Funding problems related to specific vendors are not unique to FY 2003. Similar problems began to surface in significant numbers in FY 2001. Some applications for both FY 2001 and FY 2002 are still under review. Other applications for these two funding years have only recently been resolved with, in most cases, whole scale denials of funding requests involving certain vendors.

The recent spate of denials was based primarily on patterns of behavior that suggested violations of the E-rate program’s competitive procurement rules. Reasons cited for the denials typically included statements such as: “Similarities in service descriptions on Forms 470 and in selective review response provided to SLD among applicants associated with this vendor indicate that vendor was improperly involved in the competitive bidding and vendor selection process.”

With only a few exceptions, questionable vendors have not been publicly identified as such by the SLD. Last month the SLD established a new section of their Web site to list individuals and organizations that have been suspended or debarred from the program, but the list currently contains only three names of individuals who have been actually convicted of E-rate fraud or who have admitted to rigging E-rate bids.

One way to identify questionable vendors is to use the SLD’s Data Requests tool. On the first search screen, set the Funding Year (we’d suggest checking 2002 and 2003 separately) and State (we’d suggest checking your state and/or adjoining states), then add the suspected vendor’s SPIN as an additional search criteria. On the data screen, select the Funding Decision Data, then let the system build a report showing the status of all FRNs associated with the vendor for that state and year. If there are a number of FRNs listed for which there are not yet funding decisions (i.e. are still “In Review”), or were “NOT FUNDED” for reasons such as shown above, there is a strong possibility that the SLD has found or is exploring possible problems with that vendor.

The principles enumerated deal specifically with entities under investigation by law enforcement agencies, but are likely to cover vendors deemed questionable by the SLD as well.

In the past, the SLD had generally deferred action on any and all applications associated with vendors being investigated. Often this meant holding up funding decisions on other FRNs in these applications that were related to non-suspect vendors. More recently, and as covered by these principles, the SLD is willing to fund these unrelated FRNs if it is assured that there is no evidence of program violations for just those FRNs. As a practical matter, this might mean that an applicant’s Telecommunications and/or Internet Access FRNs might be funded, while Internal Connections FRNs associated with a questionable vendor are denied or held in abeyance.

Before proceeding with such funding, however, the SLD warns that the application as a whole would be subjected “heightened scrutiny, tailored to the nature of the allegations.” Such scrutiny is likely to involve an intensive Selective Review. At the very least, the additional review procedures would likely delay an applicant’s funding decision.

(1) First and foremost, it should be noted that the SLD may – and quite reasonably so – be erring on the side of caution in investigating suspicious patterns of vendor and/or applicant behavior. Even to hint that a vendor is “questionable” may be doing that vendor a grave injustice.

(2) As a result, the SLD will not recommend – and neither shall we – that applicants avoid selecting specific vendors to provide E-rate eligible services for the next funding year. On the other hand, applicants that have experienced problems in getting their applications approved in the past should pay strict attention to program rules for their FY 2004 applications. Applicants should assume that their applications will receive greater scrutiny – even if they change vendors – and should clearly document their procurement activities.

(3) As a review, applicants should read carefully the new reference document entitled “Form 470 Information for FY2004 Applicants” that was also posted last week. Please pay particular attention to the paragraphs on “Open, fair, competitive bidding process,” “Description of services,” “Service provider involvement with the Form 470,” and “Retaining documentation.”

(4) Although E-rate rules do not require applicants to proactively request bids from competing vendors (aside from the filing of Form 470s), we suggest that applicants who expect to be subjected to “heightened scrutiny” take special care this year to properly respond to – nay, even encourage – competing bids.

(5) Special attention should also be paid to documenting that the bids chosen were the most cost-effective. A suggested assessment tool for evaluating competitive bids is available on the E-Rate Central Web site.