifications on LCP:

The Payment Quality Assurance (“PQA”) process has typically been applicant oriented. Applicant PQAs are essentially random, post-payment, mini-audits of invoices for specific funding requests. The information requested requires documentation on beneficiary eligibility, service provider bills, competitive bidding and vendor selection, proof of vendor payment, etc.

Recently, however, we are seeing PQAs addressed to service providers seeking certifications solely on compliance with E-rate’s Lowest Corresponding Price (“LCP”) rule. LCP is a vendor-specific requirement designed to assure that the pre-discount rates charged applicants are no higher than the rates charged to non-E-rate customers for equivalent products and services.

Certain service providers, particularly telecom carriers, may have legal or philosophical problems with making an explicit LCP certification. Although the objective of the LCP requirement is clear — and it has been an E-rate rule from the program’s inception — the carriers have been seeking clarification for over five years (as background, see our newsletter of October 29, 2012). Perhaps because of these concerns, the final (and current) version of the Form 473 (Service Provider Annual Certification or “SPAC”) did not include a specific LCP compliance certification included in the draft version.

If a given service provider fails to certify LCP compliance as the result of a PQA, what happens?  Any problem, should one arise at all, is likely to be a long-term one. As a practical matter:

1. The number of supplier PQAs seeking LCP certifications is likely to be limited.
2. Suppliers are already certifying general compliance with E-rate “rules and orders,” so most are unlikely to balk at signing LCP certifications.
3. LCP compliance is a service provider requirement, not an applicant requirement, so applicants should not be affected.

Comments Due on Draft ESL for FY 2016:

Comments on the FCC’s Draft Eligible Services List (“ESL”) for FY 2016 are due next Monday, June 22nd (see our newsletter of May 25, 2015). Reply comments are due July 6th.

USAC Fall Applicant Training:

As in recent years, USAC will hold eight regional one-day applicant training sessions this fall. Registration is now open and attendance is building rapidly. The full training schedule with registration links is as follows:

The S&L News Brief of June 12, 2015, discusses the options for filing a Form 470 to initiate the procurement cycle for FY 2016. The following four points should be noted:

1. USAC’s current online Form 470 indicates FY 2015 as the default funding year. As has been the case in the past, however, an applicant needing to file a Form 470 now for FY 2016 may use the “FY 2015” version. If using this version, the applicant should add language such as “This Form 470 is intended for FY 2016 requests” when completing the Item 13 text box marked “If you are requesting service for which an FCC Form 470 cannot yet be filed online, include that information here.”
2. Fiber bids requiring special construction must adhere to strict competitive bidding rules that are not easily accommodated using the “FY 2015” version of the Form 470. See the first full paragraph on page two of the News Brief for details.
3. By early July, subject to OMB approval, USAC anticipates opening a new online E-rate IT portal that will give applicants the ability to file a new version of the Form 470 (and, reportedly, to post associated RFPs, if applicable). USAC is encouraging applicants not needing to file early Form 470s to wait until the new portal is ready.
4. Service providers searching for Form 470s currently posted for FY 2016 should be looking for recently filed “FY 2015” filings.