E-Rate Central News for the Week
July 23, 2012
The E-Rate Central News for the Week is prepared by E-Rate Central. E-Rate Central specializes in providing consulting, compliance, and forms processing services to E-rate applicants. To learn more about our services, please contact us by phone (516-801-7804), fax (516-801-7814), or through our Contact Us Web form. Additional E-rate information is located on the E-Rate Central Web site.
Wave 4 for FY 2012 will be released on Tuesday, July 24, for $51.8 million. This will bring cumulative FY 2012 funding to $786 million. As is typically the case for early funding waves, only Priority 1 applications are being funded at this time.
Quickly following up on USAC's recent projection on funds available for carry forward into future years, the FCC announced that the full $1.05 billion so identified would be carried over into FY 2012. USAC believes that "such funds would be sufficient to make commitments at the 90% level for Priority 2 requests."
Wave 53 for FY 2011 will be released on Wednesday, July 25, 2012. Cumulative funding for FY 2011 is $2.26 billion. Priority 2 funding is being provided at 89% and above, and denied at 80% and below.
No funding wave for FY 2010 is scheduled this week.
E-Rate Updates and Reminders
FCC Appeal Decisions Watch:
The FCC issued one appeal decision (Integrity Communications, et al., DA 12-1127) last week approving appeals by one service provider, on behalf of three school district clients, and one separate charter school. Two additional appeals by the service provider were dismissed because its district clients had withdrawn their applications.
On the surface, the basic denial reason for all the appeals was a seemingly simple failure by the applicants to fully respond to USAC requests to demonstrate that they had sufficient resources to make effective use of the services requested. In approving the appeals, the FCC reasoned that "the applicants may not have fully understood the documentation USAC required…," and granted the applicants an additional 30-day opportunity to provide the requested information.
Beneath the surface, the problems involving Integrity Communications ran far deeper. The company's tortuous E-rate history included a large number of denials and FRN cancellations over multiple years and a regulatory fight over a USAC request for a formal compliance plan (see our newsletters of October 26, 2009, and January 23, 2012). The charter school's problem was also severe since it had originally been funded for FY 2002, had used over $200 thousand of its commitment, and was being asked to return the funds.
FCC Comment Deadlines:
Comments are due July 23rd on a petition for clarification filed by the State Educational Technology Directors Association ("SETDA"). SETDA's petition asks for clarification on the "educational purpose" criterion as it applies to remote VPN access to school computer systems by students and teachers (see our newsletter of June 25, 2012). Reply comments are due August 6th.
Comments on the draft FY 2013 Eligible Services List ("ESL") are due August 6th. The proposed ESL makes no significant changes in product and service eligibility, but does include a restructuring of the Priority 1 services under new section headings (see our newsletter of July 9, 2012). Reply comments are due August 21st.
Schools and Libraries News Brief Dated July 20 – Basic Maintenance
The SLD News Brief for July 20, 2012, includes a discussion of the eligibility and timing issues related to Basic Maintenance of Internal Connections ("BMIC"). The eligibility of BMIC has been a source of confusion to applicants and service providers alike — and also, we suspect, to USAC itself — since the FCC changed the rules in its 2010 Sixth Report & Order (FCC 10-175), effective FY 2011. The new rule, as initially issued, indicated that maintenance discounts would only be applied for work actually performed — a concept we refer to as "performance-based services." Fixed-priced contracts, under which applicants were charged even if no work was ever performed, were deemed to be ineligible.
The rationale for the new rule apparently stemmed from the FCC's concern that many applicants were signing expensive fixed-priced contracts. These arrangements might be cost-effective for high-discount applicants paying only a small percentage of the contract price, but they did not appear cost-effective as a whole. The rule created a firestorm, particularly among suppliers like Cisco that offered warranty packages (e.g., SMARTnet) that fell under the fixed-price maintenance contract ban.
Later in 2010, the FCC released a "clarifying" order (DA 10-2355) backtracking somewhat on fixed-priced maintenance contracts, but actually adding to the confusion. The FCC said — and this is still the interpretation as reiterated in the recent News Brief — that "Applicants can still sign fixed price BMIC contracts, but commitments will be made and reimbursements paid only for work actually performed." But then, perhaps in deference to software-based warranties, the FCC indicated that "Some services – such as software upgrades and patches, including bug fixes and security patches, and online and telephone-based technical assistance and tools – can continue to be funded under a fixed price contract or other arrangement without a demonstration of work performed."
Last week's News Brief provides a simple summary of the current BMIC rules, but does little to address many of the questions we are still hearing from both applicants and suppliers, including:
- How should bid assessments be made on fixed-price contracts if only a portion may be eligible? Is price determined by hourly labor costs, or by multiplying hourly costs by estimated hours of work? Who should be estimating the amount of work likely to be needed for performance-based services, applicants or suppliers?
- Exactly what fixed-priced services are eligible? Are the FCC's examples the only eligible ones, and how strictly they are defined? Don't both applicants and providers have every incentive to push the boundary of such services in preference to time and material type services?
- How must maintenance contracts be written to cover both fixed-priced and performance-based types of services? Should separate FRNs be filed for each type of service so that fixed-priced services can be easily invoiced upfront, while performance-based contracts are invoiced only as actual expenses are incurred?
- What proof is required, and how will it be reviewed by PIA, to determine reasonable estimates of performance-based service requirements?
- What procedures will USAC employ when reviewing invoices for either type of maintenance services?
To date, the answers to many of these questions are largely anecdotal, with more anecdotes to follow as additional BMIC funding decisions are released for FY 2011 (and eventually FY 2012), and more FY 2011 maintenance SPIs and BEARs are filed as the October deadline approaches.
Last week's News Brief also addresses the timing of BMIC services stressing that they are:
- Recurring services, meaning that only those services actually received during the specific July-June funding year may be discounted. Discounts on the eligible portion of an annual maintenance (or, more specifically and as is often the case, a warranty) contract, not beginning July 1 and ending June 30, will have to be filed for over the applicable months in two or more funding years.
- Priority 2 services, which are typically not approved until the later funding waves well into or even past the funding year. Applicants utilizing eligible BMIC services earlier in the funding year, before they are funded, can realize discounts on a retroactive basis. But applicants holding off discretionary BMIC services until they are funded may not receive discounts on a full year of service. In the extreme, applicants who have not yet been funded for BMIC in FY 2011 and who did not incur any eligible BMIC services in that year will receive no benefits from future FY 2011 BMIC awards (and might just as well cancel pending FRNs).