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Competitive Bidding Cautionary Tale

I truly understand that in order for the E-rate program to continue to be successful, applicants and service providers must adhere to strict competitive bidding and procurement laws at the federal, state, and local levels. But it is just as important for the regulators, when reviewing applications, to apply the standards for the funding year in question and evaluate funding commitments based on the rules and regulations at that time.

On January 3, the SLD issued an FCDL for a FY 2008 Form 471 application denying an applicant nearly $120,000 because they and the service provider violated federal gift rules. The SLD cited the Sixth Report & Order in the denial explanation decision (see below), however, those rules and regulations were not in effect in FY 2008. In fact, the FCC had already reversed a similar case where the SLD retroactively applied the gift-giving rules first published in the FCC’s Sixth Report & Order in September 2010.

The SLD should issue funding commitments in a timely fashion, and it should not take four years to make a determination whether an application is in compliance or not. In reviewing this decision explanation, it appears that the district accepted “digital music devices” from their service provider. The SLD acknowledges that the applicant accepted the gifts in December 2007, however, the contract award date for the FRNs was February 7, 2007. How could accepting a few minor gifts ten months after the procurement affect the original competitive bidding process?

After a review of the materials submitted in this matter, USAC denies this FRN because the applicant failed to comply with the FCC?s (sic) competitive bidding rules. FCC rules require applicants to conduct a fair and open competitive bidding process that is free from conflicts of interest. (Lazo Technologies Order, DA 09-1797, para. 5). Consistent with this requirement, all service provider gifts were prohibited during the funding year that the contract for these FRNs were awarded to [XYZ E-rate Service Provider], Inc. The Sixth Report and Order (FCC 10-175, para. 88) makes clear that the FCC?s (sic) restrictions on gifts were always applicable and gift activities that occur outside of the bidding process may undermine the competitive bidding process. Applicants are also required to certify on Form 471 that they have not received anything of value from service providers. The documentation provided to USAC shows that in December 2007, four district employees were offered and accepted gifts of digital music devices from [XYZ Service Provider] The acceptance of these gifts violated the FCC?s (sic) requirements to conduct a fair and open competitive bidding process because these gifts violated local school board policy Section 5.3.8 which prohibits school employees from accepting gifts from contractors, subcontractors and suppliers. The plain language of this policy does not indicate that its application is limited to only during the actual procurement process. As stated above, FCC rules require applicants to conduct a fair and open competitive bidding process and to certify that the applicant has complied with all local and state procurement laws. Accordingly, this FRN will be denied.

This is a critical time of year for E-rate stakeholders to get their procurement and applications done correctly. It is hard enough for administrators and educators to keep up with the shifting standards, rules and regulations without having to worry about the SLD retroactively applying new rules. The gift rules were codified as part of the Sixth Report & Order, and going forward it will be important to remember that the gift rules pertain not only to the competitive bidding process, but applicants cannot accept gifts any time of year.

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