The Schools and Libraries Division (SLD) of the Universal Service Administrative Co., the agency that administers the eRate, denied nearly $590 million worth of 2002 applications in its March 10 wave of funding decision letters because they allegedly violated the program’s competitive-bidding requirements. About $470 million of these applications reportedly listed IBM Corp. as the primary service provider.

The SLD had announced in early December that it had identified a “pattern” of competitive-bidding violations and had warned eRate applicants not to list vendors guilty of the same practices on their 2003 applications.

At the time of its warning, the agency confirmed that IBM—which is listed on applications requesting more than $1 billion in 2002 eRate funding—was the chief service provider involved in this alleged pattern. The SLD had denied only one application listing IBM as a vendor at the time, but a precursory review of other applications listing IBM as a service provider indicated that a larger pattern of violations likely existed, the agency said.

This week, the SLD rejected an additional $470.2 million in applications involving IBM, according to figures from eRate consulting firm Funds for Learning LLC, which calculated the data using the SLD’s Data Retrieval Tool.

“IBM has $1 billion worth of [2002] applications and … half of them got shot down today,” confirmed Greg Weisiger, state eRate coordinator for the Virginia Department of Education, who also calculated this information using the SLD’s Data Retrieval Tool. “IBM has $312 million worth of denials in Texas alone.”

In most cases, the agency denied funding because applicants incorrectly selected their vendors with a request for proposals (RFP) and not with a Form 470. In addition, the price of services was set after the vendor was selected, in direct violation of the program’s competitive-bidding requirements.

IBM spokesman Andy Kendzie told eSchool News that the company has seen information on the SLD web site pertaining to the rejections, but IBM has not heard anything directly from the agency itself.

“We’re going to assess it at that point,” Kendzie said. “We really need to look at the reasons behind each of the denials.”

IBM already has appealed to the Federal Communications Commission (FCC) to overturn the SLD’s decision to deny funds to the Ysleta Independent School District in Texas, the first IBM customer to be denied funding on the basis of alleged competitive-bidding violations. IBM has asked the FCC for an expedited ruling in this case.

Besides IBM, 13 other vendors had at least $1 million in funding requests rejected March 10, according to Funds for Learning. These include Ameritech Advanced Data Services Inc. ($27.9 million), BellSouth Communications Systems ($16.7 million), Multimedia Communications Services Corp. ($16.3 million), and Atlanta Datacom Inc. ($11.9 million).

More denial notices are expected in the next few weeks, as the SLD has awarded only $1.83 billion of the $2.25 billion in funding available for the 2002 program year. March 10 was the SLD’s goal for completing its review of all remaining 2002 applications, but the close scrutiny required of a number of applications for possible program violations has prolonged the review process even further.

So far, the SLD has reviewed more than 28,550 applications for the 2002 program year, which began last July 1 and ends this June 30.

The agency has made “a significant amount of progress, but a significant amount of people aren’t happy that more applications [have not yet been] approved,” said Sara Fitzgerald of Funds for Learning.

Some applicants are in a bind because the 2002 and 2003 program years are now overlapping. The deadline for 2003 applications was Feb. 6—but many applicants had not received notification of their 2002 funding by that date, which made it difficult to plan for the 2003 program year.

Applicants who receive notification of their 2002 funding after March 1 have until Sept. 30 2004—an extra twelve months—to use their funds for non-recurring expenses, such as internal wiring projects.

“The thing that has caused some schools pain is that the rule does not apply to recurring expenses,” said Fitzgerald, who noted that schools have been forced to pay in full for recurring expenses—such as monthly telephone and internet service bills—since last July 1 without knowing whether they’d be funded.


Schools and Libraries Division

IBM Corp.

Funds for Learning LLC