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.
Through no fault of its own, USAC found itself in the middle of an effort to interpret federal regulations that are wrought with gray areas. Understandably, the unofficial responses from USAC on most of these questions were filled with greater ambiguity—and, in some cases, silence.
On Aug. 5, USAC sought further clarification from the FCC regarding the gift regulations, and as of the date of this writing, the FCC had yet to respond.
In its latest request, USAC posed nine questions to the FCC that it has received since the new gift rules were implemented. The questions are divided into four areas: charitable donations and free equipment, widely attended gatherings and speaking and writing engagements, tracking and curing gift violations, and timing and applicability.
Charitable donations and free equipment
A December 2010 FCC clarification stated that “service providers cannot offer special equipment discounts or equipment with service arrangements to eRate recipients that are not currently available to some other class of subscribers or segment of the public.”
From this verbiage, USAC is seeking clarification on what is considered a “class of subscribers.” USAC is also asking where to draw the line between free equipment as a donation vs. a violation of eRate gift rules that requires cost allocation.
Widely attended gatherings and speaking and writing engagements
USAC is questioning how to handle service provider raffles and/or door prizes commonly conducted at trade shows. It further seeks to define a “collateral event” at a conference or show.
USAC also is asking for clarification whether a school or library employee may provide a testimonial for a service provider’s product, and whether paid or non-paid testimonials are permitted.
Tracking and curing gift violations
USAC is asking if applicants can rectify potential violations by returning an unsolicited gift and what, if any, documentation should be kept regarding gift receipt and/or refusal.
Timing and applicability
USAC is asking for further information regarding which funding years are affected by a violation. For example, if a violation occurs during a multi-year contract, does the violation invalidate all or only a portion of the contract?
Finally, USAC wants to know how to apply the gift rules to gifts provided before the applicant participated in the eRate program, as well as gifts received by an applicant from a service provider that currently does not provide service to the recipient.
Until the FCC issues further clarification of these issues, how can eRate applicants remain compliant and avoid violating any of the new gift rules?
The most simple and direct solution is not to accept anything from service providers. If an applicant refused any gifts, meals, donated equipment, speaking opportunities, trade show raffles, etc., it would be impossible to be found in violation.
However, this is not practical, especially given the current economic climate. Many schools are dependent on charitable donations, and to refuse them in an effort to be overly cautious could be irresponsible. So, what can applicants do?
Do not allow personnel to accept gifts from service providers, especially if they are directly involved in the eRate process.
Look to see if the donation requires the donor’s service. One thing that the gift rules are clear about is that charitable donations cannot increase the demand for the donor’s service. If a service provider is offering you a specific piece of equipment that can only run with its services, it would be best to decline.
Put yourself in a competing service provider’s shoes. Could it misread a charitable donation as unfairly influencing the competitive-bidding process? A scorned service provider might be the one to blow the whistle if it thinks it has been wronged.
Stay abreast of changes in the program. The FCC should release another order based on USAC’s latest set of questions. Clarification will come soon, so watch for it closely to ensure you’re in compliance.
Nick Shipley is a compliance analyst for eRate consulting firm Funds For Learning LLC.
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