How to make sense of the new eRate gift rules

In its Sixth Report and Order, issued in September 2010, the Federal Communications Commission codified regulations regarding gifts from eRate service providers to align with the gift rules applicable to federal agencies. Several months later, eRate stakeholders are still trying to make sense of the new rules.

Applicants are now subject to federal law regarding gifts from vendors, and any breach of this regulation is considered a competitive-bidding violation. Since the addition of the gifting rules, eRate applicants and service providers have struggled with the ambiguity of the rules and the numerous hypothetical situations they presumed they would face.

What’s more, confusion about the new eRate gift rules hasn’t stopped with applicants and service providers. The Universal Service Administrative Co. (USAC), the administrative body over the eRate program, has twice sought clarification from the FCC regarding application of the rules.

With compliance in the competitive-bidding process being paramount for eRate stakeholders, it is important for both applicants and service providers to understand the past, present, and future of the gifting rules and how they affect eRate compliance.

Before the Sixth Order, the FCC had made it clear that improper vendor gifts that could unfairly influence the competitive-bidding process were a violation of the fair and open eRate bidding process. Before, however, applicants simply had to certify on their Form 471 application that they had not received anything of value or the promise of anything of value, other than services and equipment requested on the application.

With the Sixth Order and subsequent codification of the gifting regulations, applicants not only must certify on their Form 471, but also must follow federal and/or state gift rules, whichever are stricter. From the FCC’s Sixth Report and Order:

“…[F]ederal rules prohibit a federal employee from directly or indirectly soliciting or accepting a gift (i.e., anything of value) from someone who does business with his or her agency or accepting a gift given as a result of the employee’s official position. The federal rules do, however, permit two categories of circumscribed de minimis gifts: (1) modest refreshments that are not offered as part of a meal (e.g., coffee and donuts provided at a meeting) and items with little intrinsic value intended solely for presentation (e.g., certificates and plaques); and (2) items that are worth $20 or less (e.g., pencils, pens, hats, t-shirts, and other items worth less than $20, including meals), as long as those items do not exceed $50 per employee from any one source per calendar year.”

In what appeared to be a proactive move, the Sixth Order also addressed the looming question of charitable donations. It stated that new gift rules were not intended to discourage companies from making “charitable donations to eRate-eligible entities in the support of schools—including, for example, literacy programs, scholarships, and capital improvements—as long as such contributions are not directly or indirectly related to eRate procurement activities or decisions.”

At face value, the verbiage appears somewhat straightforward. Applicants cannot accept any gift, with the exception of certain de minimis gifts, and service providers should not worry about charitable donations. But shortly after the release of the Sixth Order, questions began to pour in to USAC from applicants and service providers, ranging from how to define “charitable donations” to how should a Christmas fruit basket be split to ensure that no one person takes more than $20 worth of produce.