News of the Week

FY 2008 - FY 2010 Funding Status

Wave 77 for FY 2008 will be released on January 13th for $2.8 million. Cumulative funding is currently $2.44 billion. The Priority 2 funding threshold is fixed at 87%.

Wave 35 for FY 2009 is scheduled for release on January 12th for $31 million. This will bring cumulative FY 2009 funding to $1.97 billion. Priority 2 funding is currently being approved at 80% and above, and denied at 54% and below.

The Form 471 application window for FY 2010 will close at 11:59 p.m. EST on Thursday, February 11, 2010. Only a few days remain (through January 14, 2010) for applicants to file valid Form 470s for FY 2010. Form 470s filed this week must be done online; it is too late to mail paper Form 470s to the SLD with any assurance they will be posted (i.e., data entered) by the 14th.

Invoicing and Funds Disbursements - Part 4

This is the final article in a four-part series focusing on BEAR and SPI invoicing, problem identification, and correction. The previous articles covered the following topics:

Part 1: BEARs vs. SPIs. Database tools to track invoice submission and approval.
Part 2: The two polar cases of 0% and 100% funding utilization.
Part 3: Discount calculations. Tracking actual BEAR payments.

Part 4 discusses discount reimbursement calculations for consortium members.

Consortium Payment Calculations:

From a discount reimbursement viewpoint, there are two fundamentally different types of E-rate consortia. In the simplest case, the consortium leader is paying all charges for services that the members are receiving for free. This is often the case for state networks, funded at the state level on behalf of all participating schools and/or libraries. For invoicing and payment purposes, there is little difference between such a consortium and an individual school, school district, or library applicant (except that the applications are usually larger). The consortium leader is paying the bills and is applying for and receiving all the off-setting E-rate discounts. All of the previously discussed issues and procedures apply.

In the more complex case, the consortium leader is the billed entity, but is receiving payments from the consortium members. In this situation, the invoicing process requires one additional step. Discounts received must ultimately flow back to the consortium members.

The SLD has never provided any formal guidance as to how an individual member's share of the total discount should be calculated. Nor, to our knowledge, have E-rate auditors ever checked that each member received its share of the total consortium discount, much less reviewed how its share was calculated. What follows, therefore, is admittedly only our interpretation of the rule.

The basic principle is expressed in the Form 486 certification (Item 10) that reads in part:

I understand that the discount level used for shared services is conditional, for future years, upon ensuring that the most disadvantaged schools and libraries that are treated as sharing in the services receive an appropriate share of the benefits from those services.

In the simplest case, in which each member is paying equal shares of the pre-discounted cost of service, the calculation of a member's discount is straightforward. If, for example, each member's annual pre-discount price is $10,000, then a member with an 80% discount rate would receive a discount of $8,000 while a 40% member would receive only $4,000. Allocating a proportionately higher discount share to the more disadvantaged member would comply fully with the basic principle noted above.

Unfortunately, consortium discount calculations are not quite as simple if each member's pre-discount usage charges are not the same. This is because a consortium's aggregate discount rate is based on a simple average of its members' discount rates. Thus the discount received for total consortium usage is rarely equal to the sum of what each member would receive based on that member's actual usage and discount rate. The sum is usually somewhat more or less. The following table provides two examples, differing only by the distribution of member usage.

Two Consortium Discount Examples

Note that in both examples, the total pre-discount amount is the same. As such, the total consortium discount, based on the consortium's aggregate discount rate (the average of its members' discount rates) is also the same. But the total of the members' nominal discounts - defined as each member's pre-discount usage times its own discount rate - is different for each example. In Example A, the consortium would actually receive a higher discount than the total nominal discounts of its members. In Example B, the situation would be reversed.

The trick to distributing the "appropriate share" of the consortium's discount to the individual members is to calculate and apply a proportionality factor. The factor is the ratio of the consortium discount to the total nominal discount. The table below shows this calculation for Example A. The proportionality factor in this case is 1.052 (= 34,020 / 32,350). This means that each member would receive about 5% more than its nominal discount. Note that the total received by the members now equals the total discount received by the consortium on their behalf.

A similar calculation for Example B would yield a proportionality factor of 0.972. In this case, each member would receive about 3% less than its nominal discount.

In either case, whether the members received somewhat more or less than their nominal discounts, the basic principle is upheld. Each member, based on its own usage and discount rate, receives a proportionally correct share of the total consortium discount.

Note that the examples provided above assume that all calculations are done at the end of the funding year, as might be the case with a single BEAR. If payments are to be made back to the members based on mid-year BEARs or ongoing service provider discounts, the process becomes more complex and may require an end-of-the year true-up.

E-Rate Updates and Reminders

Non-Recurring Service Invoice Deadline of January 28, 2010:

The deadline for BEAR or SPI invoices is 120 days from the last date to receive services. Unless extended as a result of late funding, service substitutions, SPIN changes, etc., the deadline for filing invoices for FY 2008 non-recurring services is January 28, 2010. The same invoice deadline would apply to previous funding year FRNs whose last date to receive non-recurring services had been extended to September 30, 2009.

National Broadband Plan Extension:

The FCC, which is charged with delivering a National Broadband Plan to Congress by February 17th, has asked Congress for a one-month extension. As reported by the Associated Press:

The agency is asking for a one-month extension to finish digging through the massive volume of public comments that it has received over the past 11 months as it has gathered input on how to make universal broadband a reality. The team preparing the plan also wants more time to brief the agency's five commissioners and members of Congress.

Contract Expiration Date Alignment:

To avoid loss of funding for partial year services and/or to minimize the necessity of extending expiration dates, it is advantageous to align E-rate contract periods with the last date to receive services in any funding year. For FY 2010, this means June 30, 2011, for recurring services, and September 30, 2011 (or 2012), for non-recurring services.

Unfortunately, standard contract procedures often set contract expiration dates based on annual anniversaries of either the contract signing dates or the actual service start dates. Whenever possible, we recommend departing from these standard procedures to set more E-rate-friendly expiration dates. If a specific expiration cannot be set at the time the contract is signed - e.g., if a multi-year contract period is normally based on an unknown installation date - it may be possible to include contract expiration language such as:

The purchaser may extend or abbreviate the initial contract term, or any extension term if such extension or abbreviation is necessary, to make the term of this agreement coincide with the "funding year" or "implementation period" as defined by E-rate rules.

Schools and Libraries News Brief dated January 8th - Competitive Bidding

The SLD News Brief for January 8, 2010, continues a discussion of competitive bidding issues begun in its News Brief of December 18th:

1. E-rate vs. state/local bidding requirements: An applicant's procurement process must adhere to both, making sure that there is compliance with the more stringent elements of each set of requirements.
   
   Although not covered in the News Brief, it should be noted that any applicant relying on a state master contract, particularly a multi-vendor award contract, must make sure to abide by all required state procedures. In the case of multi-vendor award contracts, USAC requires an applicant to solicit mini-bids from all the vendors selected by the state that can provide services.
2. Form 470/RFP allowable vendor selection date: An applicant using a formal RFP must make both the Form 470 and the RFP publicly available for at least 28 days. Issuance or posting of the RFP and the Form 470 need not be perfectly aligned, but the 28-day allowable vendor selection date must be based on whichever is filed last. This means that if the RFP is issued after the Form 470 is posted, bids must be accepted for at least another 28 days (i.e., later than the vendor selection/contract date associated with that Form 470).
3. Form 470 responsibilities for applicants and service providers: Applicants must provide sufficient detail for a service provider to be able to formulate a bid. If sufficient information is not included in the Form 470 itself, it must be made available upon request. For their part, service providers must respond responsibly to Form 470s. In particular, the SLD notes that:

   Simply sending a generic email to the applicant saying that the service provider can provide the general type of service requested is not considered a good faith response to a Form 470 posting and can be considered 'spam' and ignored by the applicant.

4. Bidder disqualification reasons: An applicant can establish specific "binary" criteria under which a bidder may be disqualified, but these criteria must be clearly identified up front in the Form 470 and/or RFP. The SLD provided the following example of valid bid disqualification reasons:
   • Service provider must register with the state procurement office.
   • Service provider must have a Service Provider Identification Number (SPIN).
   • Service provider must have an FCC Registration Number.
   • Service provider must be bonded.
5. Multi-tiered evaluation processes: An applicant can evaluate bids on a multi-round basis, using each sequential round to narrow the number of bids being considered (e.g., perhaps in selecting which bidders might be asked to make oral presentations). Most importantly, however, "price must be the primary evaluation factor in EACH tier or round of the process."
6. Mandatory walkthroughs and bidder conferences: Bidders may be disqualified for failing to attend a bidder meeting, but the SLD stresses that the applicant must ensure that the bidders are given "timely notice so that they have a reasonable opportunity to attend." Since the SLD does not define "reasonable," we believe that the safest course of action is to give vendors at least a 28-day notice of any mandatory meeting.
7. No bids received in response to a Form 470/RFP: If no bids are received within the 28-day bidding window - at least under E-rate rules, but subject to state/local rules - the applicant can reach out to selected vendors to solicit bids. The SLD recommends that this process be documented in an internal e-mail or memo to file.
8. Only one bid received in response to a Form 470/RFP: If only one bid is received and accepted, the SLD also recommends that this condition be documented by e-mail or memo. As a general rule, note that:
   1. The service terms and prices of an existing vendor, unless otherwise indicated, may be considered a valid E-rate bid for continued service; and
   2. The "FCC has stated that if you only get one bid, that does not automatically make the bid cost effective." Although every winning bid must be cost effective, such pricing may receive greater scrutiny in a single-bidder situation.