A five-year, $28 million contract awarded to Science Applications International Corp. (SAIC) to manage the information systems used to administer the federal E-rate has some E-rate service providers crying foul. Because SAIC also is a service provider under the program, critics say the deal represents a huge conflict of interest and could give SAIC a competitive advantage in bidding for other E-rate-related business.

The Universal Service Administrative Company (USAC), the independent, not-for-profit corporation that administers the $2.25 billion-a-year E-rate, says it has put safeguards into place to prevent such abuse. But some E-rate service providers say these safeguards are not enough, and they accuse USAC of applying a double standard: one for the way it conducts its own business, and another, much more stringent standard for E-rate applicants.

"People should be incensed by this," said one service provider representative who wished to remain nameless, fearing possible retribution by USAC officials. "What's good for the goose is good for the gander. If a service provider did this, [USAC] wouldn't ever allow it."

The E-rate subsidizes up to 90 percent of the cost of telecommunications services for eligible schools and libraries. Schools and libraries file an initial Form 470 application indicating the types of services they are requesting, and companies then submit bids for these services. Once an applicant chooses a service provider and signs a contract, it must submit a second form, Form 471, requesting E-rate funding. If this application is approved, USAC issues the funds to the service provider, which passes the money on to the applicant in the form of a discount or reimbursement.

SAIC, which earned nearly $9 billion in revenue in the last fiscal year, is a leading provider of technologies and systems integration for the Defense Department and other government agencies. It also has received nearly $54 million in E-rate funding since 2002 for services provided to E-rate applicants, including more than $51 million to supply internal connections (network upgrades) for the Los Angeles Unified School District.

Critics note that, as the information systems administrator for the program, SAIC will have unfettered access to electronic information about all E-rate applicants and other service providers--inside information that could help the company land even more E-rate business with schools.

SAIC will not be able to see the bids submitted for E-rate services during the application filing window, because service providers send their bids directly to applicants. However, as the systems administrator for the E-rate, the company will have access to electronically stored information on the winning bids once applicants file their Item 21 attachments, which explain the services to be provided and the cost of those services in great detail. In theory, the company could use this information to submit a lower bid for the same services the next time an applicant requests these services through the E-rate program.