[Erate] E Rate Central News for the Week of April 24, 2006

Tue Apr 25 16:40:28 PDT 2006

E‑Rate Central News for the Week of April 24, 2006

*        FY 2006 and FY 2005 Funding Developments

*        Form 470 for FY 2007 Now Available

*        New Guidance on Equipment Transfers

*        Update on SLD News Briefs

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 and service providers.  To learn more about our services, please contact us by phone (516-832-2880) or by e-mail <mailto:services at e-ratecentral.com>  (services at e-ratecentral.com).  Additional E-rate information is located on the E‑Rate Central Web site <http://www.e-ratecentral.com/>  (http://www.e‑ratecentral.com <http://www.e%1eratecentral.com/> ).

FY 2006 and FY 2005 Funding Developments

FY 2006:

The big news this week will be the release of Wave 1 for FY 2006 on April 26th for approximately $126 million.  This is a welcome return to the late-April to early-May start of funding which had been the case in funding years preceding FY 2005 (which did not start until late last June).  As usual, the early waves will include commitments only for Priority 1 services.  The SLD indicated that it would release FY 2006 funding waves on a weekly basis.

On March 22nd, the SLD reported to the FCC that $3.55 billion in requested funding had been estimated for schools and libraries seeking discounts for FY 2006 (including $1.69 billion for Priority 1 services).  This estimate was based on the total funding requested in 39,416 applications received or postmarked by February 16, 2006, the close of the application filing window.  The Schools and Libraries Program has a funding cap of $2.25 billion.  The estimate does not include any additional demand that may be forthcoming on applications from entities in Alabama, Louisiana, and Mississippi directly affected by Hurricane Katrina (due by October 2nd).  Presumably, USAC and the FCC felt confident that any such additional demand for Priority 1 services would be small enough to conclude that there will be sufficient funding for all FY 2006 Priority 1 requests.

FY 2005:

Wave 45 for FY 2005 is scheduled to be released on April 27th for an estimated $97 million.  Total FY 2005 funding is now $1.63 billion.

The primary reason for the above normal size of Wave 45 is that the Internal Connections funding threshold was lowered from 88% to 86%.  We expect that this is but the second step in a gradual threshold reduction, hopefully to the 80% level.  Applicants who had previously received FCDLs with 86-87% FRNs listed “As Yet Unfunded” should receive revised FCDLs showing actual funding in this wave.

Many applicants contacted the SLD about missing FCDLs in several recent FY 2005 waves.  Last week, the SLD explained that it had experienced an operational problem while running Wave 35, Wave 40 and Appeals Wave A06.  The waves were run on Fridays (an unusual event) and the file that is used to generate the letters in Kansas was transmitted on Saturdays.  But since the Kansas facility was not set up to receive the file on Saturdays, no letters were generated for those waves.  The SLD will run the letters later this month — all with an April date.  That is a boon to applicants in Waves 35 and A06 since their original FCDLs would have carried a February date.  Based on an April date, these applicants will get an extra year to use commitments for non-recurring services.  The SLD plans to reach out to applicants to explain what happened and what to expect.  We understand that there was no issue with the commitment data in the Data Retrieval Tool.  Applicants who acted on that data and filed Form 486s should encounter no problems.

Form 470 for FY 2007 Now Available

After nearly two months without a Form 470 available for submission and posting on the SLD Web site, a Form 470 for FY 2007 was made available on April 12, 2006.  Most applicants are not concerned about the Form 470 at this time of year, but some applicants (especially, state agencies) have complicated procurement processes, and they must launch the process in the spring in order to sign contracts in time for filing the Form 471 for the next funding year.  For those applicants, this is welcome news.

New Guidance on Equipment Transfers

The SLD posted new equipment transfer guidance in its Reference Section on April 17th.  The guidance is interesting because it defines "transfer" in terms of entities receiving service, not in terms of a physical location of the equipment (see http://www.universalservice.org/sl/about/changes-corrections/transfers-equipment.aspx <http://www.universalservice.org/sl/about/changes-corrections/transfers-equipment.aspx> ). The key paragraph reads:

When does a transfer occur?

Equipment is transferred if it provides service to entities that were not included on the original approved FRN. Therefore, if the equipment provides service to entities that were not included on the original approved FRN, a transfer has occurred. A transfer does not automatically occur because equipment is moved or relocated; rather the question to ask is what entities are being served by the equipment.

This is followed by a few examples dealing with equipment at multiple schools.  (In the case of equipment serving only one school, a physical move would result in service to a new entity).

The multiple-school service distinction raises an interesting question.  Consider the third example provided:

Example 3. School D in the same school district wants to share the router with the other three schools. Yes, a transfer has occurred because service is being provided to an entity not included in the original approved FRN.

Assuming the need to serve School D arose before the three-year allowable transfer date, the SLD seems to be saying that the router can not be used for School D.  Presumably, the SLD is suggesting that the district would have to install an entirely new router for School D.  Assuming the original router had sufficient capacity to serve School D, this hardly seems cost-effective.  This is apparently the case of a transfer rule trumping a cost-effective rule.  On the other hand, the transfer rule helps protect against abuse of the program — for example, by installing a router to serve only high-discount schools and “discovering” after installation that it has the capacity to serve lower-discount schools as well.  E-rate is a complicated program and it is often hard to find the right balance among competing objectives.

Update on SLD News Briefs

Periodically, we highlight the SLD’s weekly News Briefs, which cover a variety of E-rate issues.  A complete archive of recent News Briefs is available on the SLD Web site at http://www.universalservice.org/sl/tools/news-brief/news-briefs.aspx <http://www.universalservice.org/sl/tools/news-brief/news-briefs.aspx> .  As we have noted before, it is not always clear whether the News Brief guidance reflects rules or simply suggestions, but it is hard to go wrong by following the recommended practices.  The following are a few of the key topics and points covered over the last few weeks with a few of our observations.

March 31st:

This Brief announced the new Deadlines tool on the SLD Web site, which we reported on in our newsletter for the week of April 3rd.

The News Brief included an extensive discussion of “cost effectiveness.”  We discussed the new “cost effectiveness” reviews and denials we were seeing in our newsletter for the week of March 13th.  The News Brief says that applicants must ensure that prices are reasonable compared to prices available commercially (by checking Internet sources or other school districts or libraries, for example) and that PIA checks to ensure this requirement is met.  The review may be of a particular FRN or all FRNs for an entity.  An applicant selected for this review will be provided “an opportunity to submit information about factors that may impact your costs, such as your geographic location or the types of services included.”  With respect to Basic Maintenance FRNs, the Brief provides a list of the information PIA may request to support a determination of “cost effectiveness,” including “maintenance costs per piece of equipment, including relevant information such as total hours of maintenance, cost per hour, and cost per school or library.”

Editorial observation:  Maintenance, calculated as a unit cost by piece of equipment or by entity may be misleading for break-and-fix contracts.  More importantly, the SLD has yet to provide any guidance about what standards they apply to trigger such reviews or to base denial decisions.  If applicants had information about such standards, they would be in a better position to negotiate with service providers and secure more reasonable prices.

The Brief also announced that USAC has added a list of major FCC orders and other documents that deal with USAC and the Universal Service Fund under FCC Orders in the About USAC section of the USAC Web site.  One can view the entire list for all years since 1997 or view them by year (although the latter is a two-step process — click the year in the list in the upper right and then click on a link that appears for that year in the center column).

Editorial Observation:  This is a useful addition to the USAC Web site, but it is at the same time both broader and more limited than many of our readers might wish.  It includes orders covering subjects well beyond E-rate, but it covers only the major orders on E-rate (and not appeals, for example, where many policies have been set over the years).  A more useful resource for E-rate-related FCC orders and decisions can be found on E-Rate Central’s Web site at http://www.e-ratecentral.com/FCC/default.asp <http://www.e-ratecentral.com/FCC/default.asp> .

April 7th:

This News Brief was dedicated almost entirely to the subject of Selective Reviews.  We provided extensive coverage of Selective Reviews and the SLD’s new guidance in our April 17th newsletter.

April 14th:

The April 14th News Brief focused on the site visits that BearingPoint has been conducting on USAC’s behalf and the findings from those visits.  USAC posts summary reports from the site visits on its Web site on a quarterly basis to assist applicants and service providers.

The most consistent problem encountered during site visits, according to the Brief, is lack of documentation.  The Brief highlights four specific examples of documents which are often not found:

o       Technology plans from prior years in accordance with FCC document retention requirements;

o       Competitive bidding documents (including RFPs, winning and losing bids, and bid evaluation criteria) that will enable applicants to establish that they conducted a fair and open procurement process;

o       Consulting agreements; and

o       Service substitution requests and USAC approvals.

BearingPoint reported that some applicants are confused about what to expect with payments on BEAR invoices that they submit.  Because of delays in making approved payments to service providers and other steps in the process, an authorized disbursement may appear in the Data Retrieval Tool as much as 40 days before the service provider passes that payment along to the applicant.

Up-front payments (that is, before the work begins) are allowed — if provided for in the contract between service provider and applicant.  Whether invoicing is by Service Provider Invoice (“SPI”) or BEAR, USAC may request verification of the contract provision on up-front payments before approving payment.

BearingPoint reported that recipients of service are not always as shown on the Form 471, Block 4.  The Brief encourages applicants to make corrections to the Block 4 during the RAL process if they realize that the entities listed are not those that will receive service.  An invoice for service to an entity not listed in the appropriate Block 4 will not be paid.

Editorial observations:  

In discussing the requirement to retain consulting agreements and service substitution requests, the Brief appears to go beyond current policy.  Specifically, it says that a consulting agreement is “required” if a consultant is employed to help an applicant through the application process (including providing services such as “designing an RFP”) before such services are provided.  

The Brief also says that service substitutions must be filed whenever products and/or services other than those specified in the Form 471 Item 21 attachment are delivered and invoiced to USAC.  (The notion that service substitution requests are required, and that invoices with service substitutions that have not been approved will be rejected, is also in the Tip Sheet on Invoice Processing.)  Elsewhere on the SLD Web site, however, the policy is explained this way:

Q9. Will unapproved changes in products and services delay payment of invoices?

Yes. Invoices are checked to ensure consistency with the products and service previously approved. Invoices will not be paid if these products and services are seen to have changed, until USAC establishes that the requirements for service substitutions are met.

In an informal discussion, SLD staff said that the “musts” should have been “shoulds” in both these instances, but it is not clear whether there will be any corrections made for the record.

On Block 4 corrections, the Brief encourages applicants to make them during the RAL process, but the need for other changes may not be identified until after commitment (e.g., closure of an existing school or opening of a new school), and SLD has not identified a process to make post-commitment Block 4 changes.

April 21st:

In addition to discussing the first funding wave of FY 2006 and the lowering of the FY 2005 funding threshold for Internal Connections (both discussed above), this week’s Brief discusses Quarterly Disbursement Reports.  These are useful reports that permit an applicant to check on the disbursement status of BEARs and vendor SPIs that have been processed during the preceding quarter.  Unfortunately, because these Reports are mailed to the authorized signer of the most recent Form 471 — who is not always the applicant’s regular E-rate contact — this information often does not end up in the proper person’s hands.

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Disclaimer: This newsletter may contain unofficial information on prospective E‑rate developments and/or may reflect E‑Rate Central’s own interpretations of E‑rate practices and regulations. Such information is provided for planning and guidance purposes only. It is not meant, in any way, to supplant official announcements and instructions provided by either the SLD or the FCC.

Patricia K. Middelburg, MEd., PMP

Project Management Office Interim Manager

and State E-Rate Coordinator

Department of Administrative Services

Information Resources Management Division

c/o 530 Airport Road SE

Salem, OR 97301

503.373.1365

Fax: 503.378.2736

pat.middelburg at state.or.us

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