• Reminder: Form 486 Deadline for PY3 Recurring Services
• SLD Caution on Bundled Internet Services
• Binding E-rate Contracts

The following is a summary of the E-rate News for the Week of December 3, 2001, prepared by E-Rate Central. Official SLD news appears in the “What’s New!” section of the SLD’s Web site . Additional and archived information appears elsewhere on the E-Rate Central Web site .

Reminder: Form 486 Deadline for PY3 Recurring Services

In mid-November, the SLD mailed and/or faxed warnings to applicants who had not yet filed Form 486s for recurring PY3 services to advise them that funding on these services would be canceled if the Form 486s were not submitted (i.e., postmarked) by next Friday, December 14, 2001.

The December 14^th deadline is the first step in a SLD process to begin closing out funding disbursements for PY3. This date applies only to Form 486s for PY3 recurring services such as monthly telephone or Internet access. Other upcoming deadlines will deal with Form 486s for non-recurring services (typically Internal Connection installations) and for the related BEAR reimbursement forms. Unless FRN extensions have been granted:

1. The deadline for filing Form 486s for PY3 non-recurring services is January 28, 2002.
2. The deadline for filing PY3 BEAR reimbursement forms, for FRNs covered by Form 486s filed on or before November 12, 2001, is January 31, 2002.
3. For FRNs covered by PY3 Form 486s filed after November 12, 2001, the BEAR deadline is 90 days after the SLD processes the associated Form 486. Since applicants are not advised of PY3 Form 486 processing dates, it is best to assume that the BEAR deadline is 90 days after submitting the associated Form 486.

If a FRN has been extended by the SLD (to reflect late funding, SPIN changes, etc.), a later BEAR deadline will apply. A list of FRN extensions and associated BEAR deadlines can be accessed through the SLD Web site using the “FRN Extension Status” utility .

Note: Applicants who received out-of-the-window funding for PY2 should also check the FRN extension data to determine BEAR deadlines. Generally, the deadline for all OOW PY2 non-recurring services is December 29, 2002. The deadlines shown for recurring services, however, vary by FRN and may have already passed (although we expect the SLD to reset expired deadlines after appropriate applicant warnings).

SLD Caution on Bundled Internet Services

The SLD posted a cautionary note on its Web site this week dealing with the bundling of eligible and ineligible services. The warning was apparently triggered by situations involving bids for Internet access and filtering, but was written in such a way as to have potentially broader connotations on contracting and bidding procedures.

The specific problem is that Internet filtering is an ineligible service, but it is frequently included as a part of basic Internet access service by some ISPs. If the filtering component is priced separately, there is no problem; the cost involved is simply excluded from the eligible service request. However, if filtering is bundled into the basic Internet service at no additional cost, then the applicant must be prepared to demonstrate that the bundled Internet service pricing is the most cost-effective option available — excluding any benefits of the filtering in the cost-effectiveness analysis. This criteria is somewhat subjective and thereby creates potential review problems with the SLD.

This week’s warning reflected a more specific SLD concern that some applicants were beginning to issue RFPs for Internet service that required filtering as a bundled, no-cost, component. Such a requirement would appear — at least to the SLD — to encourage ISPs to incorporate otherwise ineligible costs in a bundled Internet service bid. To discourage such RFPs, the SLD stated that “[s]uch a requirement will affect the competitive bidding process adversely. That is, applicants would be limiting the pool of acceptable responses in a way that contravenes the conditions in the Eligible Service List….Therefore, applicants are on notice that such conditions in the Request for Proposal will make any resulting SLD funding request ineligible.”

Editorial comment: Our concern with this language is that it appears to set conditions on the procurement process (particularly those involving formal RFPs). It suggests that any bid for services involving both eligible and ineligible components (e.g., ineligible electrical wiring as a part of an eligible LAN project) might be viewed as noncompetitive if it in anyway excluded potential bidders that could provide only the eligible portions. We expect the SLD to provide further clarification on this issue and hope that it will not involve an additional layer of regulation on applicant procurement practices.

Binding E-rate Contracts

Before filing funding requests on a Form 471, E-rate rules generally require services involved be covered by a contract. Services exempt from the contract requirement are limited to tariffed services (i.e., telecommunications services provided under rates filed with either the FCC or the state public service commission) or selected types of services (e.g., cellular telephone or Internet access) commercially available on a month-to-month basis. Several recent FCC decisions have stressed that contracts must actually represent binding agreements.

Since these contracts must be in place well before the start of the actual funding year — and often before formal board approvals or budget votes — this requirement is a source of concern to many schools and libraries. In many situations, for example, this year’s public school board cannot commit next year’s board to specific operating expenditures. Here are three comments and suggestions for dealing with the realities of E-rate contracting:

1. State master contracts may be helpful in reaching an agreement with a vendor, but are not sufficient, by themselves, to meet the E-rate contract requirements. The FCC has noted that master contracts typically establish “terms of service,” but are not “mutually-binding” agreements. Some specific agreement (e.g., a purchase order or definitive letter of intent) is needed for E-rate purposes.
2. Many contractual telecommunications services can also be considered as tariffed services if, as in many states, the rates and/or provisions of the services are filed with regulatory authorities. In such cases, applicants may find it easier to request services under the E-rate tariff provisions (specified in Block 5, Item 15, as “T”) than under a specific contract.
3. While E-rate oriented agreements must be binding, the FCC has not stipulated that contracts cannot be made reasonably contingent on future conditions such as final action by next year’s board, passage of the budget, or even approval of E-rate funding.