eSN Exclusive: IBM in crosshairs as SLD targets eRate infractions

The Schools and Libraries Division (SLD) of the Universal Service Administrative Co., the agency that administers the eRate, said yesterday it is denying a “sizeable number” of 2002 applications that list a certain service provider because they allegedly violate the program’s competitive-bidding requirements.

SLD spokesman Mel Blackwell confirmed for eSchool News that the service provider in question is IBM Corp. IBM is listed on applications requesting more than $1 billion in 2002 eRate funding, according to eRate consulting firm Funds for Learning LLC, but Blackwell said it’s unclear at this point how many of these applications will be affected by the agency’s announcement, or how much money is at stake.

“IBM has got in the hundreds of millions of dollars in applications where they are the featured vendor. Will all of those applications be denied? We don’t know yet because we haven’t gone through all the applications yet,” he said.

Andy Kendzie, a spokesman for IBM’s Education Sector, said the company had just learned of the announcement and that it was premature for him to comment. But he did say IBM disagrees with the SLD’s decision.

“From what we have seen, all of our proposals were in compliance with the [program’s rules]. So this comes as a shock, and we’re investigating it,” he said.

In its Dec. 3 statement, the SLD said it has identified a “pattern” of competitive-bidding violations and is warning applicants not to list vendors guilty of the same practices on their Funding Year 2003 applications, because they also will be denied.

On the applications in question, the Form 470 portions indicated that no requests for proposals (RFP) were sought, potentially misleading other competitors. Also, IBM is listed as assisting the applicants in creating their technology plans, Blackwell said.

The program rules say applicants must hold an open and competitive bidding process and must have developed a technology plan beforehand, Blackwell explained. “The bedrock of the [eRate] program is full and open competition,” he said.

Only applications that break these rules are affected, said Blackwell, who added, “There may be other companies that fit the pattern. We just haven’t found them yet.”

The problem came to light as the SLD began looking at applications listing IBM as a service provider during the most recent wave of 2002 funding commitment letters. So far, the SLD has committed $1.5 billion for the 2002 program year and has another three-quarters of a billion to go, Blackwell said.

At the time of the SLD’s announcement, the agency had only funded two applications and denied one application listing IBM as a service provider. But from skimming other IBM-related applications, officials realized these applications fit a suspicious pattern and wanted to warn applicants immediately so they could avoid making the same mistakes in their 2003 applications, Blackwell said.

“IBM is not the total story. In fact, IBM is a small part of the story,” Blackwell said. “The key is to alert people to the pattern.”

To aid applicants, the SLD has outlined the relevant program rules in greater detail on its web site. The agency also warns that applicants for Funding Year 2003 who signed multi-year contracts in prior years based on this pattern should expect their 2002 applications to be denied. Such applicants might want to initiate a new process to select service providers for 2003, the agency advised.

Applicants still have time to do this because the 2003 filing deadline has been extended, Blackwell said.

“We want people to be aware of this [situation], so when they are choosing their vendor for 2003, they don’t make the same mistakes,” he said. “We’re saying, ‘Here are the rules. If you’re following them, you’ll get funded. If you’re not, then you’re not going to be funded.'”

The SLD also recommends that applicants use its Funding Request Data Retrieval Tool to identify which other service providers might engage in similar questionable practices. eSchool News first reported on the use of this tool for such a purpose last month (“New eRate tool IDs questionable vendors,”

Using the Data Retrieval Tool, Funds for Learning LLC estimates that IBM has more than $1 billion worth of funding requests pending for the 2002 program year, including $729 million worth of requests for internal-connections support at the 90-percent discount rate.

Applicants whose 2002 funding requests are denied because of this competitive-bidding infraction can file an appeal with the SLD. If this appeal is unsuccessful, applicants can appeal to the Federal Communications Commission, which has the final say on eRate rules.

Not following these program rules is on par with other mistakes eRate applicants make, Blackwell said.

Filing deadline extended

News of the alleged infractions came just one day after the eRate agency said it is extending the application deadline for the 2003 program year by three weeks. Reason: Some applicants reported difficulties filing their applications online. According to the SLD, the two developments are unrelated.

eRate applicants had a 74-day window, from Nov. 4 to Jan. 16, to file their 2003 applications. Now, the deadline has been pushed back to Feb. 6 at 11:59 p.m. EST.

During the first two weeks after the filing window opened, some applicants experienced technical difficulties using an interactive Form 471 that was new this year. The new form was designed to take applicants through the process step by step in a question-and-answer format, but it didn’t work properly.

Applicants who had problems with the new form reported that some of the data fields wouldn’t accept information and that they received several pop-up error messages about the form’s java script.

Although the SLD reverted to its old form Nov. 14 so schools could complete their applications—and only an estimated 100 people were affected—the agency decided to extend the filing window anyway.

“We don’t want to disadvantage anyone,” Blackwell said. “The window is so important to us and the applicants. We didn’t want to shorten the time frame.”

The State eRate Coordinator Group, which meets bimonthly with SLD officials, recommended that, to be fair to all applicants, the SLD should keep the filing window open for 74 days starting from the day the online Form 471 was working.

“We’re trying to avoid anyone having a reason to file an appeal because their 471 was denied,” said Gary Rawson, infrastructure planning and eRate coordinator for Mississippi’s Information Technology Services. Rawson is also chairman of the State eRate Coordinator Group, which is sponsored by the Council of Chief State School Officers.

Because of the deadline change, funding commitment letters will be issued three weeks later than usual. This creates a problem because the funding years already overlap, Rawson said. Some schools end up applying for the same services in two consecutive years because they don’t know what will be funded in one year before they must apply the next year.

Della Matthias, Alaska’s eRate coordinator, shared the same concern. “Funding as it is takes from April through December. I still have two applications in my state [from the 2002 program year, which began July 1] not accounted for yet,” she said.

One of those applicants is now developing its 2003-04 budget, but school leaders there still don’t know how much of the district’s funds need to be spent on eRate projects they hoped to have funded for 2002-03.

“From my discussions with applicants, they would rather have early funding commitments far more than anything else,” Matthias said.

Although the deadline has been extended by three weeks, the SLD urges applicants to file as soon as possible.

“Most people, unfortunately, file in the last couple of weeks,” Blackwell said. “The sooner you file, the sooner you get your 471 in, the sooner you’ll hear from us. We work on a first-in, first-out basis.”

The SLD said it will make every effort to review applications as quickly as possible to minimize delays in issuing 2003 funding commitments.

The eRate is a $2.25 billion program that provides telecommunications discounts to schools and libraries. More than 30,000 applicants are expected to request discounts for the 2003 program year, which runs from July 1, 2003 to June 30, 2004.


Schools and Libraries Division

Warning to Funding Year 2003 Applicants and Service Providers Regarding Application Patterns That Violate FCC Rules

Funding Request Data Retrieval Tool

IBM Corp.

Funds For Learning LLC

eSchool News Staff

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