[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
PROBLEMS WITH THE E-RATE PROGRAM: WASTE, FRAUD, AND ABUSE CONCERNS IN
THE WIRING OF OUR NATION'S SCHOOLS TO THE INTERNET
Part 3
=======================================================================
HEARING
before the
SUBCOMMITTEE ON
OVERSIGHT AND INVESTIGATIONS
of the
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
----------
SEPTEMBER 22, 2004
----------
Serial No. 108-124
----------
Printed for the use of the Committee on Energy and Commerce
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
PROBLEMS WITH THE E-RATE PROGRAM: WASTE, FRAUD, AND ABUSE CONCERNS IN
THE WIRING OF OUR NATION'S SCHOOLS TO THE INTERNET--Part 3
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001
PROBLEMS WITH THE E-RATE PROGRAM: WASTE, FRAUD, AND ABUSE CONCERNS IN
THE WIRING OF OUR NATION'S SCHOOLS TO THE INTERNET
Part 3
=======================================================================
HEARING
before the
SUBCOMMITTEE ON
OVERSIGHT AND INVESTIGATIONS
of the
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 22, 2004
__________
Serial No. 108-124
__________
Printed for the use of the Committee on Energy and Commerce
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
__________
COMMITTEE ON ENERGY AND COMMERCE
JOE BARTON, Texas, Chairman
W.J. ``BILLY'' TAUZIN, Louisiana JOHN D. DINGELL, Michigan
RALPH M. HALL, Texas Ranking Member
MICHAEL BILIRAKIS, Florida HENRY A. WAXMAN, California
FRED UPTON, Michigan EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida RICK BOUCHER, Virginia
PAUL E. GILLMOR, Ohio EDOLPHUS TOWNS, New York
JAMES C. GREENWOOD, Pennsylvania FRANK PALLONE, Jr., New Jersey
CHRISTOPHER COX, California SHERROD BROWN, Ohio
NATHAN DEAL, Georgia BART GORDON, Tennessee
RICHARD BURR, North Carolina PETER DEUTSCH, Florida
ED WHITFIELD, Kentucky BOBBY L. RUSH, Illinois
CHARLIE NORWOOD, Georgia ANNA G. ESHOO, California
BARBARA CUBIN, Wyoming BART STUPAK, Michigan
JOHN SHIMKUS, Illinois ELIOT L. ENGEL, New York
HEATHER WILSON, New Mexico ALBERT R. WYNN, Maryland
JOHN B. SHADEGG, Arizona GENE GREEN, Texas
CHARLES W. ``CHIP'' PICKERING, KAREN McCARTHY, Missouri
Mississippi, Vice Chairman TED STRICKLAND, Ohio
VITO FOSSELLA, New York DIANA DeGETTE, Colorado
STEVE BUYER, Indiana LOIS CAPPS, California
GEORGE RADANOVICH, California MICHAEL F. DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire CHRISTOPHER JOHN, Louisiana
JOSEPH R. PITTS, Pennsylvania TOM ALLEN, Maine
MARY BONO, California JIM DAVIS, Florida
GREG WALDEN, Oregon JANICE D. SCHAKOWSKY, Illinois
LEE TERRY, Nebraska HILDA L. SOLIS, California
MIKE FERGUSON, New Jersey CHARLES A. GONZALEZ, Texas
MIKE ROGERS, Michigan
DARRELL E. ISSA, California
C.L. ``BUTCH'' OTTER, Idaho
JOHN SULLIVAN, Oklahoma
Bud Albright, Staff Director
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Oversight and Investigations
JAMES C. GREENWOOD, Pennsylvania, Chairman
MICHAEL BILIRAKIS, Florida PETER DEUTSCH, Florida
CLIFF STEARNS, Florida Ranking Member
RICHARD BURR, North Carolina DIANA DeGETTE, Colorado
CHARLES F. BASS, New Hampshire TOM ALLEN, Maine
GREG WALDEN, Oregon JANICE D. SCHAKOWSKY, Illinois
Vice Chairman HENRY A. WAXMAN, California
MIKE FERGUSON, New Jersey EDWARD J. MARKEY, Massachusetts
MIKE ROGERS, Michigan JOHN D. DINGELL, Michigan,
JOE BARTON, Texas, (Ex Officio)
(Ex Officio)
(ii)
?
C O N T E N T S
__________
Page
Testimony of:
Bohuchot, Ruben, Chief Technology Officer, Associate
Superintendent, Dallas Independent School District......... 141
Caine, Christopher G., Vice President, Government Programs,
IBM, accompanied by Mike Pratt............................. 245
Carlisle, Jeffrey, Chief, Wireline Competition Bureau,
Federal Communications Commission.......................... 20
Feaster, Walker, III, Inspector General, Federal
Communications Commission; accompanied by Thomas Cline,
Assistant Inspector General, Audits, Federal Communications
Commission;................................................ 8
Foster, Sharon, Technology Information Systems Director,
Ysleta Independant School District......................... 148
Glogovac, Paula, former E-Rate Consultant to Sun Microsystems 155
Green, Judy, former E-Rate Consultant, Video Network
Communications; accompanied by Quentin Lawson, Executive
Director, National Alliance for Black Educators; Carl
Muscari, former President and CEO, Video Network
Communications; Robert McCain, Program Manager, NEC BNS;
Emma Epps, Superintendent, Ecorse Public School District;
Douglas Benit, former Facilities Director, Ecorse Public
School District; and William Singleton, Superintendent,
Jasper County Schools, Ridgeland, South Carolina........... 51
Hawthorne, Nathaniel, General Counsel, Alpha
Telecommunications, Incorporated........................... 196
McDonald, George, Vice President, Schools and Libraries
Division, Universal Service Administration Company......... 15
Tafoya, Charles, Superintendent, El Paso Independent School
District................................................... 123
(iii)
PROBLEMS WITH THE E-RATE PROGRAM: WASTE, FRAUD, AND ABUSE CONCERNS IN
THE WIRING OF OUR NATION'S SCHOOLS TO THE INTERNET--Part 3
----------
WEDNESDAY, SEPTEMBER 22, 2004
House of Representatives,
Committee on Energy and Commerce,
Subcommittee on Oversight and Investigations,
Washington, DC.
The subcommittee met, pursuant to notice, at 10 a.m., in
room 2123, Rayburn House Office Building, Hon. Joe Barton,
(acting chairman of the subcommittee) presiding.
Members present: Representatives Stearns, Bass, Walden,
Rogers, Barton (ex officio), Deutsch, and DeGette.
Also present: Representative Bono.
Staff present: Mark Paoletta, majority counsel; Tom Feddo,
majority counsel; Peter Spencer, majority professional staff;
Jaylyn Jensen, majority professional staff; Michael Abraham,
legislative clerk; David Nelson, minority counsel; and Jessica
McNiece, minority clerk.
Chairman Barton. The subcommittee will come to order.
Today, we are continuing a series of hearings by the Oversight
and Investigations Subcommittee of the Energy and Commerce
Committee on problems with the E-Rate program, waste, fraud,
abuse concerns in the wiring of our Nation's schools to the
Internet.
We are going to have three panels. The first panel is a
panel of Federal officials responsible for overseeing the
program, approving the program, and monitoring compliance with
the regulations for the program. Our next two panels consist of
officials of local school districts and various private vendors
and consultants who have assisted those districts in applying
for and using funds within the program.
This hearing is going to resume our focus on problems with
the front end of the E-Rate process, the critical area of the
program where applicants must take certain required steps to
plan and choose the products and services that they wish E-Rate
to support. Failure to take the right steps at the beginning of
the process can result in wasteful spending, if not fraud and
abuse, when the E-rate funds begin to flow.
This hearing will also resume the subcommittee's
examination of a bid-rigging conspiracy involving a large
vendor, NEC BNS, which affected E-rate applications in a number
of school districts around the country. In late May of this
year, the NEC pled guilty to conspiring to eliminate
competition in E-rate projects and also to wire fraud.
This past July, we examined this conspiracy largely in
connection with the San Francisco Unified School District. We
heard about a fraudulent $50 million application that passed
the normal approval process and was thankfully eventually
stopped because one key individual, that district's
superintendent, took responsibility and turned down the
questionable funding and launched an internal investigation. In
that case, because of that superintendent's responsible
actions, E-rate funds did not flow into the conspirator's
hands.
In contrast, we are going to look at a couple of districts
where the superintendents did not stop the questionable
funding, where E-rate funds were expended, and we will examine
how the school districts abdicated their duty to responsibly
manage the people's money.
Four of the witnesses in connection with the topic today
declined to appear voluntarily. Therefore, this committee had
to issue subpoenas last week to command their presence and
testimony. Among those that we had to subpoena that are here
today are the superintendent of the Ecorse Michigan Public
School District, Dr. Emma Epps, and the former facilities
director for Ecorse, Dr. Douglas Benit. Both of these school
officials can help us, if they will, understand how Ecourse
became involved with NEC BNS and how they developed plans to
spend E-rate funds, including spending on goods and services
that were ineligible for E-rate discounts.
We also have Mr. Quentin Lawson, the executive director of
the National Alliance of Black School Educators, NABSE. He can
explain how NABSE assisted school districts with their E-rate
plans and how NEC BNS became involved with these plans.
We have also issued a subpoena to Mrs. Judith Green, an E-
rate consultant and former employee of VNCI, a now defunct
company that supplied E-rate gear to school districts through
NEC BNS. Although U.S. marshals were not able to serve Mrs.
Green to command her appearance at our July hearing, she has
been successfully served this time, and we have provided her
another opportunity to explain what she knows about the NEC BNS
conspiracy.
A well-run E-Rate program requires a high degree of
accountability on the part of applicants, vendor participants
and the managers of the program, both at the Universal Service
Administrative Company, or USAC, and the Federal Communications
Commission, the FCC. There are many key questions we must
address on this front. For example, how do we ensure that
school districts have done their homework, as the program
requires, and have planned and decided what they need from E-
rate before they choose vendors? How do we ensure that the
competitive bidding for goods and services has been conducted
properly and truly is competitive? How do we ensure that
vendors and consultants do not insinuate their advice
inappropriately in this process?
To help us answer these questions, another aspect of this
hearing involves a case where about 20 school districts applied
for a total of $500 million in E-rate support but were rejected
for the funding by USAC, the E-rate administrator, because they
did not select E-rate goods and services competitively. The
year before this massive rejection, the El Paso Independent
School District, which is the seventh largest district in
Texas, applied for and received E-rate discounts using the very
same methods later identified by the FCC as undermining the
competitive process.
It is notable that El Paso E-rate support increased by some
$64 million in a single year. In other words, it went from
around $4 million 1 year to around $67 million, I believe, the
next year when it deployed this strategy to use a single vendor
as a so-called strategic technology integrator for the purposes
of E-rate work. El Paso's public request for this integrator
made clear that the district had not yet determined what goods
and services it would seek on E-rate applications, thus
suggesting that the winning vendor would become closely
involved in the subsequent E-rate planning process.
The success of El Paso's funding request appears to have
influenced school district decisions around the region the very
next year. In other words, the word got out that there was easy
money to be had. Those districts that decided to implement a
strategy similar to El Paso's fortunately, for the taxpayers,
were later rejected because the strategy did undermine
competition.
We will hear from the vendor that served El Paso as the
integrator, IBM, about its role in the process today. We will
also hear from several of the school districts and from other
witnesses who can shed light on how the process unfolded. I am
hopeful they can explain how the public came to be so poorly
served.
What happened in El Paso and in the other districts will
provide for this subcommittee a window into the program setup,
the quality of planning by school districts and the impacts on
price and eligibility of services when competition is not able
to flourish. Throughout this review, I have remained very
troubled by the performance of the FCC and USAC at actually
rooting out waste, fraud, and abuse. They are supposed to be
guardians of the public trust. In many cases, in my opinion,
they have failed to adequately discharge their oversight
responsibility. These case studies today will further
illuminate problems that we found within their oversight of the
program. The pace and scope of program reforms have been, in
many cases, too little and too late.
Finally, and more fundamentally, I have serious concerns
about why the FCC set up the program this way in the first
place. From the evidence emerging from the series of hearings,
this program needs wholesale restructuring.
With that said, I look forward to hearing from the USAC and
the FCC as well as the numerous other witnesses at this hearing
today. I look forward to getting clear answers so that we can
do our job as the oversight committee to reform the program, so
that the public trust is not squandered. I want to welcome all
of our panelists and, with that, I would recognize the
distinguished ranking member of the subcommittee, Mr. Deutsch
of Florida, for any opening statement which he wishes to make.
Mr. Deutsch. Thank you, Mr. Chairman, for recognizing me
for the purpose of making an opening statement. As you are
aware, the opportunity to make opening statements, which has
long been recognized in the Committee on Energy and Commerce on
a bipartisan basis as a member's right, was denied members on
Wednesday, September 15. Before proceeding with my initial
remarks, let me note that next Congress, regardless of who is
in the majority, members will have an opportunity to debate and
vote on the serious break with committee precedent and
tradition. In the interim, I strongly urge that committee
precedent and tradition be respected. Again, I want to thank
you for recognizing me for this opening statement this morning.
Mr. Chairman, I commend you for holding this hearing and
the investigation that has led up to today's inquiry. The E-
Rate program has far-reaching consequences and is among those
that determine the economic health and security of this Nation
for years to come. Congress enacted the E-Rate program to
assure that all of our children have schools and libraries that
connect to the Internet. Seven years and over $15 billion
later, the program has not yet achieved that goal.
In fairness, there has been some marvelous success stories.
In those instances where competent administrators have combined
E-rate funds with other funding sources and good planning, they
have produced classrooms where first graders do Powerpoint
presentations and third graders forecast weather.
Unfortunately, this is clearly not the norm.
Mr. Chairman, this subcommittee has a history of exposing
waste, fraud and abuse in Federal programs. We have usually
been able to proceed on a bipartisan basis because it is in the
interest of everyone to expose and halt such practices. In this
investigation, the subcommittee has unfortunately hit the
trifecta. Our first hearing focused on waste--$100 million
spent in Puerto Rico for high-speed Internet, yet the two
computers per school were connected to the Internet via dial-up
modems provided from local funds. All E-rate funds were wasted.
Our second hearing focused on fraud. NEC Corporation paid $20
million in fines and pled guilty to criminal charges involving
bid-rigging of an E-rate contract in San Francisco and
elsewhere. Local officials stopped the fraud from coming to
fruition in San Francisco. Two of the school districts where
NEC and its co-conspirators fraudulently obtained funds will be
part of today's hearings.
This hearing really focuses on abuse of the program. One of
the premier technology corporations, IBM, devised schemes to
appropriate virtually all of the funds available for wiring
30,000 schools and school districts in the country to a handful
of school districts that agreed to become strategic partners
with that company in use of E-rate funds. In 2002, school
districts listing IBM as a primary vendor submitted
applications totaling about $1 billion in costs to wire the
internal connections in a handful of school districts.
The applications were modeled on its, ``success,'' in El
Paso, Texas where IBM managed to spend $69 million the year
before to supply those schools with equipment and services that
far exceeded the ability of the district to effectively utilize
them. This gold-plate equipment was installed without the
necessary discussions and teacher trainings. Much of it has
gone unused. A prime example is the $27 million spent on a help
desk that the extent that such funds might have been eligible
for E-rate funds largely duplicated the warranties that should
have come with the installed equipment. That desk operated for
only a couple of months and provided no present-day benefit for
the school children of El Paso.
Mr. Chairman, you and your staff have indeed documented how
a program that was enacted to serve such an important goal has
been derailed by incompetent administration, greedy vendors and
in some cases ill-prepared local school officials. The IBM case
study demonstrates once again how this program that is supposed
to benefit our children has been captured by vendors whose only
interest is fattening their own pockets. E-rate was designed to
close the digital divide, to close the gap between those
children whose parents could afford to provide them with a
computer connected to the Internet at home, whose community
schools taught them how to utilize the unlimited information
available on the World Wide Web, to make a place for themselves
in this increasingly technologically dependent economy and
those Americans who are not so advantaged.
It is these children, the children of America's hardworking
families whose jobs have been lost to competition from cheap
foreign labor who must access the new technology if they have
any hope of being part of the economic future of this country.
And this country can ill-afford to be a Nation divided between
the competitive and the ill-equipped. Look forward to the
testimony.
Chairman Barton. I thank the distinguished ranking member
of Florida for that opening statement. Before he recognizes the
vice chairman, I'd just like to take a point of personal
privilege to point out that the Chair held the start of this
hearing for 15 minutes so that the distinguished ranking member
could be here to give that statement.
Mr. Deutsch. I thank you.
Chairman Barton. And we have honored the tradition of
opening statements on both sides in every hearing this
committee has done this year except one when it was the
chairman's judgment that the political implications of that
particular subject did not rise to the requirement that the
opening statements tradition should be honored. So if we can
keep the purpose of the hearings and the legislation under
consideration to be constructive, there won't be any
restrictions on opening statements.
And with that, the Chair would recognize the distinguished
vice chairman of the subcommittee, Mr. Walden of Oregon, for an
opening statement.
Mr. Walden. Thank you, Mr. Chairman, and thank you for your
work on this and many other issues. Today, as you said, we will
continue to explore a critical issue with respect to our
oversight of the E-Rate program, and that is how well does the
application process ensure that applicants have taken the
appropriate steps to choose the most cost-effective E-rate
goods and services? This is a central issue with this program.
Weaknesses upfront in the application process, be it the
planning or the competitive process, to choose the goods and
services for E-rate support paves the way either to effective
educational enhancements, as envisioned for the program, or to
the waste and abuse of limited resources.
Incentives really matter. When a program is designed to
provide recipients and applicants access to others' money,
there is a powerful incentive to buy more than is needed. And
when tens of millions of dollars are at issue, there is a very
powerful incentive to spend wastefully. To prevent such
wasteful spending, the program must deploy measures that
enhance the incentives that ensure efficient and effective
spending for schools and libraries.
At today's hearing, we will approach this from several
perspectives. We will continue to look at the impact of the NEC
BNS conspiracy we heard testimony about this past July and the
involvement of certain schools in this mess. We will also focus
on the planning and decisions by school districts that pursued
a procurement method advertised as useful for, ``maximizing,''
E-rate funding.
And we will hear today about school districts' obligations
to do their homework so that what they ask for can be put to
use. I am interested to learn more from our witnesses about the
burdens of planning and also about the ways to plan properly so
that districts don't bite off more than they can chew. I am
interested to learn how we can strengthen the incentives to
plan properly. I would also like to learn if efforts to improve
certifications on the applications are sufficient for this
task. Planning is essential. Also essential is to know the
rules and understand what is necessary for a competitive
process to flourish.
We will hear today about a case where competition did not
flourish and where it appears that school districts really did
not fully plan out what they needed for the program. The result
was tens of millions of dollars of questionable spending in one
poor school district. In another school district, the result
was an application that asked for more than what the district
really needed. Fortunately, the district took subsequent steps
to scale back the request, but I am not sure that is what
normally happens.
What is the responsibility of the vendor in these
situations? Despite a powerful incentive to sell and do
business, vendors must play by the E-rate rules as well. So
today we will be able to learn about the responsibilities of
vendors in this process and whether the requirements and rules
are clear and sufficient to ensure that vendors participate
appropriately.
One of the foremost issues we must address is
accountability. Today, we will hear about accountability from
all parties--the school districts, the vendors, and the agency
charged with overseeing the program--and I think this is
critical for our oversight of this very important program. So I
look forward to welcoming the witnesses, and I would especially
like to thank the efforts made by Charles Tafoya of El Paso
Independent School District who will join us by video
conference link today. We appreciate his efforts, especially
given the last minute complications in his plans to attend the
hearing.
Thank you, Mr. Chairman, and I will yield back whatever
time remains.
Chairman Barton. We thank the gentleman of Oregon for that
opening statement and recognize the gentleman of Michigan, Mr.
Rogers, for any opening statement he wishes to make. The
gentleman yields.
The Chair would ask unanimous consent that all members of
the subcommittee not present have the requisite number of days
to put their opening statements formally in the record. Without
objection, so ordered.
[Additional statement submitted for the record follows:]
Prepared Statement of Hon. Greg Walden, a Representative in Congress
from the State of Oregon
Thank you, Mr. Chairman. Today we will continue to explore a
critical issue with respect to our oversight of the E-rate program. And
that is: how well does the application process ensure that applicants
have taken the appropriate steps to choose the most cost-effective E-
rate goods and services?
This is a central issue with this program. Weaknesses up front in
the application process--be it the planning or the competitive process
to choose the goods and services for E-rate support--paves the way
either to effective educational enhancements envisioned for the program
or to the waste and abuse of limited resources.
Incentives really matter. When a program is designed to provide
recipients and applicants access to other people's money, there is a
powerful incentive to buy more than is needed. And when tens of
millions of dollars are at issue, there is a powerful incentive to
spend wastefully.
To prevent such wasteful spending, the program must deploy measures
that enhance the incentives that ensure efficient and effective
spending for schools and libraries.
At today's hearing we will approach this from several perspectives;
we will continue to look at the impact of the NEC-BNS conspiracy we
heard testimony about this past July, and the involvement of certain
schools in this mess; we will also focus on the planning and decisions
by school districts that pursued a procurement method advertised as
useful for ``maximizing'' E-rate funding.
We'll hear today about school districts' obligations to do their
homework, so what they ask for can be put to use. I'm interested to
learn more from our witnesses about the burdens of planning, and also
about the ways to plan properly so districts don't ``bite off more than
they can chew.'' I'm interested to learn how we can strengthen the
incentives to plan properly. I would like to learn if efforts to
improve certifications on the applications are sufficient for this
task.
Planning is essential. Also essential is to know the rules and to
understand what is necessary for a competitive process to flourish.
We'll hear today about a case where competition did not flourish
and where it appears that school districts really did not fully plan
out what they needed for the program. The result was tens of millions
of dollars of questionable spending in one poor school district. In
another school district, the result was an application that asked for
more than what the district really needed. (Fortunately, the district
took subsequent steps to scale the request back; but I'm not sure
that's what normally happens.)
What is the responsibility of the vendor in these situations?
Despite a powerful incentive to sell and do business, vendors must play
by the E-rate rules as well. Today we'll be able to learn about the
responsibilities of vendors in this process and whether the
requirements and rules are clear and sufficient to ensure vendors
participate appropriately.
One of the foremost issues we must address is accountability. Today
we'll hear about accountability from all parties--the school districts,
the vendors, and the agency charged with overseeing the program. I
think this is a critical hearing for our oversight of this program.
Let me welcome the witnesses. I'd like to thank, especially, the
efforts made by Charles Tafoya of El Paso Independent School District,
who will join us via video link today. We appreciate his efforts given
the last minute complications in his plans to attend the hearing.
Thank you, Mr. Chairman. I'll yield back the remainder of my time.
Chairman Barton. We would now like our first panel to come
forward. We have Mr. Walker Feaster, III, who is the Inspector
General of the Federal Communications Commission. He is
accompanied by Mr. Thomas Cline, the Assistant Inspector
General for Audits. We have Mr. George McDonald, the vice
president, Schools and Libraries Division, the Universal
Service Administrative Company. We also have Mr. Jeffrey
Carlisle, the Chief of the Wireline Competition Bureau of the
FCC.
Gentlemen, I think each of you understand that it is the
tradition of this subcommittee to take all testimony under
oath. Do any of you object to testifying under oath? Let the
record show they all shook their head that they don't object.
It is also the tradition and your right under the United
States Constitution to be advised by counsel during your
testimony. Do any of you so wish to be advised by counsel? Let
the record show they all shook their head that said no.
Would each of you gentlemen please rise and raise your
right hand?
[Witnesses sworn.]
Chairman Barton. Be seated. We are going to start with you,
Mr. Feaster. Your testimony formally is in the record in its
entirety, and we will recognize you for 7 minutes to elaborate
on that. Welcome to the subcommittee.
TESTIMONY OF WALKER FEASTER, III, INSPECTOR GENERAL, FEDERAL
COMMUNICATIONS COMMISSION; ACCOMPANIED BY THOMAS CLINE,
ASSISTANT INSPECTOR GENERAL, AUDITS, FEDERAL COMMUNICATIONS
COMMISSION; GEORGE MCDONALD, VICE PRESIDENT, SCHOOLS AND
LIBRARIES DIVISION, UNIVERSAL SERVICE ADMINISTRATION COMPANY;
AND JEFFREY CARLISLE, CHIEF, WIRELINE COMPETITION BUREAU,
FEDERAL COMMUNICATIONS COMMISSION
Mr. Feaster. Thank you, sir. Good morning, Mr. Chairman and
members of the subcommittee. I appreciate the opportunity to
appear before you today to discuss concerns regarding waste,
fraud and abuse in the E-Rate 9rogram. I would like to
introduce Tom Cline. He is my Assistant Inspector General for
Audits and has been heavily involved in our oversight of the E-
Rate program.
This is the second opportunity that I have had to testify
before the subcommittee in these matters. In my comments and
written testimony, I will discuss my office's involvement in
the investigations of NEC Business Network Solutions and IBM
Global Services and describe in more general terms the
programmatic concerns raised by these investigations.
First, I will briefly discuss my office's involvement in an
ongoing Federal investigation involving NEC BNS. I want to
point out that there are aspects of this case that I am not at
liberty to discuss because of an ongoing nature of this
investigation. In fact, the two audit staff in my office that
are involved in this investigation are prohibited by law from
disclosing information that they have been provided related to
this case that was developed through the grand jury process.
We first received allegations related to NEC BNS in August
2001 and referred the matter to the FBI. In July 2002, we
established a working relationship with the Antitrust Division
of the Department of Justice to investigate E-rate fraud and we
provided information related to this case. The Antitrust
Division opened an investigation and my office have been
involved in supporting this ongoing investigation since that
time.
Now, I will briefly discuss my office's involvement in an
investigation involving participation in the E-Rate program by
IBM. In February 2002, my office was contacted by the general
counsel of USAC regarding an anonymous letter that they had
received alleging wrongdoing by IBM related to their
involvement in providing E-rate support to the El Paso
Independent School District. The letter was signed, ``Concerned
Taxpayer,'' and outlined three areas of concern involving El
Paso's applications: The need for the program and IBM's role
and them driving that need, apparent violations of Federal and
State rules governing the procurement process and a lack of
project information for the El Paso School Board and public.
The letter provided a great deal of detail regarding the
project and IBM's involvement and clearly raised legitimate
questions about whether or not program rules were followed.
As a result of the allegations raised in the concerned
taxpayer letter, USAC initiated a special investigation of
IBM's involvement as a service provider with El Paso for
funding years 2001 and 2002 and with the Ysleta Independent
School District for funding year 2002. Based on the results of
the analysis, USAC concluded that Ysleta failed to comply with
program requirements and that those Ysleta funding requests
associated with IBM should be denied. USAC further recommended
that they deny funding requests associated with IBM when the
request fit the pattern of Ysleta and El Paso.
We referred this matter to the Antitrust Division shortly
after they established an E-Rate Fraud Task Force in July 2002
and began supporting their work. Antitrust initiated a
preliminary inquiry in October 2002. Meanwhile, in September
2002, we received additional allegations regarding IBM's
overinvolvement in the competitive bidding process in numerous
E-rate submissions, and we forwarded this additional
information to the Antitrust attorney directing the
investigation. In April 2004, we were advised that the
Department of Justice has closed a preliminary inquiry of the
IBM matter. We discussed this case with representatives from
the Antitrust Division and were informed that they did not
identify any evidence of criminal activity based on the
material that they reviewed as part of the preliminary inquiry.
After receiving this information, my office closed their case
on this matter.
The NEC BNS and IBM investigations highlight two general
concerns that my office has with the design of the E-Rate
program: One, weaknesses in the rules governing the competitive
procurement of goods and services, and, two, overreliance on
self-certifications received from beneficiaries and vendors on
E-rate funding applications. It has been frustrating to me and
my staff that these are concerns that were identified in 2002
and the Commission has yet to fully address these matters. The
Commission has only recently started to address recommendations
by the Antitrust Division of DOJ for strengthening program
certifications. These recommendations are on three tracks: One
track, some recommendations have been incorporated into E-rate
forms and are at OMB for approval; two, some recommendations
are out for public comment; and, three, some recommendations
are not being implemented at this time.
For this third group of recommendations, my office, along
with DOJ and the Wireline Competition Bureau, will work
together to see how they can be implemented. We believe all the
antitrust recommendations would resort in better management of
this program and in delays in implementing these
recommendations or the lack thereof in some cases represents an
ongoing risk to the program. In view of these and numerous
other concerns about the E-Rate program, I believe that it
would be appropriate to conduct a broad-based review of the
program.
We believe we have made significant progress toward our
goal of designing and implementing effective independent
oversight of the USF Program. However, primarily because of the
lack of adequate resources, we have been unable to fully
implement an oversight program. There has been progress made in
making resources available to us for conducting E-rate audits,
but we believe that direct access to the USF is the best manner
for obtaining the resources needed or adequate oversight and,
as I have stated in the past, until resources and funding are
available to provide adequate independent oversight for the USF
Program, we are unable to give the chairman, Congress and the
public an appropriate level of assurance that the program is
protected from fraud, waste and abuse. Thank you, and I will be
happy to try to answer any of your questions.
[The prepared statement of H. Walker Feaster III follows:]
Prepared Statement of H. Walker Feaster III, Inspector General, Federal
Communications Commission
INTRODUCTION
Mr. Chairman and Members of the Subcommittee, I appreciate the
opportunity to appear before the subcommittee today to discuss concerns
regarding waste, fraud, and abuse in the E-rate program. This is the
second opportunity that I have had to testify before the subcommittee
on these matters. In my comments and written testimony, I will discuss
my office's involvement in the investigations of NEC-BNS and IBM and
describe in more general terms the programmatic concerns raised by
these investigations.
NEC-BUSINESS NETWORK SOLUTIONS INC. (NEC-BNS)
In this section of my testimony, I will briefly discuss my office's
involvement in an on-going federal investigation involving NEC-BNS. I
want to point out that there are aspects of this case that I am not at
liberty to discuss because of the on-going nature of this
investigation. In fact, the two audit staff in my office that are
involved in this investigation are prohibited by law from disclosing
information that they have been provided related to this case that was
developed through the Grand Jury process.
In August 2001, my office was contacted by an Associate General
Counsel with the Universal Service Administrative Company (USAC)
regarding a request for information from an investigator from the
Office of the City Attorney for the City and County of San Francisco.
We obtained a copy of the request for information that was provided to
USAC and a copy of the USAC response. In September 2001, we referred
this matter to the Governmental Fraud Unit of the Federal Bureau of
Investigation (FBI) in accordance with the process that we had
established with the FBI for centralized management of E-rate fraud
cases.
In July 2002, my office established a working relationship with the
Antitrust Division of the Department of Justice to investigate E-rate
fraud. The Antitrust Division was interested in E-rate fraud because of
the large number of cases that included allegations of bid rigging and
other violations related to the Sherman Act. Information related to
this case was provided to the E-rate fraud task force established by
the Antitrust Division and my office has been involved in supporting
this on-going investigation since that time. As part of our support for
the investigation, my office has performed in-depth analyses of E-rate
documents, testified before a federal grand jury, participated in the
execution of a search warrant, evaluated seized electronic media, and
participated in numerous witness interviews.
As part of the analysis that we performed for federal law
enforcement, we examined NEC-BNS participation in the E-rate program
with the purpose of identifying suspect activity. For the universe of
NEC-BNS participation in the program from funding years 1998 through
2004, we identified fifty-three (53) E-rate applications at twenty (20)
schools that we concluded were suspect. These fifty-three (53)
applications represented approximately $380 million in requested E-rate
funding, over $40 million in commitments, and $29.7 million in
disbursed funding. Although these applications represented only 27% of
the E-rate applications during this period that included NEC-BNS, they
represented 93% of requested funds and 96% of disbursed funds. The
results of our analysis was shared with federal law enforcement and
served as the basis for the NEC-BNS portion of the overall
investigation.
To date, there have been numerous indictments and plea agreements
related to this case. In October 2002, Desmond McQuoid and US Machinery
were indicted for mail fraud in the United States District Court for
the Northern District of California. In March 2003, Mr. McQuoid entered
into a plea agreement in which he agreed to plead guilty to mail fraud.
In that plea agreement, Mr. McQuoid agreed to numerous facts regarding
the matter including the following facts concerning E-rate fraud:
Participating in a scheme to submit false and inflated funding
requests to the USAC and SLD a part of the E-Rate program
beginning in 1999 and continuing until 2000.
Allowing the competitive bid process to be compromised by the
consultants he was working with.
Despite being aware that the contractors had submitted inflated bid
price information to the School District and the USAC and SLD,
not taking steps to correct the information provided.
Attempting to obtain a 10 million dollar in-kind donation from the
main contractor by having them purchase computer workstations
from US Machinery and then donate these servers to the School
District.
Attempting to use the excess funds in the inflated bids to pay for
these products even though I knew that the USAC and SLD had
disallowed using their funds for these expenditures.
In March 2003, US Machinery entered into a plea agreement in which
they agreed to plead guilty to mail fraud. In that plea agreement, US
Machinery agreed to numerous facts regarding the matter including the
following facts regarding E-rate fraud:
US Machinery bid to supply computer servers as part of an E-Rate
application submitted by and on behalf of the San Francisco
Unified School District.
US Machinery learned during the process that some of the contractors
had submitted inflated bids to the School District and to the
USAC and SLD.
US Machinery brought this fact to Dennis McQuoid's attention and
failed correct the misstatements in the bid documents.
Dennis McQuoid arranged a meeting with the principal contractor--and
tried to obtain a concession from the contractor to purchase
computers from US Machine.
As a result, the contractor was then supposed to donate these
computers to the School District.
In May 2004, NEC-BNS entered into a plea agreement as a result of
this investigation. In that agreement, NEC-BNS agreed to plead guilty
to one count of wire fraud in violation of 18 U.S.C. 1343 and one
count of conspiracy to suppress and eliminate competition in violation
of the Sherman Antitrust Act, 15 U.S.C. 1. As part of the settlement,
NEC-BNS agreed to pay $20,685,263 in criminal fines, civil settlement,
and restitution.
IBM GLOBAL SERVICES
In this section of my testimony, I will briefly discuss my office's
involvement in an investigation involving participation in the E-rate
program by IBM Global Services (IBM).
In February 2002, my office was contacted by the General Counsel of
the Universal Service Administrative Company (USAC) regarding a letter
they had received alleging wrongdoing by IBM related to their
involvement in providing E-rate support to the El Paso Independent
School District (EPISD). The letter, signed ``Concerned Tax Payer'',
outlined three areas of concern: (1) the need for the program and IBM's
role in driving that need; (2) apparent violations of Federal and state
rules governing the procurement process; and (3) the lack of project
information for the EPISD board and the public. The letter provided a
great deal of detail regarding the project and IBM's involvement and
clearly raised legitimate questions about whether or not program rules
were followed.
As a result of the allegations raised in the ``Concerned Tax
Payer'' letter, USAC initiated a special investigation of IBM's
involvement as a service provider with EPISD for funding years 2001 and
2002 and with the Ysleta Independent School District (Ysleta ISD) for
funding year 2002. Based on the results of their analysis, USAC
concluded that Ysleta ISD failed to comply with program requirements
and that those Ysleta funding requests associated with IBM should be
denied. USAC further recommended that SLD deny funding requests
associated with IBM when those requests fit the pattern of Ysleta ISD
and EPISD.
As I discussed earlier in my testimony, we established a working
relationship with the Antitrust Division of the Department of Justice
in June 2002. We referred this matter to the Antitrust Division shortly
after they established an E-rate fraud task force in July 2002. In
September 2002, representatives from my office visited with
representatives on the Antitrust task force to review case material. In
October 2002, the Antitrust attorney directing the investigation
requested authority within the Antitrust Division to conduct a
preliminary inquiry ``to pursue a possible bid rigging scheme in which
competing telecommunication providers may have colluded with each
other, with school districts, or through representatives, on contracts
for communications equipment sold to El Paso ISD in El Paso, Texas,
Ysleta ISD in Ysleta, Texas, and potentially other districts
nationwide.'' Authority to conduct a preliminary inquiry was granted.
In September 2002, we received additional allegations regarding IBM
participation in the E-rate program. These allegations were provided
following a Train-the-Trainers workshop provided by the Schools and
Libraries Division of USAC during which SLD trainers encouraged
participants to provide any information highlighting serious violations
of program rules. The allegations address IBM's ``over-involvement in
the competitive bidding process.'' The allegations provided information
detailing a pattern of virtually identical ``cookie-cutter'' or
``laundry list-type'' form 470s posted by applicants around the country
and provided detailed information on a number of these schools issuing
``strikingly similar'' requests for proposals around the same time as
the form 470s were posted seeking essentially the same thing--``a
strategic technology partner--to assist the district in securing E-rate
funds.'' We forwarded this additional information to the Antitrust
attorney directing the investigation.
In April 2004, we were advised that the Department of Justice had
closed their preliminary inquiry of the IBM matter. We discussed this
case with representatives from the Antitrust Division and were informed
that they did not identify any evidence of criminal activity based on
the material that they reviewed as part of the preliminary inquiry.
After receiving this information, my office closed their case file on
this matter.
PROGRAMMATIC CONCERNS HIGHLIGHTED BY NEC-BNS AND IBM INVESTIGATIONS
The NEC-BNS and IBM investigations highlight two general concerns
that my office has with the design of the E-rate program: (1)
weaknesses in the rules governing the competitive procurement of goods
and service; and (2) over-reliance on self certification.
Competitive Procurement
Program rules require that applicants use a competitive procurement
process to select service providers. In establishing this requirement,
the Commission recognized that ``(c)ompetitive bidding is the most
efficient means for ensuring that eligible schools and libraries are
informed about all of the choices available to them'' and that
``(a)bsent competitive bidding, prices charged to schools and libraries
may be needlessly high, with the result that fewer eligible schools and
libraries would be able to participate in the program or the demand on
universal service support mechanisms would be needlessly great.''
Applicants are required to submit a form 470 identifying the
products and services needed to implement the technology plan. The form
470 is posted to the USAC web page to notify service providers that the
applicant is seeking the products and services identified. Applicants
must wait at least 28 days after the form 470 is posted to the web site
and consider all bids they receive before selecting the service
provider to provide the services desired. In addition, applicants must
comply with all applicable state and local procurement rules and
regulations and competitive bidding requirements. The form 470 cannot
be completed by a service provider who will participate in the
competitive process as a bidder and the applicant is responsible for
ensuring an open, fair competitive process and selecting the most cost-
effective provider of the desired services. Further, although no
program rule establishes this requirement, applicants are encouraged by
USAC to save all competing bids for services to be able to demonstrate
that the bid chosen is the most cost-effective, with price being the
primary consideration.
In the case of IBM, it seems clear that the practices followed by
several of the school districts that selected IBM as their service
provider for participation in the E-rate program for the funding years
reviewed did not follow program requirements for the competitive
procurement of goods and services. Although the Department of Justice
did not find evidence of criminal activity, USAC denied numerous
applications involving IBM as a result of their investigation and the
Commission affirmed USAC decisions regarding these applications in the
order they adopted in December 2003.
On June 5, 2002, USAC prepared a preliminary special investigation
report summarizing the results of that review. In that preliminary
report, USAC concluded that both EPISD and Ysleta ISD utilized a
Request for Proposal (RFP) format that did not make price the major
factor in the selection of the service provider in violation of program
rules. In October 2002, USAC prepared a preliminary draft analysis of
issues identified in the EPISD and Ysleta ISD funding requests,
determined that funding requests for the two school districts followed
the same basic pattern, and presented the results of their legal
analysis focusing on the Ysleta ISD funding requests. In that document,
USAC concluded that:
Ysleta selected IBM as its service provider by a process other than
the FCC Form 470 posting process and without defining the
specific services that would be provided;
Ysleta selected IBM as its service provider without complying with
the requirements that the applicant select the most cost-
effective provider of service with low cost being the primary
factor;
Compliance with FCC Form 470 posting requirement is necessary in
addition to applicable state and local procurement
requirements;
IBM's proposal specifies a range of services that it will provide as
the Strategic Technology Partner. Many of these services are
not eligible for funding.
IBM's proposal emphasizes developing the technology plan and
structuring funding requests in order to maximize funding
requests; and
Requests for Proposal contain similar language and raise significant
questions as to whether IBM was improperly involved in the
selection process.
In the case of NEC-BNS, wrongdoing rose to the level of criminal
activity. In the plea agreement that NEC-BNS accepted, NEC-BNS admitted
to the following facts regarding this case:
NEC ``participated in a conspiracy with one or more vendors of
equipment and services related to telecommunications, Internet
access, and/or internal connections, a purpose of which was to
suppress and eliminate competition for E-Rate program
projects''.
In furtherance of the conspiracy, NEC ``reached an agreement with its
co-conspirators to frustrate the competitive process on the E-
Rate projects by allocating contracts and submitting fraudulent
and non-competitive bids'' and, to carry out this conspiracy,
NEC ``discussed with these co-conspirators prospective bids for
the E-Rate projects; agreed with these co-conspirators who
would be the lead contractor on the project and who would
participate on the project as subcontractors to the designated
lead contractors; submitted fraudulent and non-competitive bids
in accordance with the conspiratorial agreement.'' Further, NEC
engaged two consultants who ``took steps to ensure the success
of the conspiracy by eliminating and disqualifying bids from
non-conspirators and either directly awarding the contracts or
using their best efforts to persuade the school district
officials to award contracts to the designated lead
contractors.
Reliance on Applicant Certifications
The E-rate program is heavily reliant on applicant and service
provider certifications. For example, on the form 470, applicants
certify that the support received is conditional upon the ability of an
applicant to secure access to all of the resources, including
computers, training, software, maintenance, and electrical connections,
necessary to use effectively the services that will be purchased under
this mechanism. On the form 471, applicants make several important
certifications. Applicants certify that they have ``complied with all
applicable state and local laws regarding procurement of services for
which support is being sought'' and that ``the services that the
applicant purchases--will not be sold, resold, or transferred in
consideration for money or any other thing of value.'' Other
certifications are required on various program forms.
Reliance on applicant and service provider certifications has been
an area of concern in my office for some time. We have two concerns
regarding certifications. The first concern deals with over-reliance on
certifications in lieu of USAC verification and validation of applicant
and service provider assurances as part of USAC's normal review
processes. The significance of this concern has been diminished
somewhat by steps that USAC has taken, and is proposing to take, to
strengthen the Program Integrity Assurance (PIA) process.
The second, and more serious, concern is related to the design of
the certifications. Concerns about the design of program certifications
were first brought to our attention by federal law enforcement.
Numerous concerns about certification design were brought to our
attention during our first meeting with the E-rate fraud task force
established by the Antitrust division of the Department of Justice in
July 2002. A representative from the Commission's Wireline Competition
Bureau (WCB) was present during that discussion. At our request, task
force members provided written comments on program certifications in
December 2002. Some of the concerns expressed by task force members
dealt with applicant certification to future events (i.e., on the form
470, applicants certify that they recognize that support is conditional
upon the schools ``securing access to all of the resources . . .
necessary to use the services purchased effectively'').
In the case of IBM, the pattern that was observed at several
applicants shows applicants reporting on the form 470 that they do not
have Requests for Proposal for the specific internal connections being
sought and certifying that the request has been examined and that ``to
the best of my knowledge, information, and belief, all statements of
fact contained herein are true.'' Shortly after form 470s were posted,
applicants would issue a separate RFP (``strikingly similar'' in many
cases) for a ``Technology Implementation and Systems Integrator
Partner.'' The RFP for the ``Technology Implementation and Systems
Integrator Partner'' states that the ``selected vendor will serve as
the prime contractor for any projects funded through E-rate.''
Effectively, applicants provided assurance to the program that they
have not sought proposals for E-rate projects at the same time that
they clearly have.
In the case of NEC-BNS, there are numerous examples of fraudulent
representations on program forms. In fact, it may be more challenging
to identify certifications that were not fraudulent representations.
Desmond McQuoid certified that he was authorized to submit requests on
behalf of the San Francisco Unified School District when he was not. He
further certified that the state and local procurement regulations were
followed and that program rules were followed when neither of these
statements was accurate.
CERTIFICATION WEAKNESSES HAVE NOT BEEN FULLY ADDRESSED
My office started to raise concerns about perceived weaknesses in
the competitive procurement process and over reliance on certifications
shortly after we became involved in program oversight. We first became
concerned about the competitive procurement process as a result of our
involvement in the Metropolitan Regional Education Service Agency
(MRESA) investigation. During that investigation we observed how
weaknesses in competitive bidding requirements and reliance on self
certification were exploited resulting in, at a minimum, a significant
amount of wasteful spending. We continued to express our concerns as we
designed our oversight program, developed a program for auditing
beneficiaries, and supported E-rate fraud investigations. In fact, we
established a working relationship with the Antitrust Division of the
Department of Justice in a large part because of the number of
investigations that we were supporting that involved allegations
regarding the competitive procurement process.
Our level of concern regarding both the competitive procurement
process and reliance on self-certification was heightened as we started
to work with the Antitrust Division. During our discussions with
Antitrust, they expressed a general concern with the lack of
information regarding the competitive process and specific concerns
regarding applicant and service provider certifications. Although we
started to pursue these issues with Commission staff in the fall of
2002, the Commission has only recently started to address some of the
recommendations from Antitrust, and none of these recommendations are
fully implemented. We have been informed by WCB that several of the
Antitrust suggestions have been incorporated into the appropriate E-
rate forms and that those forms are now at the Office of Management and
Budget for approval. Other recommended certifications, particularly
regarding the competitive process, are still in the process of public
comment, and we are as yet uncertain what the FCC may ultimately do
with these recommendations. Numerous of the suggestions from Antitrust
involved USAC obtaining and reviewing critical procurement documents
during the application review process. The Commission's response to
these suggestions was to include in the 5th Report and Order the
requirement that the applicant retain these documents, but providing
these documents for review along with an E-rate application was not
required. And lastly, WCB has informed us that at this time they will
not incorporate certain recommendations. I believe that the delay in
implementing Antitrust's recommendations, and the exclusion of some of
the recommendations from implementation, continues to place the program
at risk.
CONCLUSION
The Office of Inspector General remains committed to meeting our
responsibility for providing effective independent oversight of the
Universal Service Fund program. As I have described in this testimony,
we continue to have numerous concerns about this program. The results
of audits that have been performed and the allegations under
investigation lead us to believe the program may be subject to an
unacceptably high risk of fraud, waste and abuse through noncompliance
and program weaknesses. We are concerned with program rules governing
the competitive procurement of goods and service and with the over
reliance on certifications. In view of these concerns, I believe that
it would be appropriate to conduct a broad based review of the program.
We believe we have made significant progress toward our goal of
designing and implementing an effective, independent oversight program.
However, primarily because of a lack of adequate resources, we have
been unable to implement our oversight program. But some progress has
been made. We have partnered with USAC to accomplish approximately 100
audits of E-rate beneficiaries using contracted resources available to
them and the Commission has been actively furthering efforts for us to
use the USF to accomplish more audits. But we believe direct access to
the USF is the best manner with which to obtain the necessary resources
and, as I have stated previously, until resources and funding are
available to provide adequate independent oversight for the USF
program, we are unable to give the Chairman, Congress and the public an
appropriate level of assurance that the program is protected from
fraud, waste and abuse.
Thank you and I will be happy to answer any of your questions.
Chairman Barton. Thank you, Mr. Feaster. Does Mr. Cline
wish to make a statement?
Mr. Cline. No. Thank you.
Chairman Barton. Okay. We now recognize Mr. George
McDonald, who is the Vice President of the Schools and Library
Division of USAC, for an opening statement. Your statement is
in the record in its entirety, and we would recognize you for 7
minutes to elaborate.
TESTIMONY OF GEORGE MCDONALD
Mr. McDonald. Thank you, Mr. Chairman. Good morning,
members of the subcommittee. Thank you for inviting me here
today to discuss USAC's administration of the E-Rate program.
Previous hearings have given me the opportunity to outline our
procedures to combat waste, fraud, and abuse. Today, I want to
focus on requirements for conducting a fair and open
competitive process and ensuring cost-effective use of E-rate
funds. While USAC has responsibility for ensuring applications
are properly reviewed, applicants and service providers alike
have responsibility for knowing and following the spirit,
intent, and letter of the law and rules of the program. The
FCC, in a series of recent rulemakings, has stressed that
accountability.
We have been concerned from the beginning of the program
about service providers offering and applicants accepting free,
ineligible services. Since service providers must cover their
costs, these free services would be paid for through inflated
prices on eligible equipment. Two key program requirements
designed to protect the integrity of the program are that
applicants must conduct fair and open competitive processes to
select service providers, and applicants must pay the non-
discount share of the cost of eligible goods and services.
These requirements are intended to ensure that the applicants
and E-rate are getting fair value. The rules require
competition over the price of eligible services, competitively
neutral RFPs, and that applicants select the cost-effective
offer with price the primary factor.
The rules also require that applicants pay their share of
the cost so that they have a stake in selecting the most cost-
effective offer and so that they do not request services in
excess of their needs. If service providers offer to waive the
non-discount share of the cost, they remove any incentive for
the applicant, who is the one making the decision, to select
the most cost-effective alternative. If service providers do
waive the applicant's share, they cover their costs by
inflating the pre-discount costs so that the discount share to
be paid by USAC more than covers their cost and E-rate is the
loser.
The E-Rate program is designed to give applicants
discretion in deciding which technology solutions best meet
their educational objectives. USAC generally does not second
guess the technology choices applicants make, but the
subcommittee and USAC have seen instances of goldplating,
purchases that are clearly excessive for the use that will be
made of them. The Commission recently directed that applicants
certify that the bid selected was, ``the most cost-effective
means of meeting educational needs and technology plan goals.''
If an applicant solely relies on service provider
recommendations, this may lead to applications that run afoul
of program rules. Therefore, applicants must take the necessary
steps to determine if the recommended solution is in fact what
is needed.
As the E-Rate program has matured, E-rate consultants have
played an increasing role. However, applicants remain
responsible for their applications and for ensuring that there
is a fair and open competitive process. USAC has denied
millions of dollars in funding requests when we have determined
that the consultant who provided free services to the
applicants was associated with the service provider selected.
Let me now turn to the participation of IBM in the E-Rate
program. In January 2002, USAC received an anonymous letter
alleging program abuses at the El Paso Independent School
District in Texas, as Mr. Feaster has said. Our Special
Investigations Team began an investigation which led to a
concern that the procurement approach may not have been
consistent with program rules. We identified a number of
funding year 2002 applicants who were requesting large amounts
of E-rate discounts and funding requests associated with IBM
and who may have used a similar procurement approach.
Ultimately, we concluded that the procurement approach was not
consistent with the rules, and we denied requests for over $500
million.
The rules require applicants to identify the specific
eligible services for which they will seek funding based on the
applicant's technology plan, to solicit bids from competing
service providers and then to choose the most cost-effective
alternative with price the primary factor. These applicants and
IBM participated in a two-step approach which consisted first
of choosing a strategic technology partner and then, with the
help of that partner, deciding which eligible services to seek
funding for. At the first step, each applicant used the Generic
Form 470 and a similar RFP indicating that they had not decided
which specific services they needed and sought a partner to
help them make those decisions. Since the applicant's did not
identify the specific services they were seeking, the proposals
did not state the cost of the services. Consequently, the
applicants did not make the selection of the service provider
based on which was the most cost-effective alternative.
After IBM was selected, the second step began. At this
step, IBM worked with the applicants to identify the specific
services for which funding would be sought. This meant that at
the time the decisions were made about what specific services
to request E-rate discounts for and how much to request, there
was only one service provider at the table. Consequently, the
price competition for eligible services that the FCC rules
envisioned never took place. IBM and the applicants appealed
USAC's denials; the FCC affirmed USAC's decisions to deny
funding in all but one instance.
We funded El Paso in funding year 2001 even though El Paso
used the two-step approach that we determined was inconsistent
with program rules in the next year. This occurred because our
review procedures did not flag the El Paso application for a
particular kind of heightened scrutiny. We review almost 40,000
applications for funding every year, and we use a staff of some
150 people to conduct those reviews. With a process of that
magnitude, we appropriately rely on written procedures to guide
the reviews to ensure consistency and equity for all
applicants. Our procedures did not contemplate the two-step
procurement approach in 2001 and therefore we did not identify
this application as one requiring heightened scrutiny. We have
learned much more about the services IBM was offering through
our intense review of the 2002 applications and concluded based
on that analysis and on review of statements of work for El
Paso for 2001 that our 2001 funding commitments for El Paso may
have included a substantial amount of ineligible services. We
have asked IBM to respond to our tentative conclusions.
Depending on that response, we may seek recovery of a
substantial portion of the funds we dispersed to IBM for work
in El Paso in 2001.
Mr. Chairman, thank you for providing me with the
opportunity to address the subcommittee. I would be happy to
respond to any questions.
[The prepared statement of George McDonald follows:]
Prepared Statement of George McDonald, Universal Service Administrative
Company Vice President, Schools and Libraries Division
Good morning, Mr. Chairman and Members of the Subcommittee. I am
George McDonald, Vice President of the Universal Service Administrative
Company (``USAC'') with responsibility for the Schools and Libraries
Division. Thank you for inviting me here today to discuss USAC's
administration of the ``E-rate'' program.
Protecting Against Pre-Commitment Program Abuse
Previous hearings held by this Subcommittee about E-rate have given
me the opportunity to outline our procedures to combat those who would
try to circumvent program rules, which can lead to waste, fraud or
abuse. Today, I will focus on requirements for conducting a fair and
open competitive process and ensuring cost-effective use of E-rate
funds. These are the responsibilities of the applicant and areas that
the applicant must take responsibility for prior to submitting an
application. While USAC has responsibility for ensuring applications
are properly reviewed, applicants and service providers alike have
responsibility for knowing and following the spirit, intent, and letter
of the law and rules of the program. The Federal Communications
Commission (FCC), in a series of recent rulemakings, has stressed that
accountability.
Free, Ineligible Services--We have been concerned from the
beginning of the program about service providers offering and
applicants accepting free, ineligible services and have taken steps to
address this potential for abuse. Since service providers must cover
their costs, these ``free'' services would not be free to E-rate; they
would be paid for through inflated prices on eligible equipment. For
example, NEC-Business Network Solutions Inc. (NEC) admitted in its
recent plea agreement that it planned to ``donate'' millions of dollars
worth of ineligible computer workstations to the San Francisco Unified
School District (SFUSD) and that NEC actually planned to use E-rate
funds to cover the costs of these ``donated'' workstations. NEC also
admitted that the funding requests that were submitted to us for SFUSD
contained inflated prices.
An applicant can, however, accept free, ineligible services, along
with eligible services, request discounts, and satisfy the rules if the
applicant complies with the following requirement. The applicant must
reduce the prediscount cost of the eligible services by the fair market
value of the ineligible services it will be provided at no cost. When
we review applications, we look for free, ineligible services so that
we may take appropriate action.
USAC is authorized to provide funding for eligible services only.
This prohibits applicants and service providers from using discounts to
subsidize the procurement of ineligible or unrequested services. The
value of all price reductions, promotional offers, and ``free''
services must be deducted from the pre-discount cost of services. In
this manner, universal service funds are not used to subsidize
ineligible services. Similarly, since applicants are required to choose
the most cost-effective bid with the price of eligible services being
the primary factor, applicants cannot base their decisions on free,
ineligible offerings by service providers.
Competitive Process to Select Service Provider and Payment of the
Non-Discount Share of the Cost of Eligible Goods and Services--Two key
program requirements designed to prevent waste, fraud, and abuse, and
to protect the integrity of the program are that applicants must
conduct fair and open competitive processes to select service providers
and applicants must pay the non-discount share of the cost of eligible
goods and services. If applicants do not comply with these
requirements, their applications will be denied. These requirements are
intended to ensure that the applicants and E-rate are getting fair
value. The rules require competition over the price of eligible
services, competitively neutral RFPs, and that applicants select the
most cost-effective offer with price the primary factor. Applicants
must remain in control of the procurement process and cannot abdicate
their responsibilities to a service provider who is competing for their
business, or to a consultant.
The rules also require that applicants pay their share of the cost
so that they have a stake in selecting the most cost-effective offer
and so that they do not request services in excess of their needs. If
service providers offer to waive the non-discount share of the cost,
they remove any incentive for the applicant, who is the one making the
decision, to select the most cost-effective alternative. This
undermines the goal of preventing waste, fraud, and abuse. If service
providers waive the non-discount share of the cost, they must still
cover their costs. They do this by inflating the prediscount cost so
that the discount share to be paid by USAC more than covers their
costs, and E-rate is the loser.
Goldplating--The E-rate program is designed to give applicants
discretion in deciding which technology solutions best meet their
educational objectives. Some applicants seek discounts only for basic
phone service and dial-up Internet access. Others seek assistance in
building sophisticated networks with broadband connections for Internet
access and distance learning. USAC generally does not ``second guess''
the choices applicants make, but the Subcommittee and USAC have seen
instances of ``goldplating''-- purchases that are clearly excessive for
the use that will be made of them. Applicants are responsible for the
reasonableness of their choices. To emphasize this responsibility, the
Commission recently directed that applicants explicitly certify that
``the selection of services and service providers is based on the most
cost effective means of meeting educational needs and technology plan
goals.'' We can and do deny requests when the applicant did not select
the most cost-effective offering with price the primary factor, when
applications include a substantial amount of ineligible services, or
when requested services clearly go well beyond the requirements set out
in the applicant's technology plan. Applicants are responsible for
their requests--they must do the planning for technology solutions tied
to their educational objectives, they make the certifications on the
forms, they are to share the cost. If an applicant solely relies on
service provider recommendations, this may lead to applications that
run afoul of program rules. Therefore, applicants must take the
necessary steps to be in a position to determine if the recommended
solution is in fact what is needed.
Consultants--As the E-rate program has matured, E-rate consultants
have played an increasing role. Consultants offer a variety of services
to applicants, from providing advice with respect to the available
technologies, to submitting program forms, to overseeing the
competitive process underlying the application. As with deciding which
technology solutions best meet their educational objectives, applicants
have discretion to choose a consultant. However, applicants remain
responsible for their applications and for ensuring that there is a
fair and open competitive process. USAC has denied millions of dollars
in funding requests when we have determined that the ``consultant'' who
provided free services to the applicant was associated with the service
provider selected.
Participation of IBM in the E-rate Program
Let me now turn to the participation of IBM in the E-rate program.
IBM has been participating as a provider of internal connections since
the inception of the program. It has been paid over $760 million from
1998 until today--more than any other single E-rate service provider.
In January 2002, USAC received an anonymous letter alleging program
abuses at the El Paso Independent School District in Texas (El Paso).
Our Special Investigations team began an investigation, which included
a site visit. As we came to understand the procurement approach that
had been used by El Paso to select IBM for Funding Year 2001, we became
concerned that it may not have been consistent with program rules. We
identified a number of Funding Year 2002 applicants who were requesting
large amounts of E-rate discounts in funding requests associated with
IBM and who may have used a similar procurement approach. We extended
the investigation to cover these Funding Year 2002 applicants, which
included El Paso. Ultimately, we concluded that the procurement
approach was not consistent with the rules and denied requests for over
$500 million because of that approach. Several of the applicants
associated with IBM in Funding Year 2002 would have been selected for
heightened scrutiny of their applications even if USAC had not received
the whistleblower call. I believe that it's likely that would have
resulted in USAC identifying these program rule violations
independently of the whistleblower letter, but certainly the letter was
helpful in the process.
As I have discussed, the FCC rules are designed to ensure prudent
use of E-rate funds by requiring applicants to conduct a fair and open
competition for obtaining the eligible services the applicant has
decided it needs. The rules require applicants to identify the specific
eligible services for which they will seek funding based upon the
applicant's technology plan, to solicit bids from competing service
providers, and then to choose the most cost-effective alternative with
price being the primary factor.
These applicants and IBM participated in a two-step approach,
involving a ``Strategic Technology Partner.'' Generally, the Strategic
Technology Partner is a consultant to help customers determine what
their technology needs are, and a general contractor overseeing the
implementation of the different projects. The two-step approach
consisted of first choosing the Strategic Technology Partner, and then,
with the help of that partner, deciding which eligible services to seek
funding for.
At the first step, each applicant used a generic Form 470 and a
similar RFP indicating that they had not decided which specific
services they needed and sought a partner to help them make those
decisions. Since the applicants did not identify the specific services
they were seeking, the bids that the service providers submitted did
not state the cost of the services. Consequently, when the applicants
selected the winning service provider, they did not make that selection
based on which was the most cost-effective alternative with price the
primary factor.
After IBM was selected, the second step began. At this step, IBM
worked with the applicants to develop detailed statements of work that
identified the specific services for which funding would be sought on
the applications submitted to USAC. This meant that, at the time
decisions were made about what specific services to request E-rate
discounts for and how much to request, there was only one service
provider at the table. Consequently, the price competition for eligible
services that the FCC rules envision never took place.
IBM and the applicants appealed USAC's denials to the FCC, and in
some cases to USAC. The FCC affirmed USAC's decisions to deny funding
in all but one instance. USAC reversed one of its denials on appeal.
The FCC decision affected two other appeals pending with USAC.
We funded El Paso in Funding Year 2001 even though El Paso used the
two-step approach that we determined was inconsistent with program
rules in the next year. This occurred because our review procedures did
not flag the El Paso application for a particular kind of heightened
scrutiny. We review almost 40,000 applications for funding every year,
and we use a staff of some 150 people to conduct those reviews. With a
process of that magnitude, we appropriately rely on written procedures
to guide the reviews to ensure consistency and equity for all
applicants. Our procedures did not contemplate the ``strategic
technology partner'' procurement approach in 2001 and, therefore, we
did not identify this application as one requiring heightened scrutiny.
We have learned much more about the services IBM was offering
through our intense review of the Funding Year 2002 applications and
concluded based on that analysis and review of Statements of Work for
El Paso for Funding Year 2001 that our Funding Year 2001 funding
commitments for El Paso may have included a substantial amount of
ineligible services. We have asked IBM to respond to our tentative
conclusions. Depending on that response, we may seek recovery of a
substantial portion of the funds we disbursed to IBM for work in El
Paso for Funding Year 2001.
Conclusion
Mr. Chairman, thank you for providing me with the opportunity to
address the Subcommittee. I would be happy to respond to any questions
you may have.
Chairman Barton. We thank you. Now I want to welcome Mr.
Jeffrey Carlisle who is the Chief of the Wireline Competition
Bureau of the FCC. Mr. Carlisle, your statement is in the
record in its entirety, and we welcome you to elaborate on it
for 7 minutes. Welcome to the subcommittee.
TESTIMONY OF JEFFREY CARLISLE
Mr. Carlisle. Thank you. Good morning, Mr. Chairman and
distinguished members of the subcommittee. I was named Chief of
the Wireline Competition Bureau on August 4, 2004. As such,
many of the incidents that are the subject of this hearing
occurred before my tenure, and I do not have firsthand
knowledge of them. I am here, however, to relate to you the
facts as I have ascertained them. I am also here to communicate
to you that with respect to the E-Rate program, I am working
hard to achieve three main goals: First, to acquaint myself
with the program and learn about its functioning in detail;
second, to get up to speed with the current status of
proceedings and pending audits and enforcement actions,
including the IBM case which the Commission concluded at the
end of last year; and, third, to continue work already started
to improve functioning and oversight of the program.
With the 2002 launch of the schools and libraries
rulemaking proceeding, the Commission has sought to improve the
effectiveness, fairness and efficiency of the E-Rate program
and taken significant steps to prevent waste, fraud and abuse.
In April 2003, the Commission adopted debarment rules. In
December 2003, the Commission established limits on the use of
the internal connections, restrictions on funding for
duplicative services and clarified eligible services.
We have adopted rules to revise our approach to recovery of
funds for violations, strengthened our audit and investigation
processes and will make recommendations to adjust the discount
matrix and also to require recipients of funding to conduct
their own independent audits.
Competitive bidding is a cornerstone of the E-Rate program
because it limits waste, ensures program integrity and assist
applicants in receiving the best value for their limited funds.
The potential weaknesses in the competitive bidding system were
highlighted by the facts in the various 2002 IBM applications.
Under the E-Rate program rules for competitive bidding, after
developing a technology plan, applicants are required to seek
competitive bids on goods and services eligible for E-rate
discounts by completing and posting an FCC Form 470 on the USAC
web site.
In the IBM cases, the applicants submitted a broad generic
version of the Form 470 indicating they were seeking virtually
every product and service eligible for E-rate discounts rather
than developing a list of services actually desired based on
their technology plans with sufficient specificity to enable
bidders to submit realistic bids with prices for specified
services.
This was coupled with the applicants posting an RFP for a
systems integrator, something they did not disclose on Form 470
even though Form 470 asks for such disclosure. IBM, in
responding to these RFPs, did not provide specific prices for
specific facilities and services, nor were such responses
requested. Rather, the RFPs sought general information and
prices for acting as a systems integrator, and IBM responded
with hourly rates. Subsequently, the school districts selected
IBM and then negotiated a contract for E-rate-eligible products
and services.
After receiving a whistleblower's anonymous letter in
January 2002, USAC investigated and ultimately denied Ysleta's
request for funding on December 3, 2002, then denied eight
other applications that selected IBM as a systems integrator.
On December 8, 2003, after de novo review of the facts in these
multiple cases, the Commission upheld USAC's denial of 8 of the
9 funding requests, totaling over $250 million. The Commission
found in general that the two-step bidding process, that is
procurement of a systems integrator followed by private
negotiation with that integrator for goods and services
eligible for E-rate support, violated the Commission's
competitive bidding requirements.
The Commission permitted the applicants denied funding to
have a second chance to receive funding for funding year 2002
and allowed them to seek further bona fide competitive bids.
The eight school districts denied funding resubmitted funding
requests seeking a total of $40 million in services, an amount
substantially less than the prior requests. IBM was permitted
to bid again but bid on only one of these applications and was
not successful.
The Commission acted unanimously in just over a year after
USAC initially denied funding in the IBM cases, even as it was
addressing numerous other cases and was engaged in general
rulemakings to improve the E-Rate program. In the course of the
IBM cases, USAC denied a quarter of a billion dollars of
support and also denied an additional quarter billion dollars
of support for funding year 2002 to nine applicants in similar
circumstances involving IBM. Thus, in the IBM cases, no funding
was distributed and no dollars had to be recovered.
I believe there is more that we can and should be doing. As
I indicated at the beginning of my testimony, since the IBM
case was concluded, the Commission has implemented further
oversight requirements, and the Bureau has recommended changes
to certification requirements to the Office of Management and
Budget for approval. We believe these steps will continue to
improve our oversight over the program, and we will continue to
use adjudications, rulemakings and audits to help us identify
areas of E-rate program administration that are vulnerable to
fraud or to confusion that leads to waste and abuse.
Thank you, Mr. Chairman, for the opportunity to participate
in your review of the E-Rate program. I look forward to your
questions.
[The prepared statement of Jeffrey Carlisle follows:]
Prepared Statement of Jeffrey Carlisle, Chief, Wireline Competition
Bureau, Federal Communications Commission
Good morning, Mr. Chairman and distinguished members of the
Subcommittee. I was named Chief of the Wireline Competition Bureau on
August 4, 2004. As such, many of the incidents that are the subject of
this hearing occurred before my tenure and I do not have first-hand
knowledge of them. I am here, however, to relate the facts to you as I
have ascertained them. More importantly, I am here to communicate to
the Subcommittee that, with respect to the E-rate Program, I am working
hard to achieve three main goals: first, to acquaint myself with the
program and learn about its functioning in detail; second, to get up to
speed with the current status of pending audits and enforcement
actions, including the IBM case which the Commission concluded at the
end of last year; and third to continue and advance the work already
started to improve functioning and oversight of the program, and
thereby eliminate waste, fraud and abuse.
I. THE COMMISSION IS IMPROVING PROGRAM OVERSIGHT
As a program that benefits the public, the E-rate program has
matured to such a level that it has attracted bad actors that bend and
violate the public trust. We began to detect these individuals and
entities, in some cases schools or libraries, as early as 2001, in
reviewing audits completed in the year 2000. These individuals and
entities have either gamed the system and exploited loopholes in our
rules, or they have committed outright fraud, and engaged in deceptive
practices in an effort to thwart our system of internal checks and
audits. Some turn out to be honest mistakes, but some have also
resulted in civil and criminal prosecutions. The sheer gall of some of
these deceptions--bid rigging, failure to deliver services already paid
for, falsified forms and kickbacks--is disappointing, given that this
is a program to benefit children and library patrons, but it is not
surprising. We are dealing with elements in some instances that
acknowledge no moral limits, regardless of the purposes of the program.
Understanding this, the Commission has redoubled its efforts to
deter and detect all forms of waste, fraud and abuse in the E-rate
program, and we believe we can demonstrate good progress toward this
goal.
Since the program's inception, and more recently with the 2002
launch of the Schools and Libraries Universal Support Mechanism
rulemaking, the Commission has sought to improve the effectiveness,
fairness, and efficiency of the E-rate program, while preventing waste,
fraud and abuse.
In April 2003, the Commission adopted rules to bar participation in
the program of any individuals and companies that have been found
criminally or civilly liable for actions that violate our rules. We
already have applied these procedures in three instances, and we have
sought comment on whether to expand the reach of our debarment rules.
In December 2003, the Commission emphasized that our rules have
always prohibited funding of duplicative equipment and services. To
prevent entities from exploiting discounts on internal connections, the
Commission adopted rules to prevent program applicants from making
repeated, uneconomical upgrades or transferring their purchases to
other entities, except in special circumstances. The Commission also
endorsed an initiative to publicize specific lists of services and
equipment that are eligible for E-rate discounts, both to help
applicants more easily avoid ineligible ones and to clarify the scope
of the program.
In July of this year, the Commission adopted rules to revise our
recovery approach such that recovery actions are no longer limited to
instances in which service providers have violated our rules, but
instead recovery is directed against any party or parties (including
service providers and E-rate applicants) that have committed rule or
statutory violations.
Last month, the Commission adopted the Schools and Libraries Fifth
Report and Order, in which it addressed a number of issues that have
surfaced as a result of audits conducted during the Commission's
oversight of the E-rate program. The Schools and Libraries Fifth Report
and Order strengthens the Commission's current process for conducting
audits and investigations of the E-rate program in a timely and
efficient fashion. Specifically, the order establishes a framework for
determining the appropriate amount to be recovered when funds are
disbursed in violation of the statute and our rules. In addition, the
order sets forth a framework for heightened scrutiny for applicants and
service providers that have violated our rules in the past. The order
also extends the ``red light'' rule of the FCC's existing Debt
Collection rules to bar fund recipients from receiving additional
program benefits if they have yet to repay the fund for past erroneous
disbursements. Our ``red light'' rule provides that the Commission
shall withhold action on any application or request for benefits made
by an entity that is delinquent in its non-tax debts owed to the
Commission, and dismiss all such applications or requests if the
delinquent debt is not resolved. The Fifth Report and Order also
responds to recommendations made by the Commission's Office of
Inspector General (OIG), including codifying USAC procedures into our
rules and strengthening the program's document retention requirements,
so that any misdeeds can be more easily detected and prosecuted.
Consistent with the OIG's recommendations, the order also modifies
technology plan requirements to require applicants to have an approved
plan that follows the U.S. Department of Education technology plan
guidelines, subject to an additional requirement that an applicant show
that it has the necessary resources to achieve its technology aims.
In response to recommendations from the U.S. Department of Justice,
the Fifth Report and Order also requires applicants to make important
new certifications as a prerequisite to funding. For example,
applicants must now certify that price will be the primary factor in
bid selection, and, as a guard against gold-plating, that they will
select the most cost-effective means to achieve goals of their
technology plans. Finally, the order establishes a process to codify
USAC procedures and update those requirements as necessary to protect
against waste, fraud and abuse.
This Fall, we will make recommendations to the Commission on
revising the schedule of discounts schools and libraries are accorded
under the program, as they purchase equipment and services. We believe
that adjusting the discounts so that applicants are required to
increase their contribution to those purchases will encourage schools
and libraries to make better economic choices, and further minimize the
opportunities for abuse. We also continue to tighten and monitor the
competitive bidding process to minimize opportunities for waste, fraud
and abuse. The potential weaknesses in a competitive bidding system
were highlighted by the facts in the various 2002 IBM applications.
II. THE IBM CASES ILLUSTRATE THE NEED FOR CONTINUING REFORM AND
VIGILANCE
Under the E-rate program rules for competitive bidding, after
developing a technology plan, applicants are required to seek
competitive bids on goods and services eligible for E-rate discounts by
completing and posting an FCC Form 470 on the USAC website. Applicants
also must satisfy applicable state procurement rules, wait at least 28
days after posting before committing to a contract, and in selecting
their service providers, make price the primary consideration.
Competitive bidding is a cornerstone of the E-rate program because it
limits waste, ensures program integrity, and assists applicants in
receiving the best value for their limited funds.
In the IBM cases, the applicants submitted a broad, generic version
of the Form 470 indicating that they were seeking virtually every
product and service eligible for E-rate discounts, rather than
developing a list of services actually desired, based on their
technology plans, with sufficient specificity to enable bidders to
submit realistic bids with prices for specified services. While the
Form 470 offered applicants the chance to inform potential bidders if
there was a more specific request for proposal (RFP) that they could
consult, the applicants in the IBM cases generally indicated that one
was not available, even though they posted such an RFP only five days
after filing their respective Form 470s with USAC.
In the principal IBM case, involving Ysleta Schools District
(Ysleta), the applicant indicated that it was seeking a ``Technology
Implementation and Systems Implementation Partner'' to ``assist the
District in preparing applications on the District's behalf for E-rate
funding . . .'' Five firms responded to Ysleta's RFP. IBM submitted a
147-page response that addressed each category in the RFP. In that
response, the only prices that IBM quoted were hourly rates for Systems
Integration, ranging from $394 per hour for a Project Executive to $49
per hour for a Project Administrator. A ``systems integrator'' operates
in the role of a prime contractor for coordinating services actually
delivered by subcontractors. Our rules, however, contemplate a direct
relationship between the applicants and the service providers, not an
indirect relationship through an intermediary subcontracting unit.
In its response to the RFP, IBM did not place bids on the specific
products and services that were eligible for E-rate discounts, as
required by our rules. Ysleta selected IBM subject to the condition
that a satisfactory contract could be negotiated between IBM and Ysleta
over the scope of work and the prices of E-rate-eligible products and
services. IBM and Ysleta engaged in those negotiations and completed
them on January 17, 2002. The final contract included five statements
of work, ranging from just under $1 million to more than $12 million,
each with detailed specifications, prices, and terms.
Triggered by a whistleblower's anonymous letter in May 2002, USAC
sent a special investigator to do a site visit and collect
documentation from Ysleta concerning whether it had the resources to
effectively use the services it had purchased. After reviewing Ysleta's
application and supporting documents, USAC denied Ysleta's request for
funding on December 3, 2002, based on violations of the Commission's
competitive bidding rules, and provided Ysleta and IBM with a detailed
explanation for that denial. Soon thereafter, USAC also denied eight
other applications that selected IBM as system integrator. On January
30, 2003, Ysleta and IBM sought Commission review of USAC's decision,
and the eight other applicants associated with IBM filed similar
appeals.
On December 8, 2003, after a de novo review of the facts of Ysleta
and similar cases, the Commission upheld USAC's denial of eight of the
nine funding requests totaling over $250 million, for Ysleta, Donna, El
Paso, and Galena Park in Texas; the Navajo Education Technology
Consortium and Albuquerque in New Mexico; Oklahoma City, Oklahoma; and
Memphis, Tennessee. The Commission found, in general, that the so-
called ``two-step'' bidding process (i.e., procurement of a system
integrator followed by private negotiation with that integrator for the
goods and services eligible for E-rate support) that IBM had
participated in with Ysleta and others had violated the Commission's
competitive bidding requirements.
Specifically, the Commission found in Ysleta that:
1. Ysleta did not attempt to select the products and services that
represented the most cost-effective offerings, with price as
the primary consideration. The only prices that IBM presented
were hourly rates for systems integration. No bids were for
prices for any E-rate supported offerings. Ysleta did not
request or obtain sufficient data about the prices of IBM's
competitors for E-rate services to know if IBM's prices
represented the most cost-effective option. Ysleta's internal
assessment of cost-effectiveness was not sufficient;
2. The manner in which Ysleta and other schools used Form 470 had the
effect of eliminating competitive bidding for the products and
services eligible for discounts under the E-rate program,
because Ysleta's form failed to describe the services that it
sought to purchase in sufficient detail to enable potential
providers to formulate bids. Specifically, the structure and
content of the RFP meant that potential vendors of specific
services would be unlikely to respond in a meaningful way to
the all-inclusive FCC Form 470;
3. Because Ysleta's two-step system integration approach was
inconsistent with our competitive bidding requirements and
Ysleta failed to demonstrate that it selected IBM with price as
the primary factor, it failed to submit a bona fide request for
service, contrary to section 254(h)(1)(B) of the Communications
Act; and
4. Compliance with state and local procurement processes did not exempt
Ysleta from complying with the Commission's competitive bidding
rules.
The Commission found it in the public interest, however, to permit
the applicants that were denied funding to have a second chance to
receive Funding Year 2002 support for services that they sought by
seeking bona fide competitive bids. In particular, the Commission found
that there was ``substantial and widespread reliance'' on USAC's prior
approval of applications that utilized two-step bidding. USAC could
reasonably have been construed as sanctioning the improper two-step
bidding process by approving a 2001 application by El Paso, which
involved IBM. The processing window for these rebid applications closed
on June 9, 2004.
The eight school districts denied funding by the IBM decision have
resubmitted funding requests seeking a total of $40 million in
services, an amount that is substantially less than the prior requests.
IBM was permitted to bid again because, as stated in the order, the
Commission believes that its rules were not as clear as we would have
liked, and that IBM may not have realized that its aggressive
interpretation of the rules actually crossed the line. As it turns out,
IBM bid on only one of these applications, and it was not successful.
As directed by the Commission, USAC is carefully scrutinizing these
requests to ensure that they are consistent with the Commission rules
as clarified in the Order. USAC is also investigating the circumstances
surrounding El Paso's 2001 application.
III. THE LESSONS LEARNED FROM THIS CASE
The IBM case illustrates the importance of a robust competitive
bidding mechanism in the E-rate program. It also shows the importance
of having clear rules. We continue to be vigilant in pursuing both
goals.
The Commission acted unanimously in just over a year after USAC
initially denied funding in the IBM cases. The Commission acted
decisively and quickly, even as it was addressing numerous other cases
and was engaged in general rulemakings to improve the E-rate program.
In the course of the ``IBM cases,'' USAC denied a quarter of a billion
dollars in support, and also denied an additional quarter billion
dollars of support for Funding Year 2002 to nine applicants in similar
circumstances involving IBM. Thus, in the IBM cases, no funding was
distributed, and no dollars had to be recovered.
Competitive bidding is critical to the success of the E-rate
program. As long as vendors and suppliers are subject to competition
from others who are also eager to gain a customer, they have a strong
incentive to offer a competitive, cost-based price for E-rate eligible
goods and services. Absent competitive pressures, service providers and
applicants may inflate prices to maximize their gains.
Clear rules are also crucial. Private firms and E-rate applicants
have incentives to interpret unclear rules to their benefit, even at
the expense of the nation's students, library patrons, and all
Americans--the true beneficiaries of the E-rate program. The Commission
is committed to enforcing, explaining, and, when necessary, changing
its rules to minimize potential for their abuse. Through the ongoing
rulemaking process, we are revising and adjusting the program rules to
minimize abuse, as we have done in the recent Fifth Schools Order,
while we continue to grant support to those in need.
Finally, the IBM decisions are an example of the system working.
The inquiry into Ysleta began with an anonymous letter alleging rule
violations by IBM. Pursuant to its normal practices, USAC sent a
special investigator to do a site visit and collect documentation, and
USAC denied the funding request consistent with our rules. The
Commission followed its normal process by reviewing the record de novo,
and it largely affirmed USAC's decision, seizing the opportunity to
clarify its rules.
We at the Commission are proud of this result. But I believe there
is more we can and should be doing. As I indicated at the beginning of
my testimony, since the IBM case was concluded, the Commission has
implemented further oversight requirements, and the Bureau has
recommended changes to certification requirements to the Office of
Management and Budget for approval. We are considering further steps.
We believe these steps will continue to improve our oversight of the
program, and we will continue to use adjudications, rulemakings, and
audits to help us identify areas of E-rate program administration that
are vulnerable to fraud or to confusion that leads to waste or abuse.
The Commission and its staff remain absolutely committed to making
necessary improvements in the E-rate program. We are happy to provide
any assistance to the Subcommittee and stand ready to offer our
technical and subject area expertise as you move forward. Thank you,
Mr. Chairman, for the opportunity to participate in your review of the
universal service fund's schools and libraries support mechanism, and I
look forward to your questions on these issues.
Chairman Barton. We thank you, Mr. Carlisle. The Chair
would recognize himself for the first round of questions, and
the staff would put the clock at 10 minutes.
Mr. McDonald, I am going to ask you just some general
questions to set the parameters. Do you know approximately how
much money is being spent each year on the E-Rate program
nationally?
Mr. McDonald. We have a cap on dispursements and
collections of $2.25 billion annually. We commit up to about
that level and we disperse about 80 percent of that. We
actually send checks out for about 80 percent.
Chairman Barton. So about $2.25 billion. And has that
amount changed since the program was implemented in the late
1990's? Has it been about $2 billion each year?
Mr. McDonald. That was the cap, as originally set, and then
in 1998 the Commission changed the first fund year from a 12-
month to 18 months and lowered the cap to $1.925. Since then it
has been $2.25 billion a year, and the Commission has recently
provided for rollover of unused funds for prior year.
Chairman Barton. Okay. So in the history of the program, we
have expended somewhere around $12 billion; is that just a ball
park figure?
Mr. McDonald. I think it is about $8 billion in actual
money out the door.
Chairman Barton. $8 billion out of the door. As we speak,
how many requests are pending for funding, either for this year
or the next year; do you know, in terms of dollars?
Mr. McDonald. We have committed $740 million for the
funding year we are in now, and the cap for this year is $2.4
billion.
Chairman Barton. So you have expended about a third of the
money that is allocated for this year.
Mr. McDonald. We have committed, sir. We send letters out
to commit funds, and then as applicants do the work, applicants
or service providers can bill us for that. Our actual
expenditures are much less than $740 million.
Chairman Barton. Okay. Now, my first question--I just kind
of want to get that in the record so we know what we are
talking about--I believe this is our third hearing on this
program, it may be the fourth hearing, but every hearing it is
one horror story after another. Is this a program that we
should suspend any funding until we can get it right, just stop
spending the money until we can get the program rules right?
Mr. Feaster, do you want to take a shot at that?
Mr. Feaster. We agree that there has been a series of
horror stories. I think the movement has been in the right
direction. From our perspective, it hasn't been fast enough. I
think it would be a real major decision for somebody to make to
suspend the program. I think the schools are very dependent
upon the money to maintain connections to the Internet and get
new connections. I think that would be a very radical decision.
I think tightening up the procedures, as happened in the past
and will hopefully happen in the future, you will see less
horror stories. And we also are instigating a broad-based audit
program using USF funds to check up on more applicants than we
have been doing in the past where we are looking at a program
of 250 audits over the next 18 months to identify major
problems.
Chairman Barton. Mr. McDonald, do you have an opinion
whether we should suspend the program?
Mr. McDonald. Sir, I think you would have to weigh it
against disruption to schools and libraries across this
country. We have focused on particular instances that are very
troubling. One of the ones we are here to talk about today, as
Mr. Carlisle said, except for the 2001 money in El Paso, the
money did not go out the door; we stopped it. As I have told
the committee before, we are initiating a new program of 1,000
site visits to complement the application and invoice reviews
we do and the audits we do.
The audits that we have done, and we have worked very
closely with Mr. Feaster and his team on these audits, they
have identified issues but they haven't identified very many
instances of fraud. I think that the subcommittee staff has
done a good job of focusing on the worst cases. I don't think
that the public should come away from these hearings thinking
what they are hearing in these hearings----
Chairman Barton. By the testimony of one of you gentlemen,
there are 150 program reviewers and you admit that most of it
is self certification. You assume that what they are telling
you is the truth because you just don't have the staff to
really investigate it. Was that your testimony, Mr. McDonald?
Mr. McDonald. I believe Mr. Feaster spoke about the self
certification.
Chairman Barton. So we are basically on an honor system
here. We have spent $8 billion and there is a real question
about how much of that has been effectively utilized. Mr.
Carlisle, do you have a view on whether we should suspend the
program?
Mr. Carlisle. I would largely agree with Mr. Feaster on
this. I think it would be a radical decision. And if I could
provide a little specificity about why, my understanding is is
that it is not as if in every funding year you are funding
schools and libraries from the ground up to build new systems
and establish new connections. A good deal of the funding is
sent out in order to maintain connections that are already
there.
Chairman Barton. Well, one of my questions is where are we
in wiring our schools? What percent of the eligible schools and
libraries have been wired effectively? Do we have any
statistics on that? Are we 90 percent there or 80 percent
there?
Mr. Carlisle. In our recent 706 report, we identified--I
can't speak to the percent that are eligible for funding, but
in the 706 report, we stated that 94 percent of the schools in
the country have broadband access, and somewhere between 94 and
95 percent of libraries, I believe, do.
Chairman Barton. So we are over the 90 percent level. That
would indicate that there is really not a need to continue to
fund at the $2 billion plus year level.
Mr. Carlisle. Well, a review of that level may be in order,
although I would say that, again, you have recurring costs for
the connections that are already there. There are monthly
payments that you have to make to keep a broadband line up or a
telephone line up.
Chairman Barton. Well, I guarantee you, as long as money is
available, people are going to ask for it. We could double the
program to $4 billion a year and there would be requests for $4
billion. We could double that to $8 billion and there would be
requests for $8 billion. If we cut it to $1 billion, if it is
really 100 percent--as we get closer to 100 percent, change the
rules a little bit, the user community will adapt to that and
do that effectively.
Well, one of my next questions, since nobody said we ought
to suspend the program, I was hoping somebody would say we
should, but I have to be honest and our expert witnesses here
that are in charge of the program say we shouldn't, should we
restructure the program so that the local communities that are
requesting the funding have to put more of their local tax
dollars upfront to participate? In other words, instead of
requesting Federal dollars and you go out and use them, should
we set it up so that you go out and we set out the program
requirements. The local school district, the local library goes
out and puts in a system that meets those requirements and then
gets reimbursed for it. Obviously, if the local taxpayers are
on the hook, the school board members and the administrators
are going to make sure or I would think they would make sure
that those monies are actually effectively used because it is
coming out of their local tax base. Mr. Feaster, do you have a
comment on that?
Mr. Feaster. I think that would be an excellent idea. From
the standpoint of oversight, the more local money that goes
into a system, I think the better it is going to be. I would
have to defer to the program operators in terms of the impact
on whether the schools that don't have that money how that
would affect them in the operation of the program.
Chairman Barton. Mr. McDonald, do you have an opinion on
that? Just the general concept. I understand that we would have
to do a lot of work to work it out.
Mr. McDonald. I think you would see a much lower
participation by the poorer schools who would have to come up
with that money upfront. The poorer schools frequently wait for
our commitment letters to initiate service because they don't
have that money, and when they are assured----
Chairman Barton. Well, but now 94 percent have gotten some
connection established, if Mr. Carlisle's statistics are
relevant. So we are not starting from ground zero. You could
set up some sort of a loan program that a low-income school
district could apply for a loan, and once they show that they
are actually spending the money for what it is supposed to be,
they could be reimbursed. I understand there is a difference
between El Paso Independent School District in far west Texas,
it is low income, and in Highland Park School District in urban
Dallas that is one of the higher income districts in the
country. I understand that.
So you could have some special provisions for low income
participation based on some sort of a loan program. But unless
we force accountability or at least incentivize accountability
at the local level, if you have got a pile of Federal dollars
that are just out there, people are going to grab at it. It is
free money, it is found money, it is somebody else's money. So
you have got to figure--I think we have to figure out a way to
make sure that there is a real incentive at the local level to
use the money for which it is intended.
Mr. Carlisle, do you have a comment on some sort of a
system where the local dollars go upfront?
Mr. Carlisle. Well, I think your proposal would certainly
create that incentive. I would have the same concern, although
what you point out about much of the facilities already being
in place would be a countervailing consideration. We are taking
steps and will make a recommendation to the Commission in the
next month or so to lower the discount rate that is currently
applied, which would have the effect of requiring school
districts to have more skin in the game, to put more of their
money upfront in order to qualify for funding. That coupled
with a requirement that certain of those recipients would have
to do independent audits would also be a control on the
program, an alternative one to what you have suggested but a
control.
Chairman Barton. Let the record show that ``skin in the
game'' is a technical term used at the FCC for the local
community to put more of their dollars at risk in the beginning
of the program.
Mr. McDonald, before my time--my time has expired. You
wrote a letter to Mr. Bob Richter who is with IBM Corporation,
in charge of their national E-Rate program. This letter was
dated September 16. It is directed toward the El Paso
Independent School District funding for the year 2001, and the
amount of money that was dispersed under that was a little over
$55 million. The thrust of this letter appears to be that a
fair amount of that money may have to be reimbursed. Do you
care to comment of what percentage of that $55 million this
letter indicates might need to be reimbursed?
Mr. McDonald. Potentially a significant amount of that, and
we have invited IBM to come back to us and help clarify which
of these services that they delivered an invoice for are
eligible and which are not.
Chairman Barton. But do you think it is going to be in the
neighborhood of $40 million or half of it?
Mr. McDonald. I don't think it would be that high. The
analysis attached to the letter walked through the individual
pieces of it, and a portion of the issue is what schools got
the services? Were they schools that qualified for the 90
percent discount rate or was it the entire school district? And
the answer to that question could be a significant piece, and
we just don't know.
Chairman Barton. The Chair would ask unanimous consent that
the letter with the attachments be included in the record. I am
told that the minority staff has seen this letter? Is there any
objection? With hearing no objection, this letter is included
in the record.
My final question before I turn it over to Ms. DeGette, in
the El Paso case, they were being funded in the $2 million to
$4 million range and then the funding request jumped up to over
$60 million. Is there no protocol within USAC, when you have
such a huge increase from a prior year, that that is not
automatically red-flagged? We had the same case in the Dallas
Independent School District where they were going along at an
amount of money and then there was a significant jump in a
single year. Does that not raise some internal flag that needs
to be investigated?
Mr. McDonald. It does since these hearings have begun, sir.
I think after the last hearing we realized that that should
have been an additional flag for us, and we have made that an
automatic step now.
Chairman Barton. Okay. The Chair would recognize Ms.
DeGette of Colorado for 10 minutes.
Ms. DeGette. Thank you, Mr. Chairman. I agree with the
chairman that one of the reasons this money has been so grossly
misused is because of lack of oversight and local
accountability, but my concern is one that Mr. McDonald
articulated, which is that some of these school districts are
so poor, I mean after all the whole program is to target poor
districts, that they may not have the financial wherewithal to
even come up with an initial amount of money. And what I would
like to explore is I was just telling staff my daughter in the
Denver Public Schools, which does receive this money, they quit
watering the lawn at her high school because they don't have
enough money to maintain the grass. So I was trying to think
about how they would come up with enough money to make a major
investment in computer wiring, and I think that is a concern we
all share.
But my concern is how do we find alternative ways to ensure
that this money is well spent? And I wanted to ask you a couple
of questions, Mr. Feaster. You testified in your opening
statement that it would take additional enforcement resources
to really do the job that you need to do; is that correct?
Mr. Feaster. That is correct; yes, ma'am.
Ms. DeGette. You have, I think, three folks investigating
these complaints right now; is that right?
Mr. Feaster. Yes, ma'am.
Ms. DeGette. How many staff do you think you would need to
adequately investigate and do this oversight?
Mr. Feaster. Approximately 16 additional staff. We are in
the process of developing a request for proposals to conduct
approximately 250 audits of the program over the next 18
months. For us to do that many reviews of the audits, we would
need additional resources.
Ms. DeGette. Do you have a ball park sense of the kind of
resources you are talking about, a dollar amount?
Mr. Feaster. For the 250 audits, about $10 million.
Ms. DeGette. Ten million? And do you have any estimate
about how much fraud and waste and abuse is going on out there,
roughly?
Mr. Feaster. Based on 135 audits that have been done over
the past couple of years, we found about 36 percent of those
people were not following the rules.
Ms. DeGette. Do you have any sense about how much money we
are talking about with that 36 percent, roughly?
Mr. Feaster. No, I don't.
Ms. DeGette. What do you think--do you have advocate
independent audits of these applications?
Mr. Feaster. Yes, I do.
Ms. DeGette. Tell me how that would work, and are there
additional rules that can be put into place to beef up
independent audits?
Mr. Feaster. When you say independent audit, I think that
the audits done by my organization or by contractors under my
authority is the way to go. USAC also does internal audit--
using an internal audit staff, they also do audits. I think
that adds to the number of audits we do. The concept I think
you are talking about is independent audits by the school
district.
Ms. DeGette. That would be helpful too, I would think.
Mr. Feaster. We would have to review that to ensure that
they are truly independent. If the school district is paying
somebody to do something, they tend to get the results they
like. That is always a possibility.
Ms. DeGette. But there is a mechanism that can be put into
place as part of the application process to ensure independent
audits by school districts, I would assume.
Mr. Feaster. We could develop something in coordination
with USAC and the Wireline Bureau.
Ms. DeGette. Now, can USAC funds be used for independent
audits?
Mr. Feaster. We are going to try to do that with my office
and USAC partnering in some audits.
Ms. DeGette. Mr. Carlisle, in your testimony, you said that
the Wireline Competition Bureau is making a recommendation to
the Commission on revising the schedule of discounts that
schools libraries are quoted under the program. And what this
recommendation would do, as you testified, it would increase
applicants to increase their contribution to purchases. And
this is what I am concerned about: I am wondering if you are
concerned whether these disadvantaged school districts will
have a difficult time paying for the equipment as a result of
the increased costs of the schools, and has your agency done
any research on this issue?
Mr. Carlisle. My staff is looking into it as part of the
process of making a recommendation. Obviously, any
recommendation that we make to the Commission is going to take
that into account.
Ms. DeGette. So you don't have any firm proposal to
increase the cost to the schools of the equipment and services,
correct?
Mr. Carlisle. I have not read the recommendation yet, so I
don't exactly know what----
Ms. DeGette. I am sorry, is there a recommendation already?
Mr. Carlisle. Not before the Commission yet. My staff is in
the process of writing that, which would be a recommended order
to the Commission.
Ms. DeGette. And what kind of research is your staff doing
to take into account the financial ability of these poor school
districts to pay?
Mr. Carlisle. Well, typically, what we do in any rulemaking
proceeding is review the record that we have got on hand, the
comments and replies filed, which will include comments and
replies filed by the school districts and advocates on their
behalf, and also have meetings with them to find out what the
scope of that issue is.
Ms. DeGette. And what is that--is that comment period open
now?
Mr. Carlisle. I am not sure--I am sure it is----
Ms. DeGette. Someone is shaking her head no behind you.
Mr. Carlisle. I am sure it is closed at this point, but I
am not sure exactly----
Ms. DeGette. I mean was there notice to these school
districts?
Mr. Carlisle. It would have been the same public notice
that anyone receives of any rulemaking that we have. So it is
publication in the Federal Register. I don't know that specific
notice was sent. We have had ex parte meetings with a number of
schools already, schools and libraries already, that would be
affected by changing the discount rate. But in terms of when
the initial notice of proposed rulemaking went out, it would
have been the same publication that the rest of the public
received about it.
Ms. DeGette. And do you know whether--since the comment
period is closed, do you know how many comments that you have
received and from what types of schools and so on?
Mr. Carlisle. Off the top of my head, no, but I would be
happy to work with your staff to give you that information.
Ms. DeGette. That would be great. Mr. Chairman, I would ask
unanimous consent that Mr. Carlisle be allowed to submit in
writing the kinds of responses to my questions.
Mr. Walden [presiding]. Absolutely. Without objection.
Ms. DeGette. Thank you. Now, I am wondering, Mr. McDonald,
I think you testified a minute ago in response to the
chairman's question that you had some concerns about these
schools, the needy schools being able to pay a higher
percentage. I am wondering if you can elaborate on that answer
and tell me why you do have that concern?
Mr. McDonald. At a 90 percent discount rate, the schools
are paying 10 percent. If the discount rate were lowered to 80
percent, the schools would pay 20. That is a doubling of the
share they have to come up with, so from their perspective,
that isn't a trivial impact on them. I am not taking a position
about should the rate be changed or not, just that from that
perspective, every 10 percent decrease in the maximum discount
rate is a doubling or tripling of what the schools have to pay
today.
Ms. DeGette. Do you know if anybody has done any research
on whether reducing the E-rate contribution from 90 percent to
80 percent would have any effect on the wrongdoers? I mean it
still seems to me that if you have a 20 percent match, there is
going to be an incentive on some people's part because there is
still 80 percent.
Mr. McDonald. You mean----
Ms. DeGette. Where is the tipping point where it would
really create more accountability?
Mr. McDonald. You may be aware that USAC formed a Task
Force on Prevention of Waste, Fraud and Abuse last year, and
the task force spent a lot of time on this question. And there
were advocates--the composition of the task force included
representatives of schools, rural schools, urban schools,
libraries, service providers, and there was extensive
discussion about this, some people pushing for maximum 70
percent rate. The task force ended up at 80 percent, very much
the kind of issues you were just going through there. Is the
non-discount share large enough to stop the wrongdoing?
Ms. DeGette. Right.
Mr. McDonald. Was it still possible for the service
provider to inflate the price and get that money back? That is
where they came out. I have learned more about what is really
going on in some of what the committee has seen, because
documents that have come to your attention have not come to
ours. Obviously, they aren't sharing these documents with us.
Ms. DeGette. And this task force, as I understand it, was
primarily composed of vendors, while there were others on the
task force; is that right?
Mr. McDonald. No, I think it is primarily applicants that
were--vendors and applicants. We tried to get a cross section
of all the stakeholders in the program. So there were a number
of school applicants, a number of library applicants, rural
schools, Catholic schools.
Ms. DeGette. It would be helpful to me, Mr. Cline, if you
could--I am sorry, Mr. McDonald, if you could--the name tags
are over--Mr. Cline says, ``Oh, no.''
If you could supplement your testimony with the list of who
was on that task force, that would be very helpful.
Mr. McDonald. Be happy to do that.
Ms. DeGette. Thank you.
[The information referred to follows:]
[GRAPHIC] [TIFF OMITTED] T6098.001
[GRAPHIC] [TIFF OMITTED] T6098.002
[GRAPHIC] [TIFF OMITTED] T6098.003
[GRAPHIC] [TIFF OMITTED] T6098.004
[GRAPHIC] [TIFF OMITTED] T6098.005
Mr. Walden. Mr. McDonald, I want to go to you. Could you
turn to tab 65 in our notebook of information? You will find
there a memo from Mr. Quentin R. Lawson of the National
Alliance of Black School Educators to Mr. Bob Emery, John
Colvin and Don Parker. And attached thereto is a November 2,
2000 letter from NEC to Mr. Lawson in which you will see--are
you on the same? Okay. In which you will see right off the top
he says, ``Dear Mr. Lawson, I am pleased to respond to your
letter on behalf of the VNCI, NEC and IBM,'' quote, unquote,
``the team.''
And then later on page 2 of that letter he says, on sub 6,
``The teaming agreement related to the team members
participation with one another is in negotiation and will
remain the confidential information of each member of the team.
The team, while fully committed to supporting NABSE and NABSE's
membership, believes that any contractual arrangement between
NABSE and the team could be construed inappropriately by third
parties.''
And on the third page, he writes--or these people write,
Mr. Colvin, Mr. Emery and Mr. Parker, ``As an offset to the
costs that NABSE will incur in support of this partnership,
NABSE will receive an annual payment of 1.5 percent of the
cumulative business generated by the team members in sales to
NABSE member schools.''
Is this some sort of kickback we are dealing with here? How
would you describe this 1.5 percent payment back to NABSE and
this reference to how this might be misconstrued by third
parties?
Mr. McDonald. My understanding is that NABSE was presenting
itself as a disinterested consultant to these school districts,
helping them participate in E-rate. As I mentioned in my
testimony, we have denied millions of dollars where that
consultant who is controlling the process of selection of
vendor is associated with those vendors.
Mr. Walden. Do you think that is the case here, that NABSE
was associated with the vendors?
Mr. McDonald. NABSE certainly has an interest in making
sure the work goes to these vendors, because they make money if
it does. Presumably, they don't if it does not.
Mr. Walden. And what qualifications, from your experience,
did the NABSE people bring to the process as technical
qualifications?
Mr. McDonald. I don't know, sir.
Mr. Walden. Are you familiar with other such agreements
where there is a percentage that goes back based on sales to a
third party?
Mr. McDonald. I recall the incident of Total Com and there
was an FCC decision on this where we found Total Com was the
consultant where whenever they were involved with an applicant,
the applicant chose an outfit called SiteLink to provide
internal connections. We got hold, in that case, of a contract
that the applicant and Site Link would sign that named Total
Com a beneficiary of the contract. It didn't specify the
percentage, as I recall, but presumably there was some money
going back to Total Com based on getting business for SiteLink.
We denied those applications; the FCC upheld that decision.
Mr. Walden. But that is a similar sort of scheme to what we
are reading about here?
Mr. McDonald. I would think that is similar; yes, sir.
Mr. Walden. And so would this be in violation of your rules
then?
Mr. McDonald. If this document had come to our attention,
we would have denied these applications.
Mr. Walden. Now that this document has come to your
attention, is there a mechanism for recovery if this is in
violation of your rules?
Mr. McDonald. Yes, sir.
Mr. Walden. And is that something you are pursuing?
Mr. McDonald. Yes, sir.
Mr. Walden. All right. Mr. Feaster, from your perspective
as the IG, what is your reaction to this?
Mr. Feaster. It would be something we would look into. It
may be part of a wider investigation that is ongoing at the
present time. I don't know that for a fact, though.
Mr. Walden. All right. Mr. McDonald, your testimony
indicates that your investigations of El Paso in funding year
2001 have shown, as you said, there were substantial amounts of
ineligible services funded. Walk me through this process of
going back and recovering on those that you determine are
ineligible. Is that happening? Will that happen in 2001?
Mr. McDonald. Let me just amend my answer to that last
question. NEC reached a settlement agreement with the Justice
Department and we won't seek, as I understand it, additional
money from NEC. They settled all their issues with E-rate. So
as we go back to look at the NABSE stuff, as I understand it,
we wouldn't be looking to take--to recover----
Mr. Walden. From NEC. But what about the other participants
in that?
Mr. McDonald. Yes. Yes. In 1999, we discovered that we had
made some errors in making commitments in the first year. We
were in the middle of an audit, disclosed that to the auditor.
That led to discussions with the Commission and led to issuance
of an order in 1999, the Commitment Adjustment Order, where the
Commission directed how do we do this when we discover after
the fact that we have committed money and dispursed money in
violation of the rules? So the process was established back
then, and they have recently amended that process in the fifth
report and order so that previously we could only seek money
from the service provider, now the guidance is to seek it from
whoever the guilty party is, whoever violated the rules. In the
old days, there was an opportunity for the service provider to
offset the money owed back to us from additional invoices that
would be otherwise properly paid. They have eliminated the
offset option, so----
Mr. Walden. They have to pay you back.
Mr. McDonald. [continuing] it has to be paid. And they have
moved it under the Debt Collection Improvement Act so that
there is much more teeth in getting the money back and applied
the so-called red light rule to that, that we won't make any
other payments and we will deny other requests if they are
delinquent in making those payments. The Commission has moved
strongly to tighten up recovery for rule violations.
Mr. Walden. What is your take on the fact that IBM bundled
its consulting services, valued at 7 percent of the cost of
each E-rate project, under the fees charged to the district and
El Paso?
Mr. McDonald. I would say they were bundling ineligible
services and seeking recovery of payments for ineligible
services.
Mr. Walden. You testified that your investigation of El
Paso concluded that the procurement approach was not consistent
with the rules. Is this because of their strategic technology
partnership with IBM? And how else was the procurement approach
in violation of the rules?
Mr. McDonald. In my testimony, I talked about the two-step
approach, and I think that is the fundamental issue, that they
avoided the competition over prices of goods and services, but
there were a number of other flaws in the processes. As my
colleagues have pointed out, the Form 470 listed virtually
every possible product and services----
Mr. Walden. Right. That is sort of like saying here is the
catalog. I want everything in it but I don't know exactly when
or what.
Mr. McDonald. Yes, sir.
Mr. Walden. But make it all available to me at the
discount.
Mr. McDonald. So that doesn't provide any guidance to
would-be vendors about what do you really want, what should I
bid on?
Mr. Walden. And have they thought through what they need.
Mr. McDonald. Correct.
Mr. Walden. Isn't that the underlying issue here?
Mr. McDonald. Yes, sir. The 470 said there was no RFP.
There was an RFP, and it was very different from the Form 470,
as Mr. Carlisle, I believe, testified. So there were a number
of issues in addition to ineligible services in the statements
of work.
Mr. Walden. I want to go back just briefly to a comment you
made about where USAC had made some errors in approving funds
and then you later told your auditor. What happens in that case
or in future cases if USAC makes the mistake? Does the district
still have to pay it back or how--I mean where does this equal
out?
Mr. McDonald. In the commitment adjustment order, the
commission addressed that and said in a number of instances the
mistakes we made were rule violations, and for that first year
they waived those. The others were statutory violations that we
were paying for ineligible services or paying for
telecommunications services to be provided by an ineligible
telecommunications provider. They concluded those were
statutory violations, and they had no authority to waive those,
so we had to seek recovery. Folks who----
Mr. Walden. How do you end up with rule and statutory
violations when you are administering this program? How did
that happen?
Mr. McDonald. Well, the statute is not very detailed, and
the----
Mr. Walden. I see.
Mr. McDonald. [continuing] Commission has obviously done a
lot to flesh this program out in rules.
Mr. Walden. All right. Mr. Feaster, you mentioned steps the
Commission has taken to address the programmatic weaknesses and
expressed frustration, though, with the pace of the Commission.
We have a new gentleman who has just taken over with the
Commission. Can you elaborate on what bothers you with the
process, what Mr. Carlisle can do or has done since taking over
and what remains?
Mr. Feaster. I think the full implementation of the DOJ
recommendations on certifications is one positive step. We have
had discussions about that and we have both agreed that our
staffs should work together with DOJ to see how far we can go
with those certification changes. Also, they have some items
out for comment which would tighten up the competitive process
aspects of the program that we would--we would like to see the
requirement for three bids as a minimum requirement. We think
that would help the process be more competitive and lower the
prices for the equipment. The Bureau has a--we know they have a
lot to do but we think that they need to expedite, and I think
Mr. Carlisle has committed to that process.
Mr. Walden. Mr. Carlisle, would you like to comment on
that?
Mr. Carlisle. I have committed to that process. I think one
of the first public statements I made after I took the Office
of Bureau Chief was that I had four primary things that we had
to get done, and E-rate was right on there, improving oversight
of them. We obviously have many, many things that we have to
get done in the Bureau, but in terms of the things we
absolutely have to get done as top priorities, that is right up
there at the top.
My sense is that we are continuing the work that was
started with the 2002 notice of proposed rulemaking. We have
already released three orders at this point, typing up aspects
of the program on our fifth report and order, and we are moving
into our sixth report and order, which is the recommendations
that we will be making in the next month or so. So we are doing
the best we can with what we have got, and we will continue to
do so. And I am also committed to working with Mr. Feaster and
also Mr. Fishel at the Office of the Managing Director and our
general counsel.
Mr. Walden. We appreciate that. Obviously, you have got a
bucket with a lot of money in it, and a lot of people have been
drilling holes in the bottom of it.
Mr. Feaster. That is true.
Mr. Walden. And it is time to plug those holes. Thank you.
The Chair recognizes the gentleman from New Hampshire, Mr.
Bass, for questions.
Mr. Bass. I will pass, Mr. Chairman.
Mr. Walden. Chair recognizes the gentlewoman from Colorado,
Ms. DeGette, for further questions.
Ms. DeGette. Are we going to do two rounds?
Mr. Walden. If you have any further questions you want to
ask.
Ms. DeGette. Thank you very much, Mr. Chairman. Thank you,
Mr. Chairman. I have actually never known Mr. Bass to pass on
questions, so I wasn't quite prepared.
Mr. Feaster, I just wanted to ask you, your written
testimony indicated that the FCC IG established a working
relationship with the Antitrust Division of the DOJ, in large
part because of the number of investigations that you were
supporting involved allegations regarding the competitive
procurement process. About how many competitive procurement
process investigations are you currently supporting the
Antitrust Division with?
Mr. Feaster. I believe there are about 35. I don't know if
they are all antitrust related. We work with two groups,
actually, the FBI and the Antitrust people, and I am not sure
how that 35 breaks down. Maybe Tom knows.
Mr. Cline. I am not certain exactly of the active
investigations that are in process how many of them
specifically relate to competitive procurement problems. Some
of them relate to items such as paying for goods and services
that were not received. But we do know that we have 35 that are
active at the moment, and our office is actively supporting 18
of those with audit support and work like that. The others we
are monitoring, we are aware of them, and we respond to
requests when we receive them.
Ms. DeGette. And that is in addition to the existing work
that you folks have.
Mr. Feaster. Yes.
Ms. DeGette. And that is with the three agents that you
have?
Mr. Feaster. Yes, ma'am.
Mr. Cline. They are auditors, though, ma'am.
Ms. DeGette. Oh, they are auditors. I have just got to say
on behalf of the committee, and I think we would all agree, you
folks have been doing a heck of a job with very limited
resources, so hopefully we can get you some more resources to
continue your fine work.
Mr. Feaster. Thank you.
Ms. DeGette. Now, Mr. Carlisle, I want to come back to you
for a minute because you testified that USAC denied a quarter
of a billion dollars in support to the IBM cases and that no
dollars have to be recovered because funding was never
distributed. And Mr. McDonald talked in his testimony about how
USAC was concerned about funding year 2001 and the ineligible
services from IBM. So I guess my question is if it turns out
that El Paso was guilty of receiving money for ineligible
products and services, is the FCC going to make every
appropriate effort to recover those monies?
Mr. Carlisle. Yes.
Ms. DeGette. Okay. My other question, and I don't know if
you can answer this or someone else, do you all think that if
there hadn't been this whistleblower letter, that the El Paso
case would have come to light? Would we have found that? Mr.
McDonald?
Mr. McDonald. In my longer statement, I think it may have
not got into my oral statement, I do believe we would have
uncovered the 2002 pattern. There were so many applicants doing
the same thing, seeking so much money that I believe we would
have conducted intensive reviews of those, sought the
competitive bidding documents and learned what the approach
was. And I think that would have led us to look back to El Paso
2001.
Ms. DeGette. Do you think it would have happened as quickly
as it did or would it have happened after monies were already
dispersed?
Mr. McDonald. I am glad we got the letter.
Ms. DeGette. How many cases do you think are out there like
that that haven't had whistleblower letters? Mr. McDonald?
Mr. McDonald. One, the whistleblower hotline is a very
effective tool for us. It does bring our attention to a lot of
issues, and we have a special investigations team that follows
up on every complaint we get--telephone calls, letters,
whatever. In addition to that, we have our own pretty intensive
review of applications. We look for similarities across
applications that would suggest service provider involvement in
those applications. So we have our own means at this and we
catch a lot of this ourselves without whistleblower complaints,
but that is a very valuable tool.
Ms. DeGette. Well, I understand you have mechanisms in
place, but, as we heard in the last hearing and as we have seen
ample evidence, there are just these gross examples of fraud
going on throughout the country, and I am wondering if there
are procedures other than the ones you have in place that can
be put into place so that we can catch these systems like El
Paso early on.
Mr. McDonald. We are in funding year 2004, and the
committee is focused on Puerto Rico was 1998 and 1999; San
Francisco I think was 1999 or 2000. We have gotten a lot more
sophisticated from those early years as we have learned about
the abuses of the program. After these hearings, we go back and
think about the issues that you have raised and what could we
do to literally improve our procedures to address them. We want
to get this right, and we are looking for every means we can to
improve to make sure we get it.
Ms. DeGette. So it is your view that since 2000-2001 these
gross abuses are not occurring at the rates they were before
then?
Mr. McDonald. I believe they are not occurring in the rates
they were before then. We have hired certified fraud examiners
to look at these applications, to look for patterns. One of the
first things we do when we get the applications data entered is
look for patterns across, look for very large requests from
smaller school districts, is there a pattern, and then we go
look for those.
Ms. DeGette. Okay. So then here is my question: If we have
adequate enforcement in place now, why are we talking about
lowering the E-rate contribution or the formula to 80 percent?
Mr. McDonald. Are you asking me that?
Ms. DeGette. Yes.
Mr. McDonald. Well, I am saying we are getting better. I
think that we are catching this much better than we used to. I
don't want to represent that there is no fraudulent activity in
E-rate today.
Ms. DeGette. What do you think about that, Mr. Feaster?
Mr. Feaster. It goes back to the fact that we haven't done
enough work in the audit area to make that statement
positively, but we have indications that waste and fraud is
widespread.
Ms. DeGette. Do you think it has decreased dramatically
since these new controls have been put into place?
Mr. Feaster. I don't know if it decreased dramatically. I
think it has taken a bite out of it. The review process has
been strengthened. We are doing more audits. We are finding
more problems. The more audits we do, the more problems we
find, so I don't know whether it is decreasing or we are just
finding more or finding less.
Ms. DeGette. We don't really have a way to know right now
how much fraud and abuse is out there, do we?
Mr. Feaster. No, we don't. Hopefully, once I get 250 audits
under our belt, we will be able to tell you.
Ms. DeGette. Mr. Carlisle, I want to ask you, many vendors
and school districts have been found guilty--and I recognize
that you are new, so the information you have will be based on
what your agency has been doing--but many of the vendors and
school districts have been found guilty of violating E-Rate
program rules, either accidentally or maliciously. Some of the
repeat offenders like IBM have been allowed to continue
operating with the E-Rate program, and I am wondering why that
is.
Mr. Carlisle. Well, our debarment rules, which were adopted
in April 2003, debar participation in the program of anybody
who has been convicted of a criminal offense related to the
program or of civil fraud or like civil charges related to
actions within the program.
Ms. DeGette. I am sorry, I am confused. Civil actions, you
mean a judgment, a court judgment? Okay. Because people don't--
--
Mr. Carlisle. If they are sued for fraud or there is a DOJ
civil action against them for fraud, yes, exactly.
Ms. DeGette. Which is--okay. I am confused, because I
thought that it required a criminal conviction.
Mr. Carlisle. No.
Ms. DeGette. No?
Mr. Carlisle. In April 2003, we made clear that if there
are civil--if they have been found liable for civil judgments
related to the program, things like fraud, et cetera, they can
also be debarred from the program.
Ms. DeGette. Okay. And can these vendors avoid that kind of
finding by entering into a settlement agreement which
specifically doesn't have a finding of fraud and thereby be
eligible for continued participation in the E-Rate program?
Mr. Carlisle. Theoretically, they would not have received a
conviction and also not a civil judgment against them, so,
theoretically, yes. However, my understanding is is that
applications submitted for funding by such vendors would be
subjected to a higher level of scrutiny.
Ms. DeGette. Since April 2003, when you folks promulgated
these standards, has there been a civil judgment that would
debar somebody from eligibility under the E-Rate program?
Mr. Carlisle. Not to my knowledge, although we have
debarred individuals on the basis of criminal convictions.
Ms. DeGette. Right. And how many have been debarred on that
basis?
Mr. Carlisle. Three, and we have pending action on several
others.
Ms. DeGette. And who was that?
Mr. Carlisle. Oscar Alvarez, John Angelitis and Duane
Maynard.
Ms. DeGette. So those were three individuals who were
convicted. What about some of these big companies? Has any
company, has any corporation been debarred?
Mr. Carlisle. I believe the Enforcement Bureau currently
has under consideration debarment of NEC, but they have not yet
completed that proceeding.
Ms. DeGette. And that has been a criminal proceeding as
well, NEC, right?
Mr. Carlisle. I believe so, yes.
Ms. DeGette. Thank you.
Mr. Bass [presiding]. The Chair recognizes himself for 10
minutes. Mr. Feaster, did you agree with the Commission's order
regarding the IBM matter?
Mr. Feaster. Yes and no. First, we agreed with the
Commission agreeing with USAC in denying the applications. The
no is that we thought they were--that the schools played a role
in the misdeeds, that there should have been action taken
against the schools and also against IBM. Basically, the order
let them redo it, and we think that IBM shouldn't have had the
opportunity to rebid, and the schools should have lost the
money.
Mr. Bass. What are your specific concerns regarding the
program's competitive bidding requirements? What do you believe
is the effect of weakness in this area of program design?
Mr. Feaster. The effect is basically to cost the Universal
Service Fund more money. The lack of competition means higher
prices paid for equipment. The long-range effect is that the
schools that are the neediest end up losing money because the
fund is capped.
Mr. Cline. Sir, if I could expand on that as well.
Mr. Bass. Sure.
Mr. Cline. We believe that the current competitive process
that is utilized for E-rate funding decisions--or applications,
excuse me, is based upon some faulty assumptions. There is an
assumption that the posting by the applicant of the 470 on
USAC's web site for 28 days is going to generate a cycle of
competitive activities, that there will be vendors looking at
these 470's and there will be this activity of phone calls and
discussions. And we could certainly not say anything to the
extent that that may or may not be true, but our audits
indicate that that frequently does not happen. The posting of
the 470--the 470 is too general for vendors to be able to
generate good and competitive and sort of point-on bids that
meet the schools needs, and frequently that just does not
generate the level of competition that was originally
envisioned by this process.
Mr. Bass. Mr. Feaster, what are your specific concerns
regarding the program's reliance on self certification? What do
you believe is the effect of weaknesses in this area on the
program design?
Mr. Feaster. Well, the conclusion we have reached regarding
certification is that the bad guys will certify anything, and
we recommended that the Bureau take the DOJ recommendations and
implement them on their forms to strengthen the language on the
forms and let the antitrust people when they do find misconduct
to take the appropriate legal action. That has partly been
done, and we were working with the Bureau to implement the
other ones, other recommendations that hadn't been fully
implemented yet.
Mr. Bass. What do you think it is--the weakness in this
area, what effect do you think it has on program design, in
general? How does it affect the rest of the process?
Mr. Feaster. Well, the certification process is a major
foundation of the program, and if people are certifying to
things that they haven't done, we allow funding to occur for
when it shouldn't occur. So, again, it goes back to money being
misused by the applicants of the program. That means less money
for the truly needy applicants.
Mr. Cline. If I could expand----
Mr. Bass. Yes.
Mr. Cline. [continuing] another thought on that matter.
What we frequently run into in discussions with the
certifications, again with the Antitrust Division, is the lack
of strength that the certifications as they currently are is
sort of ignoring the impact of some of the actions the
Commission has taken recently to improve the certifications and
forms. Discussions we have had with numerous antitrust
attorneys indicate that these certifications provide no
strength, they have no basis by which they can make charges.
An interesting fallout of some of the charges and some of
the charges that are being worked on in active investigations
under the E-Rate program is they, to our knowledge, never
include a charge of false statements. Now, in government
contracting, in grants, in numerous other activities involving
the transfer of Federal funds, false statements is kind of one
of those bread and butter charges. Typically, if you have
committed a crime, you have made a false statement. I think it
is telling that we have no charges of false statements in this
program, and it goes back to the weakness with the
certifications.
Mr. Bass. Mr. Feaster, in testimony today, we hear that El
Paso Independent School District's $27 million maintenance
operation was, ``consistent,'' with its technology plan. Do you
believe rules regarding technology plans are sufficient to
prevent wasteful spending?
Mr. Feaster. No, we don't. One of the findings that we have
come up in our audits is the difference between program rules
and implementing procedures established by USAC, and we have
been recommending that those implementing procedures be
codified by the Commission in order to bring them up to the
status of rules where we could take money back for violation of
those. One of those areas is the tech plan, that there are a
lot of implementing procedures that we would like to see
codified.
Mr. Bass. Mr. McDonald, if you would be good enough to turn
to tab 38 and 39.
Mr. McDonald. Yes, sir.
Mr. Bass. Mr. McDonald, tab 38 and 39. One issue with the
strategic partnership approach is the vendor getting--an
example of the vendor getting too involved in the application
process. These e-mails used the term, ``verbal commit.'' What
do you make of that? What does that imply to you about the
integrity of the competitive process?
Mr. McDonald. It appears that the verbal commit is
occurring before the Form 470 is even posted, which is a
violation of the rules. The Form 470 is to be posted, wait 28
days, consider all the bids you got and choose the most cost
effective. It appears that wasn't followed in this instance.
Mr. Bass. And, obviously, the--well I am not going to
answer the question for you--what does it imply about the
integrity of the competitive process? It is pretty self
evident.
Mr. McDonald. Yes. The commitment was made before it was
even begun.
Mr. Bass. Right. You state that you would probably have
caught the El Paso-IBM patterns absent the anonymous letter; is
that correct?
Mr. McDonald. Yes, sir.
Mr. Bass. Do you think your processes would have captured
the full pattern of activity?
Mr. McDonald. We didn't see these documents. I think your
powers to get documents are better than ours.
Mr. Bass. Well, have you changed your procedures since then
to make sure you can catch such an activity?
Mr. McDonald. We have certainly broadened our scrutiny of
the competitive process and sought--much more than we used to--
we are seeking the RFPs, all bids that were received,
evaluation worksheets to see how the winning vendor was
selected. We are doing much, much more of that than we used to.
Mr. Bass. Later we will hear from Charles Tafoya, the
superintendent of the El Paso Independent District who alleges
in his written testimony that USAC unexpectedly denied their
year 6 funding request. It might be a form of retaliation. What
can you tell us about this application and why it was denied?
Mr. McDonald. We did subject El Paso to heightened scrutiny
in funding year 2003 based on denying its application in 2002.
Part of the review was whether they had secured access to the
necessary resources to make effective use of the discounts, and
we were not able to get clear documentation that they had
budgeted for the non-discount share for all the services they
were requesting. So we denied on that basis. If they think that
is incorrect, that they did present that documentation to us,
they can appeal to the FCC if they do that timely.
Mr. Bass. One last question, Mr. McDonald. What is the
appropriate role for a consultant in the E-Rate program, and
what is your understanding of Judy Green's role in the NEC BNS
case? In your opinion, do you think it was appropriate?
Mr. McDonald. A consultant ought to not have any ties to
service providers. If the consultant is going to control the
process, have any influence on the process to select the
service provider, that consultant needs to be an arms length
from everybody, just as the applicant needs to ensure a fair
and open process, selection of the most cost-effective
provider. If I understand Ms. Green's relationship, she had a
relationship to the vendors that were selected to do the work.
Mr. Bass. Which, obviously, was not appropriate.
Mr. McDonald. Not appropriate.
Mr. Bass. All right. Thank you, Mr. McDonald. My time has
expired. The committee has completed questioning of this panel.
We have no further questions to submit at this time. We are
about to have votes called on the floor of the House, so what
the Chair would like to do is to call a recess of the
subcommittee until such time as the votes are complete, at
which time we will swear in the second panel. With that, the
Chair will declare a recess.
[Brief recess.]
Chairman Barton The subcommittee will come back to order.
We are now ready to call the second panel forward, but before
we do that, we are going to show a brief video regarding the E-
Rate program, which has been produced by committee staff during
the course of this investigation. So could we dim the lights
and show the video? Produced to the committee staff, not
produced by the committee staff. Do we have sound on this?
[Video plays.]
The Moderator. The expanded use of computers in schools is
leading to important transformations tied to the use of
multimedia applications, broadband width communication pipes
and widely distributed connectivity to the Internet, exposing
students and teachers to an exciting world of synchronous
distance learning, streaming audio and video and a host of
other digital advances.
For many schools, however, especially those in high poverty
and geographically isolated communities, a lack of access to
this new technology is a serious problem. They are caught in
the digital divide. The National Alliance of Black School
Educators, known as NABSE, stands ready to help schools bridge
that divide through the federally funded E-Rate program.
Recently, NABSE has put together a program designed to help
schools achieve the funding they deserve from the often
complicated E-rate process. This program utilizes NABSE's
considerable experience in the application process, combined
with the technical expertise of NABSE's world-class technology
partners, NEC, IBM and VNCI, among others.
Video Speaker 1. Certainly one of NABSE's major goals is to
bring the latest state-of-the-art equipment, methodologies and
best practices to its members. And with the advent of the E-
Rate program, NABSE is very pleased that we have entered a
partnership with our three or four hybrid organizations, and
these are technology firms who are making it much easier for
the NABSE schools to apply for E-rate funds, providing
technical assistance in completing the application, conducting
the research. So we are appealing to NABSE superintendents, to
the principals, that when you hear about this program that you
will call us right away and request, at no cost to you,
assistance from the support group so we can assure that, one,
you are getting the maximum amount of the E-rate funds that is
allowable for your school district.
Video Speaker 2. Our children are video learners. We have a
multimedia generation of children in our public schools today,
but yet we have an educational system that is designed to teach
them in a black and white format. That is probably the easiest
way to say it. Chalk and erasers, that is not the way our
children are learning.
The Moderator. The E-Rate program was authorized by
Congress as a part of the Telecommunications Act of 1996. The
E-Rate program provides all public and private schools and
libraries access to affordable telecommunications and advanced
digital technologies.
Video Speaker 3. NABSE was able to partner with the Jasper
County School District, partner with VNCI and we began the
process of developing our needs and desires for the Jasper
County School District. And so it was not--I can't say that it
was extremely easy because it wasn't, but it wasn't quite as
difficult as it could have been if we did not have the
partnership, and that was the key factor.
Video Speaker 4. NABSE has really in its mission, if you
look at our mission, one of our goals speaks to partnering with
individuals, organizations, institutions and entities of all
forms. We welcome the partnerships, and more importantly we
welcome the spirit in which the partners have come forth.
Video Speaker 5. If a small school district thinks that
they can develop all of the technology that is needed by their
students for the future, if they think they can do that alone,
then they are sadly mistaken. And when we were able to get all
of the help and the assistance from NABSE, then the amount of
money that we received went through the ceiling. Ten and a half
million dollars for a district this size is basically unheard
of. A million dollars versus $10 million, big difference. A
million dollars, you can put in a few wires; $10 million, you
can do video conferencing, and that is even better.
The Moderator. Most rural schools, due to their locations,
do not have access to the world-class technology that NABSE's
partners provide. These partnerships give both the rural and
urban schools the ability to do the accurate technology needs
assessments required for E-rate applications. To aid school
districts in acquiring the technology they need, NABSE has
developed consulting services which partner with several world-
class companies: NEC, IBM and VNCI, among others. These
partnerships, combined with NABSE's assistance throughout the
application process, have made the E-Rate program a success for
districts large and small.
Video Speaker 6. In terms of a very small school district
like I have, yes, it was very important to have NABSE's
assistance. I do not have the time nor the staff, and NABSE has
been able to assist our school district in obtaining over $88
million in funds. My school districts received approximately
$9.8 million apiece.
Video Speaker 7. NABSE, NEC Business Relations and VNCI for
Jasper County School District have proven to be perfect
partners. The technical people from VNCI and NEC, as a matter
of fact, they came in so quickly it almost scared me.
Video Speaker 8. Why this team is so important is that they
do this every day. They have people on their staff who are
trained and who will be able to answer the technical questions,
who will be able to research information. They know how other
school districts have done it, so they are able to bring that
knowledge and information to bear to be sure that the NABSE
school district gets the maximum amount of funds available.
The Moderator. To bridge the digital divide, today's
schools need technology solutions that span the entire range of
products and services required in the field of education.
NABSE's technology partners offer a wide range of desktops,
laptops and high-quality monitors. With today's trends toward
optimal speeds, it is essential to be on the cutting edge of PC
processing. Video solutions are beginning to be developed in
progressive districts and campuses. Distance learning has
allowed the K through 12 and campus educators to expand beyond
the walls of their facilities. Classroom content is boundless.
Video Speaker 9. Students will be able to see resources,
they will be able to see things around the world in real time
that they have never been able to see before.
Video Speaker 10. They love, they want it, and we must
bring that technology to the students. They deserve it, and we
owe them our very best.
The Moderator. NABSE and its partners are well versed in
the E-rate application process. NABSE personnel can help school
districts fill out the application, while the technology
partners can help in the needs assessment criteria. For
assistance in E-rate applications, technology planning and
needs assessment, school districts should contact NABSE before
the window of opportunity is gone.
Video Speaker 11. We appeal to the superintendents, to
principals, to the technology directors to pursue this project
with vigor. As we have stated before, it certainly isn't going
to last forever. Some corporate member of the school district
must come to us, let us know that they are interested, because
otherwise the funds will go to other school districts. When
their program ends, then we will find that once again many of
the older schools in central city that will be operating for
the next 30 or 40 years will not be wired. The students will be
deprived of this, and therefore the digital divide will become
broader and wider and wider as the years go.
[Video ends.]
Chairman Barton. All right. At this time, the Chair is
going to use an unusual procedure. The second panel consists of
seven individuals: Ms. Judy Green, a former E-rate consultant
for Video Network Communications; Mr. Quentin Lawson, the
executive director of the National Alliance of Black School
Educators; Mr. Carl Muscari, former president and CEO of Video
Network Communications; Mr. Robert McCain, program manager for
NEC BNS; Dr. Emma Epps who is superintendent of the Ecorse
Public School District; Dr. Douglas Benit, former facilities
director for the Ecorse Public School District; and Dr. William
Singleton who is the superintendent of the Jasper County
Schools in Ridgeland, South Carolina.
Some of you have indicated that you are going to refuse to
answer questions and use your constitutional guarantee to plead
the Fifth Amendment. So we are going to call the individuals
who we believe are going to exercise that right forward first.
So at this time, we are going to call forward the following
witnesses: Ms. Judy Green, Mr. Quentin Lawson and Mr. Carl
Muscari. If you individuals would please come forward. And you
can be seated at the table.
We do need to indicate for the record that Ms. Green and
Mr. Lawson declined to come forward voluntarily and were
subpoenaed and they did answer their subpoena. Ms. Green was
subpoenaed to attend our July 22 hearing, but U.S. marshals
were unable to find her to serve the subpoena. Ironically, on
the very day that we held that hearing, Ms. Green's attorney
notified the committee staff that he had actually been
retained.
During the last hearing then, I explained how serious this
committee takes its need to get testimony and how serious we
are about our subpoenas being honored. I indicated that we
would again subpoena Ms. Green. We have done that and to her
credit she has answered that subpoena. But we will take every
action under the law in doing our oversight responsibility for
the people of the United States to compel attendance when we
deem that it is necessary to get the facts of the issues that
are under investigation.
I think each of you individuals know that it is the
practice of this subcommittee to take testimony under oath.
Does anybody here oppose testifying under oath? Let the record
show that two of the three shook their head. Mr. Muscari, you
haven't indicated. Do you have a problem with testifying under
oath? Okay. You also know that you have the right to be advised
by counsel. Do you all have counsel here? Could each of you
bring your counsels forward and speak into the microphone and
let us know who those individuals are. Ms. Green? You have got
to push that button. There is a little button you have to push
to turn the microphone on.
Mr. Lincenberg. My name is Gary Lincenberg, counsel for Ms.
Green.
Chairman Barton. Okay. Mr. Lawson?
Mr. Lawson. Pete Harrison.
Chairman Barton. And he is your counsel?
Mr. Lawson. He is my counsel.
Chairman Barton. Okay. Mr. Muscari?
Mr. Savage. It is Joseph F. Savage, Jr. for Mr. Muscari.
Chairman Barton. Okay. Will each of you individuals please
rise, raise your right hand?
[Witnesses sworn.]
Chairman Barton. Be seated.
The Chair will now recognize Ms. Green for the purposes of
making an opening statement if you so desire. Do you wish to
make an opening statement?
TESTIMONY OF JUDY GREEN, FORMER E-RATE CONSULTANT, VIDEO
NETWORK COMMUNICATIONS; ACCOMPANIED BY QUENTIN LAWSON,
EXECUTIVE DIRECTOR, NATIONAL ALLIANCE FOR BLACK EDUCATORS; CARL
MUSCARI, FORMER PRESIDENT AND CEO, VIDEO NETWORK
COMMUNICATIONS; ROBERT MCCAIN, PROGRAM MANAGER, NEC BNS; EMMA
EPPS, SUPERINTENDENT, ECORSE PUBLIC SCHOOL DISTRICT; DOUGLAS
BENIT, FORMER FACILITIES DIRECTOR, ECORSE PUBLIC SCHOOL
DISTRICT; AND WILLIAM SINGLETON, SUPERINTENDENT, JASPER COUNTY
SCHOOLS, RIDGELAND, SOUTH CAROLINA
Ms. Green. No.
Chairman Barton. Okay. Let the record indicate that Ms.
Green declined to make an opening statement. The Chair would
now recognize Mr. Lawson for purposes of making an opening
statement if you so desire.
Mr. Lawson. No.
Chairman Barton. Mr. Lawson declines to make an opening
statement. The Chair will now recognize Mr. Muscari to make an
opening statement if he wishes.
Mr. Muscari. I have no opening statement. Thank you.
Chairman Barton. Mr. Muscari also declines to make an
opening statement. The Chair will then recognize himself for 10
minutes for questions.
Ms. Green, on July 22, 2004, we heard from the San
Francisco City Attorney's Office about an elaborate conspiracy
between individuals at NEC BNS and VNCI, including you, George
Marchelos and others in which the co-conspirators eliminated
competitive bidding and inflated prices on contracts related to
the E-Rate program. As you know, NEC BNS ultimately pleaded
guilty to conspiracy to suppress and eliminate competition for
the E-Rate program projects and to wire fraud. As a former
employee of VNCI, were you part of the conspiracy by NEC BNS,
VNCI and others to defraud the E-Rate program by rigging bids,
inflating contract prices, forging the signatures of school
district officials and lying to USAC officials during their
review of that process?
Ms. Green. On advice of counsel, I respectfully decline to
answer that question based on my Fifth Amendment constitutional
right.
Chairman Barton. Ms. Green, are you refusing to answer all
of this committee's questions on the right against self-
incrimination which is afforded to you under the Fifth
Amendment of the United States Constitution?
Ms. Green. Yes, sir.
Chairman Barton. And is it your intention to assert such
right in response to all further questions from the
subcommittee today?
Ms. Green. Yes, sir.
Chairman Barton. Given that, I will dismiss you at this
time, but I want to make it perfectly clear that you are still
subject to being recalled by this subcommittee if we deem it
necessary. Do you understand that?
Ms. Green. Yes.
Chairman Barton. If you don't, now is the time to----
Ms. Green. No. Can I just----
Chairman Barton. If you say anything, you are going to have
to answer every question.
Ms. Green. All right.
Chairman Barton. I am not going to play games with you. You
have got the right to take the Fifth Amendment, which you have
done, but once you answer one question, then you have waived
that right, and we could ask you many questions. So at this
time, I am going to excuse you subject to recall if necessary.
We are now going to go to you, Mr. Lawson. We have just
seen a video that NABSE, of which you are affiliated with,
produced, marketing their E-Rate program. You appear in that
program. The video refers to an E-rate-related partnership
between NABSE, VNCI, NEC BNS and others. As the executive
director of NABSE, were you aware of the conspiracy by NEC BNS,
VNCI, Judy Green, George Marchelos and others to defraud the E-
Rate program by rigging bids and inflating contract prices?
Mr. Lawson. Mr. Chairman, as you know, there are ongoing
Federal criminal investigations into the same events that are
the subject of this hearing. I have fully cooperated with the
officials conducting these criminal investigations; however, in
view of the open-ended Federal criminal investigations that are
currently ongoing, I reluctantly, and contrary to my desire to
testify, will follow the advice of my legal counsel and
respectfully decline to testify based upon my rights under the
Fifth Amendment to the United States Constitution. I hope that
the subcommittee will not draw a negative inference from my
assertion of this basic constitutional right guaranteed by the
Bill of Rights. I respectfully request that the letter prepared
and submitted by my counsel, dated September 17, 2004, be
considered part of the record of this hearing.
Chairman Barton. Are you refusing to answer the question
based on your constitutional rights under the Fifth Amendment?
Mr. Lawson. Yes.
Chairman Barton. Then we cannot accept the letter that you
just asked that we put into the record. Ms. DeGette has already
indicated that she would object, I would object, Mr. Walden
will object. You can't have it both ways. You can't honor your
rights under the Fifth Amendment and then, I won't say sneak
into the record, but put into the record something that is to
your benefit, so to speak.
Mr. Lawson, are you refusing to answer all of the questions
on the rights against self-incrimination afforded to you under
the Fifth Amendment of the U.S. Constitution?
Mr. Lawson. Yes.
Chairman Barton. And is it your intention to assert such
right in response to all further questions from the
subcommittee today?
Mr. Lawson. Yes.
Chairman Barton. Given that, with the understanding, as we
just explained to Ms. Green, that there may be further requests
for you to come before this subcommittee, I am going to dismiss
you at this time, subject to the right of recall if necessary.
Do you understand that?
Mr. Lawson. Yes.
Chairman Barton. Okay. Then at this time, you are excused
also.
Mr. Lawson. Thank you.
Chairman Barton. Mr. Muscari, on July 22, 2004, we heard
testimony about an elaborate conspiracy between individuals at
NEC BNS and VNCI, including Judy Green, George Marchelos and
others, in which the co-conspirators eliminated competitive
bidding and inflated prices on contracts related to the E-Rate
program. As you know, NEC BNS later pleaded guilty to
conspiracy to suppress and eliminate competition for the E-Rate
program projects and to wire fraud. As a former president and
CEO of NEC BNS, were you aware of this conspiracy by your
company, or your former company, VNCI, Judy Green, George
Marchelos and others to defraud the E-Rate program by rigging
bids, inflating contract prices, forging signatures of school
district officials and lying to USAC during its review process?
Mr. Muscari. Mr. Chairman, based upon the advice of my
attorneys, I respectfully decline at this time to answer based
upon my rights under the Fifth Amendment of the U.S.
Constitution.
Chairman Barton. And, Mr. Muscari, are you refusing to
answer all of these questions based on your right against self-
incrimination afforded to you under the Fifth Amendment of the
U.S. Constitution?
Mr. Muscari. I am.
Chairman Barton. And is it your intention to assert such
right in response to all further questions from the
subcommittee today?
Mr. Muscari. Yes.
Chairman Barton. Given that, as long as you understand that
you are still subject to being recalled by the subcommittee at
a date future, I am going to dismiss you at this time, again,
subject to the right to be recalled. Do you understand that?
Mr. Muscari. I do understand, yes.
Chairman Barton. Okay. Then you too are excused, sir.
At this time, the Chair will now call forward the remainder
of our panel from Panel 2: Dr. Emma Epps, superintendent of the
Ecorse School District in Ecorse, Michigan; Dr. Douglas Benit,
the former director of facilities at Ecorse School District;
Dr. William Singleton, the superintendent of the Jasper County
School District in Jasper County, South Carolina; and Mr.
Robert McCain, the former NEC BNS project manager at Ecorse
School District who is appearing before us by video link. If
those of you that are in the chamber will come forward and be
seated at the table.
As each of you individuals know, this subcommittee conducts
its investigative hearings by taking all testimony under oath.
Do any of you object to testifying under oath? Let the record
show that all three individuals said that they are willing to
testify under oath.
You also have the right to be advised by counsel under the
Constitution of the United States of America. Do any of you
have counsel that are with you today?
Ms. Epps. Yes.
Chairman Barton. Dr. Epps, would you read into the record
your counsel, please, ma'am? You just push the button.
Mr. Allen. Yes, Mr. Chairman. Floyd Allen, representing Dr.
Epps and Dr. Benit.
Chairman Barton. Okay. Dr. Benit, do you have--oh, he is
counsel for both of you. Dr. Singleton, do you have counsel
with you?
Mr. Singelton. No.
Chairman Barton. Okay. Will all of you please stand and
raise your right hand? Oh, Mr. McCain, do you object to
testifying under oath?
Mr. McCain. No.
Chairman Barton. You also have the right to be advised by
counsel. Do you have a counsel with you today?
Mr. McCain. Yes, Mr. Sutra.
Chairman Barton. Could you bring him into the video.
Mr. Sutra. Good morning, Mr. Chairman. Steve Sutra.
Chairman Barton. Okay. Mr. Sutra needs to stay in camera
range, because he is going to have to be sworn too. So would
all----
Mr. Sutra. I am not getting sworn.
Chairman Barton. Are the attorneys--I thought they did.
Will our witnesses please stand to be sworn and raise your
right hand.
[Witnesses sworn.]
Chairman Barton. Be seated.
Okay. Mr. McCain, we are going to recognize you for 7
minutes. Your statement is in the record, and if you would like
to elaborate on that, we would like to have your elaboration.
Mr. McCain. No statement, sir.
Chairman Barton. No statement. Okay. Dr. Epps, would you
like to make an opening statement?
Ms. Epps. No, sir, I have no statement.
Chairman Barton. Okay. Dr. Benit, would you like to make an
opening statement?
Mr. Benit. No, sir.
Chairman Barton. Okay. Dr. Singleton, would you like to
make an opening----
Mr. Singelton. No, sir.
Chairman Barton. So we have nobody that wishes to make an
opening statement. Okay. The Chair would suspend for just a
second.
[Pause.]
Chairman Barton. The Chair is going to recognize Mr. Walden
for 10 minutes.
Mr. Walden. Thank you, Mr. Chairman. Mr. McCain, when you
were NEC BNS' project manager at Ecorse School District, what
were your job responsibilities?
Mr. McCain. My responsibilities were to install the
products that were within the job package and get them
operational and turn them over to the school district.
Mr. Walden. And what year did NEC BNS conduct work for
Ecorse while you were the project manager?
Mr. McCain. The work started in February 2001.
Mr. Walden. And who was your primary contact at Ecorse
School District, sir?
Mr. McCain. Dr. Benit.
Mr. Walden. Dr. Benit. Okay. And did you interact or work
often with Dr. Epps?
Mr. McCain. No.
Mr. Walden. Did you work at all with Judy Green from VNCI
while managing the Ecorse project?
Mr. McCain. No.
Mr. Walden. Who built the TV production studio for Ecorse?
Mr. McCain. NEC.
Mr. Walden. NEC. Okay.
Mr. McCain. Yes, sir.
Mr. Walden. Whose idea was it to provide Ecorse School
District with a TV production studio?
Mr. McCain. That was from information we received from Dr.
Benit.
Mr. Walden. So it was Dr. Benit's idea to build the TV
studio?
Mr. McCain. Yes, sir.
Mr. Walden. Please turn to the NEC document numbered 6345.
That is 6345. How much money was awarded to Ecorse School
District by the E-Rate program for funding year 2000?
Mr. McCain. The document 6345 indicates $4,135,969.81.
Mr. Walden. That is what it shows. Mr. McCain, please
describe document 6347. What is Dr. Benit insisting on dollar
values for, ``in-kind items,'' document 6347?
Mr. McCain. His inquiry was to identify the in-kind dollars
and what that detailed reference to products that were being
proposed for installation.
Mr. Walden. And at document 6348, go to that one.
Mr. McCain. Yes, sir.
Mr. Walden. Why does Dr. Benit describe the TV studio as
being at a ``critical status?''
Mr. McCain. That was to interface with the current onsite
construction contractors to make ready the rooms for the TV
production studio.
Mr. Walden. All right. So you had contractors onsite doing
wiring installation, and from your recollection, he felt it was
important, it was a critical status for the TV studio.
Mr. McCain. Yes, sir.
Mr. Walden. Mr. McCain, looking now at document 6350 and
6351, do you have those in front of you, sir?
Mr. McCain. Yes, sir.
Mr. Walden. Could you briefly describe these e-mails and
the issue being discussed here?
Mr. McCain. The first document, 6350, was initiated from
Dr. Benit to Gerard McNulty, who was the account exec from NEC
assigned to the Ecorse project, and he wanted to request an
overview of the dollars allocated from the SLD funding to
properly be evaluated as to how those funds were going to be
identified within the project scope.
Mr. Walden. Okay. And does that cover 6351 as well then?
Mr. McCain. 6351 is a reference to a meeting I had with Dr.
Benit and updated my immediate supervisor, Randy Weekly. After
that meeting--sorry, during that meeting, Dr. Benit did express
from this document that he had requested detail regarding the
production studio cost and that he would follow up the
following week with Mr. Weekly.
Mr. Walden. And we are talking about the TV production
studio?
Mr. McCain. Yes, sir.
Mr. Walden. Okay. And now turn to document 6352. What is
this lengthy document?
Mr. McCain. This document was originated from Bill Barber
who was a systems engineer for NEC in reference to the video TV
production studio. It outlines all the line items that had been
within the initial design, identifying those items and what the
total dollar amount was.
Mr. Walden. And what is that total dollar amount of the TV
studio?
Mr. McCain. The original design was $1,040,239.62, and that
is reflected on document 6363.
Mr. Walden. And let's go to document 6364 and 6365. Do you
recognize this document, and can you please describe your
understanding of this document and in particular the second
page. Is this a document you recognize, sir?
Mr. McCain. Yes. This document was identifying the NEC
proposed use of funds, which is in the left columns. The middle
columns were the response of the funds as to what was being
requested to be installed by Dr. Benit, and the right column
shows the balance of award funds from the original amount
authorized by the SLD funding.
Mr. Walden. All right. And who built this spreadsheet, do
you know?
Mr. McCain. Dr. Benit.
Mr. Walden. And, again, the first column shows what?
Mr. McCain. The first column shows the original dollars in
reference to the design of the line items located on the left
column there.
Mr. Walden. Okay. And the second column again?
Mr. McCain. Is what Dr. Benit had requested funding to be
spent for those particular line items in that dollar amount.
Mr. Walden. It is what Dr. Benit requested the line items
be.
Mr. McCain. Yes.
Mr. Walden. And is that what the okay next to the numbers
in the second column would mean?
Mr. McCain. Yes.
Mr. Walden. And is that--so that is Dr. Benit's okay?
Mr. McCain. Yes, sir.
Mr. Walden. All right. This document then seems to indicate
that Dr. Benit knew that E-rate funds were covering all the
costs of the TV studio. Is that a correct assumption?
Mr. McCain. Yes, sir.
Mr. Walden. All right. Then please turn to 6366.
Mr. McCain. Okay.
Mr. Walden. Who drafted this memo to you, sir?
Mr. McCain. That is from Bill Barber, the systems design
engineer for NEC for the video.
Mr. Walden. And would you agree that this memo describes a
Dr. Benit who is intimately involved with the design,
construction and many minor details of the TV studio?
Mr. McCain. Yes. This document was reviewed with Dr. Benit
to be extended to the contractors onsite to address some of the
items that needed to be completed to provide a functional TV
production studio.
Mr. Walden. And, finally, turn with me to 6377. Can you
briefly describe this e-mail?
Mr. McCain. This e-mail was originated from Dr. Benit to
myself, Bill Barber and John Colvin, who was the director of
the public sector for NEC, requesting NEC to support an open
house conducted at Ecorse School District May 17 through May
19. I, in turn, from the middle of the document, 6367, had
requested from the contractor that was hired by NEC to install
the TV production studio to also be onsite to assist in the
open house.
Mr. Walden. All right. Given all the hype over the ribbon-
cutting ceremony, does it seem likely to you that Dr. Epps
could be unaware of the fact that NEC built this studio for
Ecorse through the E-Rate program?
Mr. McCain. No, she couldn't be unaware of it.
Mr. Walden. She could not be unaware.
Mr. McCain. Right.
Mr. Walden. Mr. McCain, did you ever learn or hear whether
Ecorse paid NEC BNS its required E-rate copayment?
Mr. McCain. No.
Mr. Walden. Does that mean, no, you never learned or heard
or they never made the copayment?
Mr. McCain. I never learned or heard.
Mr. Walden. So you don't know whether that copayment was
ever made?
Mr. McCain. That is correct.
Mr. Walden. All right.
Chairman Barton. Do you have further questions?
Mr. Walden. Mr. Chairman, I don't have any further
questions at this time.
Chairman Barton. Okay. The Chair would recognize Ms.
DeGette for 10 minutes if she wishes.
Ms. DeGette. I have no questions at this time.
Chairman Barton. Okay. The Chair would then recognize
himself for 10 minutes.
Dr. Epps, you have just heard Mr. McCain in his comments on
some of the contracts that were in your school district. What
is your understanding of your district's financial obligation
in participating in the E-Rate program?
Ms. Epps. My understanding is that we followed the rules of
the E-Rate program. That is my understanding.
Chairman Barton. Dr. Benit?
Mr. Benit. My understanding--could you repeat the----
Chairman Barton. After listening to Mr. McCain's answers to
Congressman Walden's questions and some of the contracts that
were let for your school district, including the way a
television studio was built and paid for, what is your
understanding of your school district's financial obligation to
participate in the E-Rate program?
Mr. Benit. My understanding is that the district is
supposed to pay a 10 percent share because they are at a 90
percent rate. A lot of the documents that we referred to, Mr.
Colvin and I reverted back, with our counsels, back to the
original agreement. So my understanding is that all the
equipment that was supposed to be spent, all the E-rate dollars
supposed to be spent on E-rate was spent and the TV production
was something that they provided that was outside of E-rate.
Chairman Barton. Had you seen the documents that Mr. Walden
referred to with the various columns? Have you seen those
documents?
Mr. Benit. Yes.
Chairman Barton. Okay. Have we asked unanimous consent to
put those documents in the record? Okay. The Chair would ask
unanimous consent that the binder that has been prepared for
this hearing be put in the record. Is there objection? And the
Chair would indicate that this particular document that is NEC
E-rate contract, district attachment, rider A, memorandum of
understanding is one of the documents that has been put in the
record.
So you have seen this document?
Mr. Benit. I saw it just as we were waiting here.
Chairman Barton. Oh. You had not seen it before today.
Mr. Benit. No. The document that was on top?
Chairman Barton. Well, the primary document that we are
referring to is the----
Mr. Benit. That was signed by myself and John Colvin?
Chairman Barton. Yes. And on page 0635, which shows the
spreadsheet.
Mr. Benit. Where do I find this?
Chairman Barton. It is in your binder, and it is at tab--it
is called the Benit spreadsheet.
Mr. Benit. Okay. What tab number is that?
Chairman Barton. Well, that is a very good question. We
need to get that. You obviously have the right to take a look
at that. Tab 85.
Mr. Benit. I don't have a tab 85 in this one, sir. Oh, here
it is. Hang on.
Chairman Barton. It is a big binder, so we certainly----
Mr. Benit. Okay. I see the spreadsheet.
Chairman Barton. Okay. And do you see the middle column
where it says, ``EPS response to proposed use of funds?'' That
is that middle column.
Mr. Benit. Yes, I do, sir. I see that column, but I----
Chairman Barton. And do you see the blocks, like $700,000
has been blocked and then next to it it says, ``okay.'' And
then the next one is $500,000 and it is okay. And then $1
million and it is okay. And then $14,000 and it is okay. And
then $800,000 total, which is not blocked, but that says,
``okay.''
Mr. Benit. I see all that, but I also want to go on record
as after we did this and we had a discussion with our
attorneys, we went back to the original agreement that was
signed.
Chairman Barton. I am not sure I understand that response.
Do you want to elaborate on that?
Mr. Benit. All I want to say is that we signed a memorandum
of understanding to the contract. We did some of this
spreadsheet, we discussed it with our attorneys and went back
to the original memorandum of understanding that all the E-rate
dollars are supposed to be spent for E-rate purposes.
Chairman Barton. So even though these say, ``okay,'' you
are saying that that was invalid, that you retracted that.
Mr. Benit. Absolutely. That was done through a telephone
conversation with John Colvin of NEC, I believe it was his
attorney, our attorney and myself.
Chairman Barton. Mr. McCain, can you hear me?
Mr. McCain. Yes.
Chairman Barton. Do you want to respond to Dr. Benit saying
that even though we have got these documents that they were
later disallowed?
Mr. McCain. I was not part of those conversations that Dr.
Benit had with Mr. Colvin and his counsel.
Chairman Barton. Okay. Dr. Epps, does your school
district's high school have a television production studio?
Ms. Epps. Yes.
Chairman Barton. Do you know when that production studio
was built?
Ms. Epps. I am thinking the 2001-2002 school year.
Chairman Barton. Do you know who built the production
studio?
Ms. Epps. I was asked that question. I know that NEC
donated the radio-TV room to the school district.
Chairman Barton. So it is your understanding that NEC BNS
built the studio?
Ms. Epps. Yes.
Chairman Barton. And, Dr. Benit, is that your understanding
as well?
Mr. Benit. My understanding is they contributed the
equipment. We were completing the building of a new high school
at that time. We had I think about 40, 50 contractors onsite.
We had to put air conditioning in the room, we had to paint the
room. We used those contractors through our construction
manager to come in there and make the room ready for the TV
production.
Chairman Barton. Do you know whose idea it was to build the
TV studio?
Mr. Benit. I don't recall, but I know there was a lot of
discussions with a lot of people, and that was one idea that
came up.
Chairman Barton. Dr. Epps, do you recall who thought of the
idea to build this studio?
Ms. Epps. No, sir, I don't recall.
Chairman Barton. When somebody approached you with it, did
you question whether it should be built and who was going to
pay for it or did you just accept that television studios kind
of fell out of the sky?
Ms. Epps. No, sir. When Dr. Benit brought it to my
attention, it was supposed to be a donation from NEC.
Chairman Barton. So your impression was that it was a
donation.
Ms. Epps. Yes, sir.
Chairman Barton. Dr. Benit, is that your impression also?
Mr. Benit. Yes, it is.
Chairman Barton. Okay. Mr. McCain, do you have any comment
you would like to make on who paid for the construction of this
studio?
Mr. McCain. From the direction we were given, the funding
for the Ecorse project was all funded reference to what was
identified on the spreadsheet, initiated by Dr. Benit. I am not
aware of any donations of the TV production at NEC's cost.
Chairman Barton. So, Mr. McCain, your testimony would be,
based on the record, that this television studio was built with
E-rate money, not with money donated.
Mr. McCain. That is correct.
Chairman Barton. All right. Dr. Benit and Dr. Epps, now
that you have heard that, do you still stand by the original
answer that this was somehow donated money?
Mr. Benit. I do, because Mr. McCain was not--he was a
project manager. He was not involved in any of the discussions.
He is not even aware of the discussion that John Colvin and I
had to go back to the original agreement that was agreed to.
Chairman Barton. Do you agree, Dr. Benit, and you also, Dr.
Epps, that this television studio cost over $750,000?
Ms. Epps. Sir, I don't know the financial value of that
radio-TV studio.
Chairman Barton. Dr. Epps, as superintendent----
Ms. Epps. Yes, sir.
Chairman Barton. [continuing] are you expected to track the
financial aspects of the school district that you are
superintendent of?
Ms. Epps. Yes, sir.
Chairman Barton. Is $750,000 something that you would
normally be expected to have some awareness of? I mean is that
a small sum, a large sum that it would be expected that an
individual in your position would have a knowledge of and where
the money came from and how it was spent?
Ms. Epps. If it came from the school district, but my
understanding is it was a donate item to the school district.
Chairman Barton. Do you have anything in the record that
shows that it was a donation? Is there anywhere a document
where whoever you think donated it actually made that donation
and submitted a letter, a check, a voucher at all----
Ms. Epps. No, sir, I am not aware----
Chairman Barton. [continuing] that you could provide to
this committee documentation?
Ms. Epps. No, sir, I am not aware of a check or a letter. I
only know about the memorandum that was signed by Dr. Benit and
I think Mr. Colvin.
Chairman Barton. Dr. Benit, do you want to comment on that?
Mr. Benit. The document that was signed by Mr. Colvin of
NEC, the vice president of E-Rate Operations at the time, and
myself, with our attorneys present, stated that the non-E-rate
items could include a TV production studio that would be
donated by NEC.
Chairman Barton. But there is no documentation to that. I
mean we agree--I think we agree the television station cost
$750,000. Do either of you dispute that?
Mr. Benit. I haven't--it has been a long time, so I am not
aware of the value.
Chairman Barton. Okay. Dr. Benit, do you recall that when
you were questioned about this by the committee staff during
the interview process, you said that you didn't know who paid
for the studio?
Mr. Benit. I don't recall that either, because I do know
that the studio's equipment was donated by NEC, but I also know
that a lot of the contractors that we had on staff through our
construction manager was doing work throughout that building
and through that area at all times while they were there.
Chairman Barton. Well, are you all aware, Dr. Epps and Dr.
Benit, that this television studio, just the actual studio
itself, was ineligible at the time and would be ineligible
today for E-rate funding?
Mr. Benit. I am aware that it was donated. The agreement
says it was supposed to be outside. It wasn't supposed to
violate any E-rate rules or SLD rules.
Chairman Barton. Okay. But there is no documentation that
the committee staff is aware of that shows that such a donation
was ever made. The documentation that we have shows in fact
that it was paid for by E-rate funding. Now, I----
Mr. Benit. I don't have any of that information.
Chairman Barton. Mr. Walden?
Mr. Walden. Mr. Chairman, a question for Dr. Epps and Dr.
Benit. Did anyone in your district bother to check with the
USAC to see if E-rate allowed a $750,000 gift from a vendor
receiving government funds?
Mr. Benit. No. I have asked our attorney to make sure that
whatever we do we are in compliance.
Mr. Walden. Who is your attorney?
Mr. Benit. Jaffey Rait.
Mr. Walden. And do you know if he checked?
Mr. Benit. I don't know. They were supposed to let us know
if something was askew, but I never did hear from him back that
we weren't doing something right.
Mr. Walden. Mr. McCain, would you have known of any of
these other financial memos that we are hearing about today?
Mr. McCain. No.
Mr. Walden. You wouldn't have known.
Mr. McCain. No.
Mr. Walden. You were the onsite project manager. Who told
you how this was being funded?
Mr. McCain. All the financials were done through Dallas.
Mr. Walden. Okay. So you just installed the TV studio.
Mr. McCain. Yes, sir.
Mr. Walden. Is that right?
Mr. McCain. Yes.
Mr. Walden. Then how did you know about this memo, the
spreadsheet that Mr. Benit had?
Mr. McCain. That was extended to me from my immediate
supervisor.
Mr. Walden. And who is that?
Mr. McCain. Randy Weekly.
Mr. Walden. Okay. Then I want to go to a memo to Mr. Weekly
from Mr. Benit. This is 06347, dated February 15, 2001, 2:54 in
the afternoon, and it says, and I quote, ``I am reviewing the
two sides; however, I have discussed my concerns with our
superintendent, Dr. Epps, regarding the services to be provided
by NEC. We would like to know in detail just what you were
provided and a dollar value assigned to each. I want to firm up
what is going to be considered as in-kind and the dollar
assigned to each. I am going to review the in-kind amounts
tomorrow, and I will e-mail you the changes which I see. I
would want this in place before we proceed any further with
this project along with the coordination between existing
contractors and your final scope of work. Call me on my cell or
e-mail me.'' What do you mean by the in kind part of this?
Mr. Benit. In kind would be any kind of donations that
would was beyond the E-rate dollars that were applied.
Mr. Walden. See, it is our understanding that USAC does not
allow for gifts like this.
Mr. Benit. I am not aware of that.
Mr. Walden. And your attorney clearly wasn't aware of that;
is that what you are----
Mr. Benit. They have not informed me of that.
Mr. Walden. Mr. Chairman, I yield back.
Chairman Barton. I want to go back then. This television
studio that $750,000 was spent for and which our records show
was spent with E-rate funding, which each of you, Dr. Epps and
Dr. Benit, indicate was donated, although there is no
documentation that you received the donation or even a letter
notifying you of the donation. How has that TV studio been used
or is it even being used?
Ms. Epps. Yes, sir, it is being used by the students at the
high school every day.
Chairman Barton. By the students at the high school every
day.
Ms. Epps. We have classes. We do TV classes for credit.
Chairman Barton. Has it been used by local businesses to
generate revenue?
Ms. Epps. No, sir.
Chairman Barton. Not at all?
Ms. Epps. No, sir.
Chairman Barton. Dr. Benit?
Mr. Benit. No. It is only for students. It started out
being used by students and is still being used by students.
Chairman Barton. Mr. McCain, do you have any information
that the television studio has been used for local business, by
local businesses to generate revenue?
Mr. McCain. No.
Chairman Barton. Dr. Epps, do you know how much money the
E-Rate program was granted to your school for the funding year
2000?
Ms. Epps. I believe with the reduction, I believe it came
to about $7 million.
Chairman Barton. $7 million.
Ms. Epps. Like six point something million dollars.
Chairman Barton. Okay. Our records show $4 million, but if
you say $7 million, okay. Dr. Benit, what is your recollection?
Mr. Benit. Well, I think the original award through NEC was
about $7 million. I conducted a review and told Dr. Epps that I
thought that one portion of the award was redundance and I
asked to reduce it by $3.3 million. And so the final award came
out to $4.1 million. I wrote a letter back to Schools and
Libraries and asked them to----
Chairman Barton. So originally the $7 million that Dr. Epps
referred to was granted, and then when that was reviewed, you
made a decision, or somebody, you and Dr. Epps made a decision
that some of those funds were not eligible and you refunded
some of the money or didn't accept it so that the final number
is the $4.135 million?
Mr. Benit. Well, those funds were eligible, but we reviewed
what our needs were within the district and didn't feel that we
needed the redundancy that that award would give us, so I asked
the Schools and Libraries by a letter to cut that funding for
that particular award.
Chairman Barton. Dr. Epps, do you want to comment on that?
Ms. Epps. Dr. Benit reviewed our needs and I remember he
came to my office and told me that he had reviewed our needs in
terms of the E-rate. He had reviewed our bond project. We were
building the high school, another school at that time and
remodeling two others, so we had a big project going. And he
had reviewed all of that, and he felt that there were some
items that would be redundant to what we were doing over with
the bond so that he wanted to reduce the amount. And my comment
was if that is what we needed to do, we didn't want anything
that we didn't need, so he wrote a letter or e-mail reducing
that amount. And the exact figures he knows exactly how much
that was.
Chairman Barton. Well, we have--I have got 12 more
questions, but I haven't even asked Dr. Singleton a question
yet, and I want to ask him some. I just want the record to show
that our documents indicate that the Ecorse School District E-
rate funds paid for any number of projects and equipment that
was ineligible, including servers, security systems, video
equipment, a message center for the high school football field.
And I would also like to indicate that our records and
documents that we have created during the course of this
investigation cast some question on the Ecorse copay for E-
rate-related work that NEC and BNS accomplished for your school
district in 2001. Would Dr. Epps or Dr. Benit, either one of
you, wish to document for the committee that you in fact did
pay the copay and not roll it into the E-rate that would be
ineligible because the local school district is supposed to pay
a copay?
Mr. Benit. Well, I think we can provide that information to
you. Also, there was no scoreboard paid for. That was paid for
with bond funds. We have checks that were paid out of the bank
trust fund for that. Most of the items that you read off were
paid through the bond funds of the district that was handled
through a bank trust account.
Chairman Barton. So you dispute the records that indicate
the E-rate funds were used in a way they shouldn't have been
used to provide and pay for that. And we can give a detailed
list of that equipment.
Mr. Benit. If you could do that, then I would like to
provide you with documentation that shows that it was paid for
out of the district bond funds.
Chairman Barton. Okay. Mr. Walden?
Mr. Walden. Thank you, Mr. Chairman. I want to go back to
something because I am confused. The spreadsheet we talked
about, number 6365, that there is testimony that these were
your okays next to it and it lists the TV studio, the
spreadsheet Mr. McCain and I were talking about, tab 85.
Mr. Benit. Yes.
Mr. Walden. And that is your spreadsheet, right, and those
are your okays.
Mr. Benit. Yes, that is correct.
Mr. Walden. And it does list TV studio on there, correct?
Mr. Benit. It does.
Mr. Walden. And then didn't you testify earlier that that
is basically an old document that was superseded then by the
memorandum of understanding with Mr. Colvin that would be found
under----
Mr. Benit. No. The memorandum of understanding was signed
first. What I did say was that after this was done, we talked--
I talked with Mr. Colvin and our attorneys and it was agreed we
are out of line as far as E-rate rules, so we had to go back to
the original memorandum of understanding.
Mr. Walden. How were you out of line as regards to E-rate
rules?
Mr. Benit. Well, we felt that we were--this doesn't show
the money all being spent for what it did in the memorandum of
understanding. So we are trying to get back to the memorandum
of understanding.
Mr. Walden. I am confused because you are talking about two
memoranda of understanding, correct?
Mr. Benit. No, I am not; I am talking about one.
Mr. Walden. Okay. The one that came after this----
Mr. Benit. No, the one that came before that.
Mr. Walden. Okay. Is that the one on tab 79?
Mr. Benit. I don't know.
Mr. Walden. Why don't you take a look at tab 79. This is
the one that is dated January 18, 2000.
Mr. Benit. Yes. This is the one I am referring to.
Mr. Walden. Okay. But your spreadsheet, if I am correct, is
dated after that.
Mr. Benit. That is right. I am saying that after that we
got into more detail and I was trying to find out how much
money was being spent, but, like I said, there were some
discussions on those items. We met with our counsels, we had a
conference call, we talked, and we were advised to go back to
the original memorandum of understanding, which we did.
Mr. Walden. And were you advised that you couldn't have a
TV studio as part of that discussion?
Mr. Benit. No, I was not.
Mr. Walden. But yet that shows up here on the spreadsheet
as being moved around, right?
Mr. Benit. It does.
Mr. Walden. Why was it on the spreadsheet?
Mr. Benit. Well, it was on the spreadsheet that I was
playing around with things. Then we went back to counsel and
said, ``What can we do and what can't we do,'' and they said,
``Go back to your regular memorandum of understanding. That
will guide you to stay within the school and library rules.''
Mr. Walden. So are you testifying that your counsel never saw
this spreadsheet?
Mr. Benit. Yes, I am.
Mr. Walden. They never saw it.
Mr. Benit. I don't believe they did. Maybe they did. I
can't recall.
Mr. Walden. You can't recall. Okay. So you had no knowledge
anywhere along the way that E-rate couldn't fund a TV studio?
Mr. Benit. Well, it says in the memorandum a media
production room is non-qualified equipment and services, so
that had to be donated. So my understanding it was donated.
Mr. Walden. It is your understanding that NEC then just
turned around and donated $1 million or $750,000 or whatever
worth of----
Mr. Benit. That is my understanding.
Chairman Barton. Would the gentleman yield?
Mr. Walden. Certainly.
Chairman Barton. Well, then, Dr. Benit, if that is the
case, this original memo of understanding that you have
referred to refers to a number of items that total, if I am
reading this right, a little over $2 million. Were those
installed also, the 24-port Cisco 3524 series ethernet switch,
the NEC 8550 ATM workgroup switch, the 6066 gigabyte backbone
switches, the four Cisco 3508 gigabyte ATM intermediary
backbone switches and the four Cisco 3660 routers? Were those
actually installed?
Mr. Benit. My understanding everything on the first sheet
of memorandum of understanding was installed.
Chairman Barton. Now, our understanding is that some of
those items were not installed because the money was switched
to pay for the television studio. Mr. McCain, do you have a
comment on that?
Mr. McCain. What NEC installed was in reference to the
document 6365, and within line item 3 it indicates the data
system. It also references back to the MOU.
Chairman Barton. So are you--that is kind of a confusing
answer. Dr. Benit and Dr. Epps are saying that the television
studio was donated and that this other material that is listed
on page 1 was also installed. Is that what you are saying too
or are you saying that only some of the equipment on page 1 was
installed and the funds that weren't used for that were used to
pay for the TV studio, which is our understanding?
Mr. McCain. I am not aware of any donation that NEC made
for the TV production studio.
Chairman Barton. I understand that, but my question is was
money that was supposed to be used for these switches, which
would be eligible for E-rate funding, was it reallocated to pay
for the television studio, which was ineligible for E-rate
funding? That is what the documents tend to indicate.
Mr. McCain. The NEC installed what was on the spreadsheet
in reference to document 6365 and how those line items were
implemented and the associated dollar amount.
Chairman Barton. Okay. Well, I have one--Mr. Walden. And we
need to get to Mr. Singleton here pretty soon.
Mr. Walden. All right. I am sorry, sir. Mr. McCain, have
you done several of these installs like this?
Mr. McCain. Yes, sir.
Mr. Walden. From your experience, are these figures that
are on spreadsheet, 06365, are those numbers, the costs there,
are those pretty standard? Are they below what you would see
charged elsewhere or are they inflated?
Mr. McCain. No, they are not inflated. I mean new
technology is very expensive these days.
Mr. Walden. Okay. So I guess my question is then did a full
$4,135,900 and whatever that says, 81--I didn't bring my
glasses today--is that what was spent?
Mr. McCain. Yes.
Mr. Walden. On the project?
Mr. McCain. Yes, sir.
Mr. Walden. And is the only way you could have spent that
to have spent the million for the TV studio--or $800,000, I am
sorry?
Mr. McCain. What we did--what NEC did is from this
spreadsheet, an agreement by both parties, we installed the
line items that are on the spreadsheet to use the funds that
were approved by the SLD funding.
Mr. Walden. And would that include the $800,000 for the TV
studio?
Mr. McCain. Yes.
Mr. Walden. Okay.
Chairman Barton. All right.
Mr. Walden. And one final time, neither superintendent, you
all don't know, Doctors, whether your school district ever came
up with the match amount.
Ms. Epps. It is my understanding, sir, that we paid our
matching, either through the bond money that we had or our
general fund.
Mr. Walden. But you don't know which?
Ms. Epps. I can't say we paid $10 from this or that. I
don't have that information.
Mr. Walden. Dr. Benit, you don't know specifically either.
Mr. Benit. Well, I do know. I present it to our business
office that they need to pay a match. I am not sure what
happened. I believe that they did, but I would have to go back
and review the records to find out how it was paid.
Mr. Walden. And you haven't done that prior to this hearing
at all?
Mr. Benit. No, because I am working in another district,
and I just got the request to come here while I am trying to
get another district working.
Mr. Walden. All right.
[During the hearing, Members of the Oversight and
Investigations Subcommittee and the Committee Chairman
requested that either Dr. Emma Epps, the Superintendent of
Ecorse Public School District, or Dr. Douglas Benit, the former
facilities director at Ecorse Public School District, provide
the Committee with documentation demonstrating that the school
district in fact paid its E-rate copayment, and did not use E-
rate funds to cover the district's obligation. Dr. Benit stated
that the requested information could be provided to supplement
the record. Following subsequent requests from Committee staff
that Dr. Benit provide the documentation before the record
closed, Dr. Benit, through his attorney, produced several
documents to the Committee that were irrelevant and failed to
answer the outstanding questions. At the close of the record,
the Committee has no documentation that in fact demonstrates
that Ecorse Public School District did not use E-rate funds to
pay for ineligible products and services and to pay for the
school district's required co-payment.]
Chairman Barton. Well, before we get off of that issue,
what does a television studio have to do with connecting your
students to the Internet? Either one of you.
Mr. Benit. Well, as a donated piece of equipment, it does
teach kids how to project themselves, how to do TV production
and----
Chairman Barton. That has nothing to do with the Internet.
That has nothing to do with wiring your school system so that
your students can receive material for educational purposes
over the Internet.
Mr. Benit. I understand that. All kids can, all buildings
have total access to the Internet.
Chairman Barton. So you all think that E-rate funds should
be spent to put television studios in every high school in this
country, even though none of it is used for Internet purposes.
You want to expand the intent of the E-Rate program.
Mr. Benit. No, sir, that is not what we said.
Chairman Barton. Well, we had another school superintendent
from the San Francisco School District here before us. She
refused to sign documents. She instigated an investigation that
resulted in tens of millions of dollars being refunded to her
credit, and in this case, the school district that you
represent, you all have a very vague notion of what was spent
and what it was spent for and don't appear, quite frankly, to
be too concerned about it, which is a disappointment to me.
Let me ask Dr. Singleton some questions for the record. Dr.
Singleton, you are the superintendent of the Jasper County
School District in South Carolina; is that not correct?
Mr. Singelton. That is correct.
Chairman Barton. What is your understanding of your school
district's financial obligation to participate in the E-Rate
program?
Mr. Singelton. We have written several--worked with NABSE
and also with the VNCI and NEC. That is how we became involved.
When I became superintendent in 1999, we wrote the first grant
or filed the first forms for E-rate funding. And, as I
mentioned in my written testimony, I was at a conference and E-
rate was being promoted by NABSE.
Chairman Barton. Is that where you met Judy Green for the
first time?
Mr. Singelton. I believe she was there, but I remember
George Marchelos. I remember him specifically.
Chairman Barton. Do you know to what extent, if any, Judy
Green was involved in assisting Mr. Duncan in your district
preparing E-rate forms and paperwork for the grant application?
Mr. Singelton. When I returned I filed the first form, 470,
in Nashville, and when I came back I turned everything over to
Mr. Duncan. He was our director of technology at that time, and
he was working with, I believe it was, Kim Mars and Judy Green
and Gerard McNulty.
Chairman Barton. Do you know if Judy Green helped Mr.
Duncan to prepare the E-rate RFP?
Mr. Singelton. From what Mr. Duncan said, he had assistance
from the organization, NEC and VNCI.
Chairman Barton. But do you know if the employee or the
consultant of NEC BNS was Judy Green, the woman here today who
refused to testify under oath--who took her Fifth Amendment
right against self-incrimination--I want to be exact on that.
Mr. Singelton. I don't know for a fact that she sat down
and wrote the application, but she was physically in the
district on several occasions. I can say VNCI filed the first
form out in Nashville, and I know that for a fact because after
the breakout session I came back downstairs and did that
application electronically and sent it in.
Chairman Barton. Okay. Do you have the big notebook with
all the tabs there at the desk before you?
Mr. Singelton. This?
Chairman Barton. Yes, sir. Could you turn to tab 48,
please, sir? Tab 48 should be the Jasper County memorandum of
understanding.
Mr. Singelton. Yes, sir.
Chairman Barton. Do you see that?
Mr. Singelton. Yes.
Chairman Barton. Could you tell us how much money was
awarded to the Jasper County School District by the E-Rate
program for year 2000?
Mr. Singelton. Well, the amounts meant $10.4 million.
Chairman Barton. What is the document before you indicate?
Mr. Singelton. This indicates that 9.5----
Chairman Barton. Four-eight.
Mr. Singelton. [continuing] 48.
Chairman Barton. On the page marked 6374, can you describe
the items listed under the caption, ``Non-qualified equipment
and services?''
Mr. Singelton. Electrical upgrade, university training for
teachers, climate control system, alterations of internal
existing structure.
Chairman Barton. That is enough. The entire document is in
the record, but would you just summarize. Does it look like
there are dozens of items that were non-qualified on that page,
including personal computers? There are a lot of items on that.
Mr. Singelton. Yes, sir.
Chairman Barton. You would agree with that? Do you know if
Jasper County received all of those items even though they were
non-qualified?
Mr. Singelton. I believe we received most of the items.
Chairman Barton. You believe that you did receive.
Mr. Singelton. Yes.
Chairman Barton. Okay. On the next page, 6375, what is the
total cost of the so-called bonus package?
Mr. Singelton. Three million fifty.
Chairman Barton. Three million fifty. Now, do you
acknowledge that that means your school district received $3
million in non-qualified items for which they should not have
been paid for by the E-Rate program?
Mr. Singelton. Well, we received it as a bonus package. It
was given to us as a bonus package.
Chairman Barton. All right.
Mr. Singelton. That was promoted by VNCI, NEC and----
Chairman Barton. Define in your own words what a bonus
package means.
Mr. Singelton. In my words, and what was said to us, was
that a bonus package would pay for the matching--could be used
as the matching for our portion that the district should have
been paying.
Chairman Barton. That makes no sense at all.
Mr. Singelton. Well, that is what was told to us.
Chairman Barton. All right.
Mr. Singelton. That the bonus package could be used as in
kind. They would give us that and we could, in turn, use that
as the matching for the district.
Chairman Barton. All right. The E-Rate program is supposed
to be--funds for the E-Rate program are supposed to be used to
actually create the Internet connection, the servers, the
wiring, the switches, the monitors, the computers so that
students can participate and receive information over the
Internet and help with their education. None of the equipment
that was listed in the bonus package does that. It is not
qualified, it is not part of it. Some of it may be if there are
some computers there. Those funds to the tune of $3 million
were non-eligible and should not have been funded by E-rate. If
the school district wanted those, the school district should
have paid for them themselves. There is no free lunch, and you
want us to believe that $3 million worth of equipment could be
given to your school district and you really think that the
vendor that provided it did it and didn't charge the government
for it. On a $4 million contract, they could give you a $3
million bonus.
Mr. Singelton. A $9 million----
Chairman Barton. Well, but $3 million of it was listed as
bonus.
Mr. Singelton. That is correct. And I am just repeating
what was told to us, that we----
Chairman Barton. But you didn't question that.
Mr. Singelton. No, sir, I did not.
Ms. DeGette. Mr. Chairman, would you yield for 1 second?
Chairman Barton. I would be happy to.
Ms. DeGette. Dr. Singleton, who told you that this list of
non-qualified equipment could be applied toward the district's
match?
Mr. Singelton. Well, if you read through this document, it
says in-kind and----
Ms. DeGette. No. Who told you that?
Mr. Singelton. When we first started discussing this out in
Nashville, I know it was discussed there----
Ms. DeGette. Who----
Mr. Singelton. Morales, George Morales mentioned it when we
got back to our district. Gerard McNulty, Judy Green, that
whole group----
Ms. DeGette. All of them told you that?
Mr. Singelton. Yes, ma'am.
Ms. DeGette. Thank you, Mr. Chairman.
Chairman Barton. Doctor, doesn't it strike you as too good
to be true that you could receive all these bonus items and
have your copayment waived by NEC BNS?
Mr. Singelton. We know now sir, that it is too good to be
true. There are no free lunches, I will agree with that.
Understanding that we are a very rural, poor school district,
NABSE involvement by----
Chairman Barton. So it is just don't look a gift horse in
the mouth.
Mr. Singelton. Yes. Yes.
Chairman Barton. That is kind of the----
Mr. Singelton. Well, a reputable organization like NABSE we
just assumed that everything was okay.
Chairman Barton. I can understand that. The Chair would ask
unanimous consent to recall Mr. McDonald of USAC if he is still
in the audience. He is still under oath.
Mr. McDonald, you have heard Superintendent Epps and
Superintendent Benit and now Dr. Singleton all indicate that
they were getting equipment and bonus packages and donations.
Would that be allowed, including a television studio, under the
existing E-Rate program, even if it was donated?
Mr. McDonald. These would be the kind of free, ineligible
services I was talking about this morning, that the cost of
those services need to be covered somehow, and they are covered
by inflating the cost of eligible services so that E-rate ends
up paying for them. TV production studio, we do pay for
connectivity. We pay for distance learning. If the TV
production studio were being used for distance learning,
switches and cables that were carrying that data would be
eligible but not the TV production studio itself.
Chairman Barton. And if Dr. Singleton's school district had
contacted USAC and asked about this bonus package or the
concept of a bonus package, what would your reviewers' response
have been?
Mr. McDonald. We have been pretty clear about free,
ineligible services from the inception of the program, that
they are not eligible, that the applicants should not acquire
free, ineligible services from service providers.
Chairman Barton. Do you do anything to be proactive to send
out materials to these small school districts and these rural
school districts and low-income school districts that would
tend not to have professional--or not as likely to have
professional staff that were up to date on these programs to
inform them, to warn them, so to speak, to be wary of these
kind of proposals that in fact they are illegal?
Mr. McDonald. We have a web site that we try to promote as
much as possible where we put information about the rules of
the program. We have a toll-free call center that participants
can call and get information. We do an annual train the trainer
conference and bring people in from all the States and train
and hope that they will go back and train, and we do a mass
mailing at the start of the window for each funding year to
basically all applicants in the program, trying to highlight
significant features of the program, things that have been
problems that we have found recently.
Chairman Barton. Before I let--I think Mr. Walden may have
a question for you, but I sent a letter, and I think Mr.
Dingell sent a letter, we signed a letter asking that this
particular vendor be barred because of what they have done. Do
you know the status of that debarment proceeding? Would that be
your agency or would it go to the FCC directly?
Mr. McDonald. That would be the FCC, sir.
Chairman Barton. And you are not aware of--Ms. DeGette, do
you wish to ask a question?
Ms. DeGette. Thank you. Dr. Singleton, I just wanted to
clear a couple of things up. And thank you for appearing today.
You are making some sense here. This in-kind donation agreement
that we have been talking about, now you were told by Judy
Green and others that these were going to be donated by NEC,
correct?
Mr. Singelton. Donated.
Ms. DeGette. And were you aware of an application by NEC
for E-rate money to pay for these items?
Mr. Singelton. No. I was not aware of that, no.
Ms. DeGette. Okay. Did you know that E-rate money cannot be
used to pay for these items?
Mr. Singelton. I know now, but that never occurred to me in
the beginning because they were donated items.
Ms. DeGette. Right. You just thought they were donating it
as part of your agreement, right?
Mr. Singelton. Yes.
Ms. DeGette. Now, as you look at this list of items, is
there anything on this list that--well, everything on this list
you needed to be able to hook up computers for kids to use them
in the classroom, didn't you?
Mr. Singelton. That is correct.
Ms. DeGette. Did your school district have $3 million to
pay for all this equipment?
Mr. Singelton. No, we do not.
Ms. DeGette. What would have happened if you didn't have a
way to get this equipment? Did you have----
Mr. Singelton. We would never put it in. We could never
afford this kind of equipment.
Ms. DeGette. Right. Now, let's say that Congress said that
you had to pay 20 percent. Because now you know, right, that
there is a 10 percent amount? What would you say to Congress if
we said, ``Well, the way we are going to stop the kind of fraud
by Judy Green and others is to make you pay for 20 percent''?
Mr. Singelton. I think that would be detrimental to
districts like ours. Rural, poor districts cannot afford to pay
upfront or to pay the percentage that is required. Small amount
but the magnitude of this project we could never afford it, we
could never pay it.
Ms. DeGette. Do you have any ideas what kind of changes--
because I know you would never support fraudulent transactions
at all for your district, right?
Mr. Singelton. No, ma'am. That will get you fired.
Ms. DeGette. Well, it will do worse than that. And so my
question to you is what do you think Congress can do to make
sure that this E-rate money goes to school districts like
yours, the poorest school districts in the country to help the
students, but at the same time there are not people just
skimming millions of dollars off of it fraudulently.
Mr. Singelton. Really, I think the whole application
process, I believe, needs to be revamped. It seems to be a
complicated process, and I don't know all the ins and outs
because my technology persons have always done it, and I have
sort of taken a back seat and they just bring it to me and say,
``Okay. We have got this approved,'' and I have signed
documents as they came in. But I believe that is--the process
is complicated, and I think the bid process may need to be
looked at, because when we got into this project, and if you
ask me how VNCI and NEC got into it, I could not tell you
today. I know that we started in Nashville, and from then on
they were partnering with us. So it is unclear exactly how they
started. And maybe by just signing on and having them transmit
that 470, that first application, and they are off and running
with us.
Ms. DeGette. Thank you. Thank you for sharing those views.
I appreciate it.
Mr. Walden [presiding]. Dr. Epps, are you a member of
NABSE?
Ms. Epps. Yes, I am.
Mr. Walden. I am not sure, is that mic on?
Ms. Epps. Yes, I am.
Mr. Walden. Thank you. Are you currently an officer of
NABSE?
Ms. Epps. Yes, sir.
Mr. Walden. And how long have you been an officer at NABSE?
Ms. Epps. I think 1998.
Mr. Walden. You were elected----
Ms. Epps. Secretary.
Mr. Walden. [continuing] secretary. And you are now--what
is your title now?
Ms. Epps. President-elect.
Mr. Walden. President-elect.
Ms. Epps. Yes, sir.
Mr. Walden. You appear in the NABSE E-Rate marketing video
that we viewed a short time ago.
Ms. Epps. Yes, sir.
Mr. Walden. What do you know about NABSE's participation in
the E-Rate program?
Ms. Epps. As a board member, I know that a presentation was
made to us about a partnership and I, as a board member, voted
at that meeting because----
Mr. Walden. You voted for the partnership?
Ms. Epps. For the partnership to assist school districts
that didn't have the persons to do the work.
Mr. Walden. Sure. And you are aware of the, what was it,
1.5 percent fee that NABSE got back off some of these
contracts, if not all?
Ms. Epps. That was in the presentation.
Mr. Walden. Okay. And Mr. McDonald again, is that fee
generally acceptable under USAC rules?
Mr. McDonald. Depending on the role that NABSE would be
playing. If it is playing a role as the consultant and steering
work to those companies in order to get the 1.5 percent, no,
that is not keeping a fair and open competitive process.
Mr. Walden. Did you see the video?
Mr. McDonald. I did.
Mr. Walden. Did it trouble you that they listed various
companies in the video, NEC, UNCI?
Mr. McDonald. If I were seeing that for the first time, I
wouldn't be sure exactly what was being said there. If NABSE
had money and these companies were volunteering to come out and
help people put technology plans together and not going to
corrupt the process of the selection of the service provider,
that would be okay.
Mr. Walden. Will USAC be looking at NABSE's role?
Mr. McDonald. Yes.
Mr. Walden. Okay. And in terms of these school districts,
are yo pursuing recovery? I mean we are hearing a lot today
about $4 million and a free TV studio.
Mr. McDonald. I am making notes here.
Mr. Walden. I bet you have. Dr. Epps, what role did Quentin
Lawson play on behalf of NABSE and NABSE's participation in the
E-Rate program?
Ms. Epps. Sir, I can't tell you what his role was, other
than as a board member, as I said, at the meeting, the project
was presented to the board, but I can't----
Mr. Walden. Does the board have legal counsel that reviewed
this process, do you know?
Ms. Epps. The policy, sir, is that when projects are
brought before the board, the general process is that if it is
an agreement or a contract, as a board member, I know that it
is supposed to go to the legal attorney.
Mr. Walden. Who is that?
Ms. Epps. The legal attorney is Mr. McCutcheon.
Mr. Walden. Mr. McCutcheon. Okay. What do you know about
NABSE's E-rate partnership with NEC, VNCI and IBM?
Ms. Epps. What I know has to do with there was a
presentation that there would be a partnership. I don't know
the intricate details of what that was and how it all came
together. I don't have that detailed information, as I was one
member.
Mr. Walden. That wasn't presented in your board meeting?
There would be documents, minutes perhaps.
Ms. Epps. The information was presented to the board. I
can't recall, tell you all of the details of the presentation,
but just like all the other initiatives, it was presented to
the board.
Mr. Walden. All right. If you would take a look at tab 66
in our big binder there.
Ms. Epps. Okay.
Mr. Walden. I was just wondering if you were aware that
NABSE had entered this memorandum of understanding with NEC BNS
and VNCI? This was in January 2001. It references there the 1.5
percent of the gross revenue of said contract.
Ms. Epps. And what is the question, sir?
Mr. Walden. Were you aware that NABSE had entered this
memorandum of understanding with NEC BNS and VNCI?
Ms. Epps. I wasn't aware of this particular memorandum. I
have seen it recently, but I was not aware of it previously.
Mr. Walden. Okay. Were you aware that this MOU provided for
the compensation of NABSE by those vendors?
Ms. Epps. One and a half percent.
Mr. Walden. Right. Were you aware of that?
Ms. Epps. I think that was--if my memory serves me
correctly, that was presented in the----
Mr. Walden. As part of the presentation?
Ms. Epps. [continuing] presentation.
Mr. Walden. Yes. I question the term, ``donation'' versus
perhaps ``commission'' on sales. I mean it is 1.5 percent of
the gross revenues is part of the agreement.
Why would NABSE get that funding, the 1.5 percent, as
opposed to just helping schools for free, because that is your
mission, right?
Ms. Epps. Well, our mission is to help schools and
children, yes.
Mr. Walden. Right. Why take 1.5 percent? I mean that could
be quite a bit of money on what we have heard today in terms of
the size of some of these contracts.
Ms. Epps. Yes. Well, I can answer as one board member. At
the time it was presented----
Mr. Walden. Do you know how much money they did make?
Ms. Epps. No, sir.
Mr. Walden. That doesn't show up in a budget item or--do
you get like monthly cash-flow statements or P&Ls?
Ms. Epps. No, sir. I haven't seen monthly cash-flow
statements, but it would eventually be in the audit, I am sure,
at the end of the year.
Mr. Walden. The audit? How often does your board meet?
Ms. Epps. I attend board meetings about three times a year.
Mr. Walden. And that is how often the board meets?
Ms. Epps. Yes, sir, about three times a year.
Mr. Walden. And at those meetings, do they give you
financial statements? I mean do they give you sort of----
Ms. Epps. Yes, sir.
Mr. Walden. [continuing] quarterly cash-flows or----
Ms. Epps. Yes, sir, we get financial statements.
Mr. Walden. Okay. But this isn't one you looked at as a new
line of business?
Ms. Epps. I did not particularly pay attention to that.
Mr. Walden. Is that information----
Ms. Epps. I can't say that it was there or not.
Mr. Walden. Sure. I have been through various boards I have
been on and I understand how that happens. Is that information
you could provide for us, though? NABSE?
Ms. Epps. I am sure that NABSE could provide that for you.
Mr. Walden. Well, you are the president-elect. I mean is
that something you would help us get?
Ms. Epps. I think that you could request that from the
office, and I am sure they would give you that.
Mr. Walden. Okay. Because it would be interesting to know
just how much money was generated off the E-rate projects in
the NABSE.
So take a look at tab 66, for example--I am sorry, 68.
VNCI, Video Network Communications, Inc. provided NABSE on
October 1999 it appears to be $37,000. How big is your annual
budget?
Ms. Epps. I am sorry?
Mr. Walden. How big is your annual budget at NABSE?
Ms. Epps. I really don't----
Mr. Walden. Would $37,000 in one payment be considered
quite a bit? I mean are we talking a $10 million budget or----
Ms. Epps. As a board member, I would think that $37,000 is
a lot.
Mr. Walden. So if I were looking at your P&L for the prior
4 months, $37,000 would jump out as a line item, wouldn't it,
in terms of revenue source? And that is just one check. Is that
what you are telling me, that that would tend to show up? I
mean how big an organization----
Ms. Epps. In revenue, I am sure it would show up in the
office, but I don't remember seeing this check.
Mr. Walden. No, I wouldn't think you would see the check.
But I mean I am just thinking back to my own company and
others. I mean $37,000 is a pretty good chunk of dough, and
that is just one check. Were there others maybe? How about at
tab 69, July 2001. That is a $10,000, looks like, check. Again,
it looks like from VNCI. It just seems like a lot of money
coming in, I don't know.
And I think tab 69 and 70 also have revenue coming in as
well, it looks like, $45,000 from VNCI. It just seems like a
lot of money coming out of this program. I mean do you know the
kind of technical support that your folks at--how many people
are in this division at NABSE that help schools? How big is the
staff for the E-rate side of things?
Ms. Epps. I don't remember how many. I couldn't give you a
number of the staff doing the E-rate, what I consider the E-
rate time. I can tell you just about the staff now.
Mr. Walden. How many are on staff now total?
Ms. Epps. Hold on a second.
Mr. Walden. Sure.
Ms. Epps. I believe, sir, it is maybe 6 or 7 regular
people, and then there are, like, interns.
Mr. Walden. So you are not a big organization here, 6 or 7.
And that is full-time staff when you say the word, ``regular?''
Ms. Epps. I believe that it is about that many full-time.
Mr. Walden. Okay. So 6 or 7 full-time. And that would
include people working on E-rate or do you----
Ms. Epps. Well, working on projects. I don't know who would
exactly in the office work on specific projects.
Mr. Walden. Right. No, but it would be within that group of
6 or 7 people.
Ms. Epps. That is the NABSE staff.
Mr. Walden. Yes. So the current staff you have that would
have been the ones that would be getting the payments, in
effect. I mean the payment came to NABSE, right, that we have
the checks under the tabs that I referenced earlier?
Ms. Epps. I see the checks, sir. I don't know--I haven't
looked at in terms of when they were. I don't know--the staff
has changed and the staff changes, so I can't say this exact 6
and 7 people were the people----
Mr. Walden. No, I understand that. I am not saying that. I
am just saying that when NABSE was holding itself out as a
technological consultant for school districts like the one Mr.
Singleton is superintendent of, in theory, you had 6 or 7
people or positions, right?
Ms. Epps. Yes, sir.
Mr. Walden. That is what you have testified to.
Ms. Epps. That is how many we have now, sir, that I know
of.
Mr. Walden. Was it more or less then?
Ms. Epps. I said that I couldn't tell you how many it was,
if you remember when I said, during what I am considering the
E-rate time. I said now I would say it was 6 or 7 and some
interns.
Mr. Walden. Was it more during the E-rate time?
Ms. Epps. I really don't know the number of staff members
at that time.
Mr. Walden. Okay.
Ms. Epps. And I am thinking 2001. That is what I call E-
rate time.
Mr. Walden. All right. Did you rely a lot on Judy Green?
Ms. Epps. I don't know if NABSE relied on Ms. Green.
Mr. Walden. Was the NABSE Board informed that Quentin
Lawson had joined the VNCI Board? See Tab 88 if you want to,
there is a reference.
Ms. Epps. Sir, I, as a board member, was made aware of that
this year, 2004, this year.
Mr. Walden. Okay. So you just learned about it sometime in
2004.
Ms. Epps. Yes, sir.
Mr. Walden. Okay. All right. Now, does that present any
conflict of interest in your mind?
Ms. Epps. I, as an individual--I would tend to think that
it is--as an individual, I would think that it wasn't----
Mr. Walden. It was not?
Ms. Epps. It could be a conflict.
Mr. Walden. It could be a conflict.
Ms. Epps. I mean I would think, as an individual. I can't--
--
Mr. Walden. Mr. McDonald, do you think that presents a
conflict?
Mr. McDonald. It certainly deepens the issue of were these
fair and open competitive processes.
Mr. Walden. Are you aware of these payments to NABSE?
Mr. McDonald. No, sir.
Mr. Walden. Do they seem out of the ordinary, hard to tell?
Mr. McDonald. They would be out of the ordinary. As we
discussed earlier today, if we had seen these, we would have
misconstrued them as causing a problem, and we would have
denied the applications.
Mr. Walden. Are these payments the kind of payments that
you would go back and review and seek refunds on if they are
not--I mean----
Mr. McDonald. It sounds like E-rate funds were used to make
the payments to NABSE and those would not be eligible uses of
E-rate funds.
Mr. Walden. Unless they provided very specific
technological support to the districts, right?
Mr. McDonald. Unless they were installing or providing
connectivity services.
Mr. Walden. All right. Anything else? All right. Thank you
all for your patience and time. We have no other questions for
this panel. You are dismissed. We will take a brief 5-minute
recess because we have to bring up another witness by video.
While our technicians work on that, we will be in recess for 5
minutes.
[Brief recess.]
[The prepared testimony of William Singleton follows:]
Prepared Statement of William Singleton, Superintendent, Jasper County
Schools
SCHOOL YEAR 1999-2000
I was somewhat familiar with the E-Rate Program some time before
1999. However, after attending the National Alliance of Black School
Educators (NABSE) Conference in Nashville, Tennessee, I became more
familiar with the program. I began to take notice after being
approached by a representative from VNCI, who had on display numerous
pieces of telecommunication equipment in the hotel lobby. VNCI
representatives stood in the hotel lobby soliciting conference
participants to attend a breakout session on how to acquire E-Rate
funds. Several announcements were made by NABSE officials encouraging
conference participants to attend the breakout session.
A representative of VNCI encouraged conference participants to
attend the breakout session to hear testimonies from other school
districts that were recipients of their equipment (see Exhibit A). The
breakout session was very interesting. School district representatives
and superintendents that had received E-Rate funds shared how they
enhanced their school district's technology program. As I recall, a
superintendent from a small school district in the state of California
shared during the breakout session that he had received somewhere in
the neighborhood of three million dollars. The school district was
approximately half the size of Jasper County School District's three
thousand student population. I became interested because the California
school district's demographics for free and reduced lunch population
was very similar to Jasper County.
The second selling point was that VNCI was promoting a special
NABSE bonus package of free telecommunication equipment. The school
district would receive as ``in-kind'' donations to be used as the
school district's 15% match (district had at this time 85% free and
reduced lunch program). The bonus package included a 33 inch TV monitor
for each classroom, pan-tilt-zoom cameras, 400 computers, 12 laptop
computers, 100 teacher workstations, etc. (see Exhibit B). During the
presentation at the NABSE Conference, VNCI agreed to assist any school
district that needed help with the application process. After the
session, participants returned to the lobby and completed the first
phase of the application process, Form 470.
Upon my return from the NABSE Conference in Nashville, Tennessee, I
turned the project over to Michael Duncan, the school district's
Director of Technology. As we continued throughout the school year, the
Director of Technology, along with VNCI and NEC staff, filed the other
necessary paperwork.
SCHOOL YEAR 2000-2001
After notification of the E-Rate subsidy awarded to Jasper County,
Judy Green, VNCI representative, and Gerard McNulty made a presentation
to the Jasper County Board of Education (see Exhibit C). At this
meeting, the focus seemed to change from VNCI to NEC. As a matter of
fact, Gerard McNulty announced that Ken Morrison would be the onsite
manager for NEC and Jonathan James for VNCI. These individuals worked
with Michael Duncan, Jasper County Director of Technology, in
completing the application process and designing the system.
Believing everything was legitimate, Michael Duncan informed me
periodically on the status of the project. Michael Duncan resigned from
the school district on June 25, 2001 due to health reasons.
SCHOOL YEAR 2001-2002
Early in the 2001-2002 school year, I was contacted by George
Marchelos, VNCI representative, to recommend him to Eleanor Adams,
Director of the Salkehatchie Consortium, to present the E-Rate program
to the other superintendents using Jasper as a model for acquiring E-
Rate funds. As I recall, George Marchelos and Judy Green presented the
program to the consortium superintendents on November 27, 2001 (see
Exhibit D).
Ed Sauls was brought in to replace Michael Duncan and found that
most of the VNCI video-conferencing equipment did not work properly or
was not working at all.
SCHOOL YEAR 2002-2003
Attorney Karen Jones, U. S. Department of Justice, came to Jasper
County to investigate the E-Rate subsidy that was allocated to Jasper
County. I shared with her what I knew about the program, basically the
information communicated in this document.
SCHOOL YEAR 2003-2004
On July 30, 2003, I was subpoenaed to appear before the United
States District Court Eastern District of Michigan Grand Jury. I gave
the same testimony as outlined in this document and what was shared
with Attorney Jones.
After receiving notice that NEC pleaded guilty and agreed to pay
restitution and supply Jasper County School District with eighteen
months of free maintenance services, we are still trying to negotiate a
workable contract.
SUMMARY
I believe it is vital that the E-Rate program continue although the
application process seems to be complicated and burdensome. After
learning more about the E-Rate program over the past three years and
our school district's involvement in the investigation of E-Rate, I
feel the following problems were present:
1. VNCI offered Jasper County a Bonus Package with equipment that was
ineligible for E-Rate funds.
2. VNCI as a provider of video-conferencing equipment assisted with the
application process Form 470 in Nashville, Tennessee.
3. Excessive equipment, such as a server in every classroom, probably
was not necessary.
4. VNCI/NEC agreeing not to charge the school district the 15% match
(85% free/reduced lunch), the match would be the in-kind NABSE
Bonus Package donation.
5. I believe VNCI/NEC may have been involved in the RFP and bid
process, which was handled by the Director of Technology.
It appears that large companies, such as VNCI/NEC, have been going
around the country offering solutions to school district technology
problems and taking advantage of the E-Rate program.
[GRAPHIC] [TIFF OMITTED] T6098.006
[GRAPHIC] [TIFF OMITTED] T6098.007
[GRAPHIC] [TIFF OMITTED] T6098.008
[GRAPHIC] [TIFF OMITTED] T6098.009
[GRAPHIC] [TIFF OMITTED] T6098.010
[GRAPHIC] [TIFF OMITTED] T6098.011
[GRAPHIC] [TIFF OMITTED] T6098.012
[GRAPHIC] [TIFF OMITTED] T6098.013
[GRAPHIC] [TIFF OMITTED] T6098.014
[GRAPHIC] [TIFF OMITTED] T6098.015
[GRAPHIC] [TIFF OMITTED] T6098.016
[GRAPHIC] [TIFF OMITTED] T6098.017
[GRAPHIC] [TIFF OMITTED] T6098.018
[GRAPHIC] [TIFF OMITTED] T6098.019
[GRAPHIC] [TIFF OMITTED] T6098.020
[GRAPHIC] [TIFF OMITTED] T6098.021
[GRAPHIC] [TIFF OMITTED] T6098.022
[GRAPHIC] [TIFF OMITTED] T6098.023
[GRAPHIC] [TIFF OMITTED] T6098.024
[GRAPHIC] [TIFF OMITTED] T6098.025
[GRAPHIC] [TIFF OMITTED] T6098.026
[GRAPHIC] [TIFF OMITTED] T6098.027
[GRAPHIC] [TIFF OMITTED] T6098.028
[GRAPHIC] [TIFF OMITTED] T6098.029
[GRAPHIC] [TIFF OMITTED] T6098.030
[GRAPHIC] [TIFF OMITTED] T6098.031
[GRAPHIC] [TIFF OMITTED] T6098.032
[GRAPHIC] [TIFF OMITTED] T6098.033
[GRAPHIC] [TIFF OMITTED] T6098.034
[GRAPHIC] [TIFF OMITTED] T6098.035
[GRAPHIC] [TIFF OMITTED] T6098.036
[GRAPHIC] [TIFF OMITTED] T6098.037
[GRAPHIC] [TIFF OMITTED] T6098.038
[GRAPHIC] [TIFF OMITTED] T6098.039
[GRAPHIC] [TIFF OMITTED] T6098.040
[GRAPHIC] [TIFF OMITTED] T6098.041
[GRAPHIC] [TIFF OMITTED] T6098.042
[GRAPHIC] [TIFF OMITTED] T6098.043
[GRAPHIC] [TIFF OMITTED] T6098.044
[GRAPHIC] [TIFF OMITTED] T6098.045
[GRAPHIC] [TIFF OMITTED] T6098.046
[GRAPHIC] [TIFF OMITTED] T6098.047
[GRAPHIC] [TIFF OMITTED] T6098.048
Mr. Walden. Let me call the Subcommittee on Oversight and
Investigations back to order, and we now have our third panel
ready to go, including our witness by video. We have Mr.
Charles Tafoya, superintendent, El Paso Independent School
District; Ms. Sharon Foster, technology information systems
director; Mr. Ruben Bohuchot--did I say that right--chief
technology officer, associate superintendent, Dallas
Independent School District; Ms. Paula Glogovac, former E-rate
consultant to Sun Microsystems; Mr. Nathaniel Hawthorne,
general counsel, Alpha Telecommunications, Incorporated; Mr.
Christopher G. Caine, vice president, Government Programs for
IBM, accompanied by Mr. Mike Pratt.
And you are aware the committee is holding an investigative
hearing and when doing so has had the practice of taking
testimony under oath. Do you have any objection to testifying
under oath? Let the record show they all indicated no.
The Chair then advises you that under the rules of the
House and the rules of the committee you are entitled to be
advised by counsel. Do you desire to be advised by counsel
during your testimony? Mr. Bohuchot, the answer is yes and
could you identify your counsel, please, or have your counsel
come up to one of the microphones? Please make sure it is
turned on. It is not----
MS. Jalloh. I am sorry, my name is Joni Jalloh. I am an
attorney for Dallas ISD here with Mr. Bohuchot.
Mr. Walden. Okay. Thank you. Ms. Foster, do you wish to be
represented by counsel?
Ms. Foster. Yes.
Mr. Walden. And your counsel, please identify yourself,
sir.
Mr. Pine. Clyde Pine on behalf of Ysleta Independent School
District.
Mr. Walden. Okay. And let's see, Ms. Glogovac?
Ms. Glogovac. No.
Mr. Walden. Do not wish to be represented by counsel. Mr.
Hawthorne?
Mr. Hawthorne. No.
Mr. Walden. The answer is no. Mr. Caine?
Mr. Caine. Yes.
Mr. Walden. And your counsel, sir?
Mr. Caine. Biz van Gelder.
Mr. Walden. Sorry, could you say that again?
Mr. Caine. Ms. Biz van Gelder.
Mr. Walden. Thank you. And Mr. Pratt?
Mr. Pratt. It would be the same.
Mr. Walden. Okay. And let's see, witness in the video is
Mr. Tafoya. Mr. Tafoya, do you wish to be represented by
counsel?
Mr. Tafoya. Yes.
Mr. Walden. And your counsel's name?
Mr. Soffi. Anthony Soffi.
Mr. Walden. Thank you, sir. In that case, let's see, in
that case, if you would, the witnesses, rise and raise your
right hand, I will then swear you in.
[Witnesses sworn.]
Mr. Walden. Let the record show they all indicate, yes,
they do.
So you are now under oath, and you may now give a 5-minute
summary of your written statement. Mr. Tafoya, we are going to
start with you this afternoon.
TESTIMONY OF CHARLES TAFOYA, SUPERINTENDENT, EL PASO
INDEPENDENT SCHOOL DISTRICT; RUBEN BOHUCHOT CHIEF TECHNOLOGY
OFFICER, ASSOCIATE SUPERINTENDENT, DALLAS INDEPENDENT SCHOOL
DISTRICT; SHARON FOSTER, TECHNOLOGY INFORMATION SYSTEMS
DIRECTOR, YSLETA INDEPENDANT SCHOOL DISTRICT; PAULA GLOGOVAC,
FORMER E-RATE CONSULTANT TO SUN MICROSYSTEMS; NATHANIEL
HAWTHORNE, GENERAL COUNSEL, ALPHA TELECOMMUNICATIONS,
INCORPORATED; AND CHRISTOPHER G. CAINE, VICE PRESIDENT,
GOVERNMENT PROGRAMS, IBM, ACCOMPANIED BY MIKE PRATT
Mr. Tafoya. Thank you. Mr. Chairman, thank you for the
opportunity to speak with you today. As indicated earlier, my
names is Charles L. Tafoya. I am the superintendent of the El
Paso Independent School District and in that capacity I have
decided to present a short statement on behalf of the district
for the hearing. We also have provided you a much more detailed
statement, which is available, again, at your convenience.
Although I was not superintendent during most of the
relevant period, I have some familiarity with the program. The
district is the largest school district within the El Paso,
Texas County in far west Texas, along the border of New Mexico
and Mexico. El Paso is primarily an Hispanic city with a
population of over 600,000 students. The district is a poor
school district--I am sorry, with over 600,000 residents, not
students. The district is a poor school district with many poor
students. About 70 percent of the district's students are
eligible for free and reduced lunches under Federal law, though
many of its schools have a much higher proportion.
As one can readily see, the district students are extremely
poor and in great need of benefits from the projects to be
completed using E-rate funding. Relatively few students within
the district have access to computers at home, much less access
to educational resources through the Internet. For many
district students, the school computers are the only computers
to which they have access. The digital divide is a major
problem within the district, and, unfortunately, many of its
students are on the wrong side of that divide.
The district has been a beneficiary of the E-Rate program
since its inception. In year 4 of the program, the district
received an award of approximately $65 million. That was a
major grant, and the district was ecstatic about it. The award
was made several months into year 4 and the district had less
time than expected to complete the projects. Those year 4
projects were a major undertaking for the district. The
district devoted significant financial and manpower resources
of its own to the projects. The projects were timely completed
and implemented by the district and the service provider, IBM.
Principally, though, some special contract provisions with
IBM--I am sorry, principally through some special contract
provisions with IBM, the district was able to save money and
was in fact able to return over $9.3 million from its funding
while still completing the projects.
The district sought E-rate funding again in year 5 of the
program but a significantly lower amount. That is the year in
which problems with the program came to light in a major way.
Unbeknownst to the district, the Request for Proposal developed
and used by the district for year 4 was used as a model by
school districts throughout the country. At almost all of those
other districts, IBM was the successful vendor.
An issue arose as to whether that Request for Proposal was
in full compliance with program rules. The FCC ultimately
concluded that the RFP model was improper but acknowledged the
ambiguity of the rules and good faith of the districts. The
district was, and remains, adamant that its E-rate projects
should be performed for a fair price and with the best value
for the dollar.
The district is responsible for its pro rata contribution
in the event of program funding for a project. The district
contribution, though, does not reflect all of the true costs
that the district E-rate awarded. Specifically, if a particular
E-rate project is awarded program funding, the district must
not only contribute its pro rata share but must also pay for
the computers and other ineligible hardware necessary to use
the eligible services under the project, for additional staff
to handle installation and operation of the project and for
additional training in related areas to best utilize the
resources of the project.
In addition, the district feels strongly that technology
and other resources at its various schools is equitable.
Consequently, the district must pay for similar ineligible
projects similar to an approved project at schools ineligible
for E-rate funding. Accordingly, the district's contribution in
the event of program funding is actually much greater than pro
rata contribution.
The district is very thankful for E-rate funding that it
has previously received. That funding has provided immeasurable
benefits to students of the district. The written statement
addresses those in more detail. By way of example, a major
benefit of the program funds for El Paso ISD teachers and
students was acquisition of a computer network and connectivity
to and amongst campuses. Another residual benefit is exactly
being realized as I speak to you through the ability to have
been connected to the El Paso Community College from where this
broadcast is being projected. The network required cabling and
wiring in schools and provision of specialized network
electronics. Using program funds, in combination with the
district's own resources, the network was installed and
implemented. One cannot over emphasize the point that, without
program funds, it would have taken many, many years for the
district to create and complete such a network across the
district. Indeed, due to the time delays that would have been
involved, the attendant issues of obsolescence in the meantime,
it is indeed questionable if the network would have ever been
fully completed and compatible.
The district believes that its experience in this regard
has been shared by many school districts across the country.
The primary benefit from the program was high-speed Internet
access. The funding not only allowed many more students to gain
access to the Internet, it also committed our students to
expand their educational experience. E-rating funding has
permitted the district to complete needed projects in the
technology area in an effort to provide its students with an
enhanced opportunity for success in the future. To be clear,
through program funds, the district did not seek to achieve and
did not achieve a technology advantage over other school
districts. Instead, the district sought to use such funding to
catch up to other districts.
Although thankful for the funding from the program, the
district has experienced frustration with the program as more
fully outlined in the written statement. These frustrations
primarily involve ambiguities in the rules and the length of
delays in making awards, which make it difficult for school
districts to properly handle technology projects. The district
has learned a number of lessons from the program participation.
These lessons learned are likely to apply to many other school
districts. The written statement addresses those in greater
detail.
I did want to briefly focus on a few of those related to
the issues of preparedness and commitment. A district seeking
E-rate funds needs to ensure that it has properly planned for
the projects, is ready to manage the installation and
completion of the projects and is prepared to manage the actual
usage of the projects, after completion. Each of these steps
takes a major commitment by the district. For instance, beyond
the technology plan required under the program, a school
district needs to do a comprehensive review and analysis of its
education needs, various technology solutions to meet those
needs, compatibility and structure issues as well as
sustainability issues. Merely getting the latest and the
greatest system may not be appropriate if it is not compatible
with existing technology, it does not meet the actual and
structural needs or cannot be sustained in the future.
Moreover, in order to ensure that E-rate projects actually
have a direct positive effect in the classroom, a school
district should expect to spend substantial sums on teacher
training, staff, and again, preparedness; equipment and other
ineligible items under E-rate. In short, a program participant,
in order to fully enjoy the benefits of program projects,
should make a greater commitment of its own staff, money and
other resources in determining its technology needs, preparing
and designing projects, overseeing and supervising project
installation and ensuring implementation of the projects.
We believe that the district acted reasonably, in good
faith, within legal guidelines. Although its efforts were good,
the district believes there was room for improvement. It is
working to address those issues. The district believes that the
E-Rate program is a good program and should be retained. Some
reforms, though, are needed. The written statement discusses
those in more detail as well.
The district believes, in conclusion, that notwithstanding
the problems, the program has been very successful in bringing
much needed technology to school districts across the country.
Such technology has brought great benefits to the students
involved. Thank you, Mr. Chairman.
[The prepared statement of Charles Tafoya follows:]
Prepared Statement of Charles Tafoya, Superintendent, El Paso
Independent School District
INTRODUCTION
Mr. Chairman, thank you for the opportunity to speak to you this
morning. My name is Charles Tafoya. I am the Superintendent of the El
Paso Independent School District (``El Paso I.S.D.''), I have been
asked to provide this statement on behalf of El Paso I.S.D. for this
hearing of the House Energy and Commerce Committee's Subcommittee on
Oversight and Investigations entitled ``Problems with the E-Rate
Program: Waste, Fraud, and Abuse Concerns in the Wiring of Our Nation's
Schools to Internet''.
El Paso I.S.D. welcomes the Subcommittee's interest in the E-Rate
Program (the ``Program'' or ``E-Rate'') of the Federal Communications
Commission (the ``FCC''), and administered by its Schools & Libraries
Division (the ``SLD'') and the Universal Service Administrative Company
(``USAC''), and believes that Congressional hearings reviewing the
Program's good points and bad points are overdue. Such a review should
generally be done with any federal program on a periodic basis. On the
other hand, we admittedly would have preferred that El Paso I.S.D.'s
own participation in the Program not be a focus of this Subcommittee's
review.
Although I was not Superintendent at El Paso I.S.D. during the most
of the relevant periods discussed below [becoming interim
Superintendent during 2002, and Superintendent in January 2003], I am
or have become familiar with El Paso I.S.D.'s participation in the
Program.
I have attached a statement from the El Paso I.S.D. website
describing my background, as well as a copy of my curriculum vitae.
The final page of this written statement includes one-page summary
of the major points of this written statement.
I also intend to present an oral presentation of five minutes or
less at the hearing. Due to the time limitations for such presentation,
as well as for my answers to questions from members of the Committee,
and the consequent inability to provide detailed, properly nuanced and
articulated presentations and responses, my oral testimony at the
hearing is and will be subject to, and qualified, supplemented, and
clarified by, this written statement.
BACKGROUND OF THE EL PASO COMMUNITY
Before proceeding further, it is important for you to understand
the circumstances which El Paso I.S.D. faces in its daily efforts to
educate and prepare its students for the future.
El Paso I.S.D. is the largest school district within El Paso
County, Texas. Its school boundaries encompass much of the City of El
Paso. El Paso is located at the far western end of Texas, wedged
between Mexico and New Mexico. In fact, El Paso is so far west in
Texas, that it is actually closer to Los Angeles than the eastern
border of Texas. It is also said that Texarkana is closer to Chicago
than El Paso.
El Paso is located in the Chihuahuan desert, with the Franklin
Mountains [being the southern end of the Rocky Mountains in the United
States] bisecting the city. The Rio Grande river flows south through a
portion of El Paso, and then becomes the border with New Mexico, and
ultimately becomes the border with Mexico [which river border continues
to the Gulf of Mexico].
The El Paso community enjoys a long history. Although the first
Spanish arrived in the area in the late 1500's [including what is
asserted to be the first Thanksgiving ceremony in North America in 1598
by Juan de Onate and his colonists], the original Spanish settlements
in El Paso were not established until the 1680's.
The population of El Paso County is approximately 680,000. The city
of Cuidad Juarez, Mexico borders El Paso. Cuidad Juarez has a
population believed to be from 1,000,000 to 1,500,000 persons. To be
clear, unlike the San Diego-Tijuana border area, El Paso and Juarez are
actually physically next to each other, separated only by the Rio
Grande. The bridges across the Rio Grande handle northbound [i.e. into
El Paso] traffic of about 15,000,000 vehicles and 9,000,000 pedestrians
per year.
Demographically, El Paso is a primarily Hispanic city. It is
believed to have the largest proportion of Hispanics in its population
amongst cities over 500,000 in the country. Approximately 78% of its
population is described as Hispanic according to census records. About
17% of its population is non-Hispanic whites, with Asian-Americans and
African-Americans constituting only small portions of the population.
El Paso I.S.D. is a poor school district with many poor students,
and each have many needs, especially in the technology area. About 70%
of El Paso I.S.D.'s students are eligible for ``free and reduced
lunches'' under federal law, though many of its schools have a much
higher proportion. Indeed, at close to two-third's of El Paso I.S.D.'s
schools, more than 90% of the students are eligible for ``free and
reduced lunches''. The 2000 Profile of Selected Economic
Characteristics issued by the United States Census Bureau estimates the
per capita income for 1999 in the El Paso, Texas area at $14,388 per
year. For comparison, according to the same survey, the annual per
capita income for 1999 in the United States was $21,587, for the State
of Texas was $19,617, and for the Washington D.C. area was $28,659.
As one can readily see, El Paso I.S.D. students are extremely poor,
and in great need of the benefits from the projects to be completed
using E-Rate funding. Relatively few students within El Paso I.S.D.
have access to computers at home, much less access to educational
resources through the Internet. For many El Paso I.S.D. students, the
school computers are the only computers to which they have access. The
``digital divide'' is a major problem within El Paso I.S.D., and
unfortunately many of its students are on the wrong side of the divide.
EL PASO I.S.D.'S HISTORY WITH E-RATE PROGRAM
The rules and objectives of the Program have changed over time.
Initially, the Program appeared to be used primarily for reimbursement
of school districts for telecommunication expenses. Later, cabling for
computer networks became popular under the Program. More recently, E-
Rate funding for other sorts of so-called internal connections have
been commonly sought. The problems with the Program that prompted these
Subcommittee's hearings appear to have involved this final category.
El Paso I.S.D. has been a beneficiary of the Program since its
inception. In Year 1 of the Program 11, El Paso I.S.D.
sought funding for telecommunications and internal connections, and
received an award of $2,669,822 from the SLD. For Year 2 of the
Program, El Paso I.S.D. was granted funding of $6,463,713 for
telecommunications, internal access, and internal connection. In Year 3
of the Program, El Paso I.S.D. received $1,422,392 in funding for
telecommunications, internal access, and internal connection. El Paso
I.S.D. was awarded $65,683,831 in E-Rate funding in Year 4 of the
Program, for a variety of telecommunications, internal access, and
internal connections projects. El Paso I.S.D.'s request for Year 5 E-
Rate funding of $46,094,835 was denied by the SLD. Upon appeal, in
light of confusion over Program rules, in December 2003, the FCC
permitted El Paso I.S.D. and a few other districts to re-submit funding
applications for Year 5. That has been done, and such new application
is now pending for $1,433,932. El Paso I.S.D.'s funding request in Year
6 of the Program for $10,352,203, for both telecommunications, internal
access, and some internal connections, was unexpectedly denied by the
SLD on an alleged technicality. El Paso I.S.D. strongly disputes that
contention and has appealed the SLD's decision to the FCC. Looking
closely at those circumstances, one cannot help but wonder whether
retaliation against El Paso I.S.D. played a part in that denial. That
appeal is still pending. El Paso I.S.D. has also recently filed for
funding under Year 7 of the Program. $2,598,600 has been sought, in
connection with telecommunications, high speed fiber network, and
internal connection projects in Year 7.
---------------------------------------------------------------------------
\1\ The nomenclature for the funding years in the Program has
changed from ``Year 6'', etc. to ``Year 2003-2004'', etc. This
statement will generally use the former terminology, for convenience.
---------------------------------------------------------------------------
The eligible campuses at El Paso I.S.D. under the Program currently
consists of 3 high schools, 3 auxiliary campuses, 7 middle school
campuses and 39 elementary school campuses, for a total of 52 campuses.
EL PASO I.S.D.'S PARTICIPATION IN YEAR 4 OF THE PROJECT
Since El Paso I.S.D.'s participation in Year 4 of the Program
unexpectedly and unintentionally appears to have been a catalyst to
problems nationwide in the subsequent funding year, further review of
such participation [as well as that of Year 5] is in order.
To better understand the E-Rate funding process, an applicant must
comply with the following steps in order to be considered to have a
complete application about which a funding decision may be made: (1)
the applicant must develop a technology plan; (2) the applicant must
file with the SLD a Form 470, describing the goods and services it
wishes to procure in accordance with its technology plan; (3) the SLD
then posts the Form 470 on its website, so that vendors interested in
providing such goods or services can contact the applicant, make a bid,
and seek to become the provider of the same; (4) to the extent that
state or local procurement laws apply to the applicant, the applicant
must comply with those laws, such as by issuance of competitive bid
requests or requests for proposal; (5) the applicant reviews bids and
responses from interested vendors, under the Form 470 process and/or
state or local procurement laws; (6) the applicant must wait at least
28 days after filing of the Form 470 in order to contract with a
particular vendor, so that sufficient time is permitted for vendors to
respond or make bids; (7) the applicant selects the successful vendor
to provide the goods and/or services under the Form 470; (8) the
applicant enters into a contract with the successful vendor; (9) the
applicant files a Form 471 with the SLD, in which it names the
successful vendor as the ``service provider'', using the vendor's
unique ``service provider identification number'' or ``SPIN'', for the
goods and/or services under the Form 470; and (10) the applicant then
awaits any decision by the SLD as to whether or not funding will be
granted, and in what amount, under the Form 471. If the SLD awards a
grant of Program funds to an applicant, the applicant must then file a
Form 486, accepting such grant. Each applicant also is required, under
Program rules, to pay a proportion of the charges [often 10% or so]
from the service provider, as a condition of participation.
During each year of the Program, El Paso I.S.D. has had a
longstanding technology plan, as modified from time to time (the
``Technology Plan''), upon which its Program participation has been
based. In other words, El Paso I.S.D. has sought E-Rate funding for
projects consistent with its Technology Plan. Importantly, El Paso
I.S.D. has not relied and does not rely solely on E-Rate funding to
satisfy the goals of the Technology Plan, instead using its own funds
and other sources as available. The E-Rate funding, however, has
essentially permitted El Paso I.S.D. to accelerate the timetables for
completion of such projects, thereby providing the benefits of
technology for more students.
In December 2000, El Paso I.S.D. posted a Form 470 for Year 4 of
the Program (the ``Year 4 Form 470''), in accordance with Program
requirements. The Year 4 Form 470 was posted through the SLD web-site.
A hard-copy of the Year 4 Form 470 was signed by El Paso I.S.D. and
forwarded to the SLD.
In December 2000, El Paso I.S.D. also issued its Request for
Proposal No. 101-00 entitled ``Strategic Technology Solution Provider''
(the ``Request for Proposal''). The first page of the Request for
Proposal stated in relevant part as follows:
. . . This Strategic Technology Partnership agreement will
include, but not be limited to, E-rate funded projects. The
selected vendor should be prepared to assist the District with
all aspects of the E-rate process and should demonstrate
knowledge and experience in dealing with E-rate funded
projects. All E-rate applications will be submitted using the
successor bidder's single SPIN number. Vendors must provide
their SPIN number as part of their response . . .
The Request for Proposal sought a vendor to provide integrated
provision of goods and services for El Paso I.S.D.'s proposed E-Rate
projects. This was somehow different than what El Paso I.S.D. had done
in prior years. Due to part to the loss of personnel experienced with
the Program, more outside assistance from the vendor appeared to be
beneficial to El Paso I.S.D. Utilization of outside expertise is not
inappropriate, especially in the area of technology.
It is unrealistic to expect school districts to have in-house
expertise to understand, plan, and identify the specific plans,
specifications, and other details of projects of seeking funding.
Districts rarely have expertise to do so. The districts generally
understand only what projects need to be done and the basic scope and
outline of those projects, but do not often know ahead of time the
particular plans and specifications for those projects [especially in
the technology area where new technologies and techniques come into
play very quickly]. This is a very complicated field, and hard for a
district to keep track of state-of-the-art goods and services. If a
district tried to design a technology project completely on its own,
including all plans and specifications, it would not necessarily design
the most cost-effective project, and its design would likely include
inefficiencies, waste, and obsolete items. Accordingly, it makes sense
for a district to seek systems integration expertise from a third
party.
By way of example, one should keep in mind the analogy of an
individual building an addition to a house. In theory, a person could
build the addition himself, but that is very rare indeed since
individuals almost never have the necessary expertise and experience to
do so. Instead, individuals generally do have in mind their basic needs
and desires for the addition [no. of bedrooms, no. of baths, approx.
square footage, one or two-story, exterior facing, style, etc.], but do
not know all of the details [depth of foundation slab, location of
plumbing and electrical conduit, framing details and techniques, etc.].
In addition, the homeowner generally does not know exactly how the
framing, plumbing, HVAC, electrical, and other systems of the addition
can be made compatible with those in the existing portion of the house.
Of course, the homeowner rarely creates the blueprints on his/her own.
The homeowner instead generally retains an architect and/or a
homebuilder to prepare the blueprints, based upon the homeowner's basic
needs and desires. Those blueprints are not completed, however, by the
architect/contractor without significant input from the homeowner. The
homeowner usually reviews those plans and specifications with the
architect/contractor and suggests many changes. In that regard, price
is an important consideration, and changes are made to the blueprints
accordingly. The price of the project is negotiated between the
parties. The homeowner retains final control over the plans and
specifications, and the price, especially since the homeowner has the
right to end negotiations and seek a new builder, if necessary. As
applied to the Program, the homeowner is akin to a district seeking
Program funding, the addition is akin to the new projects desired to
the existing technology at the district, the homeowner's basic needs
and desires of the homeowner are akin to the technology plan adopted by
district seeking Program funding, the plans and specifications as set
forth in the blueprints are akin to the details contained in the Form
471 filed by such district, and the architect and contractor are akin
to the service provider for the district. Consequently, this ``general
contractor'' approach seemed reasonable to El Paso I.S.D. when adopted
through the Request for Proposal.
The Request for Proposal was prepared by an El Paso I.S.D.
employee, based upon review of similar bid documents prepared by other
school districts nationally as well as substantial drafting on his own.
Importantly, it was not prepared by any vendor, and not based upon
draft documents provided by any vendor.
The Request for Proposal was noticed by El Paso I.S.D. in newspaper
notices, and placed upon its web-site. El Paso I.S.D. provided copies
of its Request for Proposal to eleven different companies who requested
a copy, not all ones who ultimately bid.
The deadline for submitting responses to the Request for Proposal
was December 19, 2000, and responses were thereafter opened. Eight
vendors [IBM, Amherst Computer, Diversified Technical Services, Kent
Data Communications, ESEI, Southwestern Bell, Time Warner Cable, and
Cervantes CC] responded to the Request for Proposal in some form or
fashion. The Year 4 470 did not generate any responses, in and of
itself.
An evaluation committee composed of El Paso I.S.D. Technology and
Finance Department officials reviewed the responses and recommended IBM
to the Board of Trustees of El Paso I.S.D. At a Board meeting on
January 9, 2001, the Board of Trustees of El Paso I.S.D. selected IBM
as the putative awardee under the Request for Proposal, and thus, if a
final contract [including pricing] was successfully negotiated and
finalized, as the service provider for the El Paso I.S.D. projects for
which a Funding Year 2001 application was to be made.
Thereafter, IBM and El Paso I.S.D. entered into an IBM Customer
Agreement dated as of January 2001, with incorporated Statements of
Work dated January 2001, as well as an Addendum to Customer Agreement
for January 2001 SOWs (collectively, the ``Year 4 Contract''). The Year
4 Contract had a one-year term, with an option by El Paso I.S.D. to
renew for two additional one-year terms. The Statements of Work
included with the Year 4 Contract outlined in detail the projects to be
completed under the Program.
Importantly, the Year 4 Contract contained special provisions
whereby El Paso I.S.D. retained the right to select the ultimate
providers of many services and products, through use of procurement
requirements of Texas state-law (the ``Special Procurement
Provisions''). The Special Procurement Provisions are found within the
Addendum to the Year 4 Contract. In this way, El Paso I.S.D. intended
to minimize the costs for such services and products, and thereby
minimize the amounts of Program funding, and thus El Paso I.S.D.'s pro
rata contribution, ultimately required to perform the desired E-Rate
projects. El Paso I.S.D. insisted upon such terms, and after
challenging negotiations, was able to obtain IBM's consent to the same.
It is El Paso I.S.D.'s understanding that it was the only district
nationwide during Year 4 of the Program to obtain such special
protection provisions from IBM, and one of only two [the other being a
sister district in El Paso County aware of such contract terms]
nationwide obtaining such provisions from IBM during Year 5 of the
Program.
El Paso I.S.D. then filed a Form 471 for Year 4 of the Program (the
``Year 4 Form 471'') with the SLD, as required.
El Paso I.S.D. later received a substantial award of funding from
the SLD for Year 4 of the Program for IC/IA Services and Telco
Services. El Paso I.S.D. accepted such funding, and the projects
thereunder have been completed. This award was dated September 28,
2001, for the Year 4 funding year beginning July 1, 2001. As one can
see, the award was not received until well after the beginning of the
funding year in question.
Upon receipt of such award, El Paso I.S.D. recognized that, due to
the SLD's delays in making the grant, it had less time than originally
anticipated to complete the desired E-Rate projects. El Paso I.S.D.
took a variety of internal steps to manage the construction of those
projects, including retention of a consultant to act as overall project
manager, looking out for El Paso I.S.D.'s interests, as well as a
commitment [often called upon] by its Board of Trustees to hold special
meetings or take additional efforts to take the necessary Board actions
to complete the projects on a timely basis. El Paso I.S.D.'s Board of
Trustees also made a substantial financial commitment from the limited
reserves of the District, to pay for its required share of Program
costs.
Ultimately, El Paso I.S.D. was able to complete the Year 4 projects
on a timely basis. Through use of the Special Procurement Provisions,
El Paso I.S.D. was also able to achieve costs savings and was able to
essentially return significant funding to SLD that was not needed to
complete the projects in question. Through the Special Procurement
Provisions, the pricing was capped at those set in the Form 471s, but
El Paso I.S.D. had the opportunity to obtain any better pricing later
by the selection of subcontractors and/or suppliers through separate,
later competitive procurement. With that better pricing, El Paso I.S.D.
hoped to achieve additional savings. In fact, due in large part to the
special procurement provisions of the Year 4 Contract, and otherwise
due to its intent to ensure that its projects were limited to critical
needs, El Paso I.S.D. ultimately did not need to spend, and returned,
over $9.3 million from its Year 4 Program funding. In essence, El Paso
I.S.D. obtained desired and requested goods and services for a much
lower price, and thus achieve ``more bang for the buck'' as it
intended. This conduct demonstrated El Paso I.S.D.'s continued
commitment to avoid fraud, waste, and abuse in pricing, both for its
own benefit and the Program itself.
El Paso I.S.D. was and remains adamant that its E-Rate projects
should be performed for a fair price, and with the most ``bang for the
buck''. El Paso I.S.D. is also very concerned about sustainability of
its technology projects for the long-term, and, since Program funding
from year to year cannot be guaranteed, El Paso I.S.D. needs to ensure
that any Project can be sustained without Program funding in the
future. Although El Paso I.S.D. sought to meet such goal with respect
to all E-Rate projects, in 20-20 hindsight, it feels that, due to
ambiguities in and misunderstanding of Program rules, the so-called
``Help Desk'' portion of the maintenance statement of work did not
prove to be sustainable [contrary to El Paso I.S.D.'s original intent
and belief].
It is important to remember that El Paso I.S.D. is responsible for
its pro rata contribution in the event of Program funding for a
project. In the case of Year 4 funding, it alone represented a major
financial commitment from El Paso I.S.D. That direct contribution,
though, does not reflect all of the true costs to El Paso I.S.D. of
Program funding. Specifically, if a particular E-Rate project is
awarded Program funding, El Paso I.S.D. must not only contribute its
pro rata share, but must also pay for the computers or other ineligible
hardware necessary to use the eligible services under the project, for
additional staff to handle installation and operation of the project,
and for additional training [not otherwise eligible] in related areas
to best utilize the resources of the project. In addition, El Paso
I.S.D. feels strongly that technology and other resources at its
various schools be equitable; consequently, El Paso I.S.D. must pay for
similar, ineligible projects, similar to an approved project, at other
schools who are not granted Program funding due to a lower ``free and
reduced lunch'' level. In short, El Paso I.S.D. has to spend its own
money to ensure that each school, whether or not it received Program
funding, has similar resources. Accordingly, El Paso I.S.D.'s
contribution in the event of Program funding is actually much greater
than pro rata contribution. That alone is significant incentive for El
Paso I.S.D. to seek cost-effective acquisition of the projects, which
El Paso I.S.D. has sought to do in each case.
EL PASO I.S.D.'S PARTICIPATION UNDER YEAR 5 OF THE PROGRAM
Year 5 of the Program encountered many problems nationwide. In
hindsight, it appears that, based upon El Paso I.S.D.'s large award in
Year 4, many districts across the nation prepared requests for proposal
for Year projects almost identical to the Year 4 Request for Proposal
of El Paso I.S.D. El Paso I.S.D. was unaware of those circumstances. It
did share a draft of the Request for Proposal with a sister district in
El Paso County, Texas, Ysleta Independent School District; staff of
local districts commonly share bid documents or similar materials in an
effort to avoid unnecessary duplication of efforts.
Frankly, El Paso I.S.D. is somewhat upset that, without its
knowledge or consent, the so-called ``El Paso model'' was presumably
pitched to other districts nationwide, who ultimately selected a single
vendor, resulting in what are now viewed by some as abuses in the
Program. That was not the intent of El Paso I.S.D., and it is very
concerned about being indirectly and unknowingly tied to such conduct.
The nationwide problems with Year 5 of the Program also directly
affected El Paso I.S.D. For such Program year, El Paso I.S.D. filed a
Form 470 for internal connections and related services, as well as for
telecommunications services.
With respect to those telecommunication services, El Paso I.S.D.
acquired services from AT&T for long-distance service and local
telephone service. Section 44.031(b)(4) of the Texas Education Code
authorizes school districts to acquire goods or services under the
catalogue purchase system under Section 2157.001 et. seq. of the Texas
Government Code. Under this catalogue purchase program, the DIR [being
a Texas state agency] creates a list of approved statewide vendors for
specified goods and services, after a process involving review of
different pricing factors, among others. This process essentially
forces interested vendors to offer specially discounted prices on a
statewide-basis, in order to be listed as an approved vendor, in order
to be able to make sales to local governments across the state. The DIR
itself advises vendors on its website:
DIR expects to receive the vendors' best pricing, since all
state agencies, cities, counties, and other local governments,
public school districts, and public colleges and universities
can buy through the DIR contracts. Based on the state's
anticipated volume, vendors need to offer DIR deep discounts
from their list price. Those discounts must apply to all DIR
customers, regardless of their size, which means that a small
agency would receive the same base discounts that a large
agency would receive, although entities buying large quantities
should be able to negotiate deeper discounts through the DIR
contracts.
The catalogue purchasing program, under state law, supersedes any
requirement for a local district to perform a second competitive
procurement [insofar as the DIR has already done a competitive
procurement previously]. AT&T was/is an approved vendor on the DIR
catalogue. The telecommunication services of AT&T as offered in the DIR
catalogue were tariffed services. El Paso I.S.D. approved AT&T as the
provider of such services for Year 5 of the Program, based upon the
procurement under the DIR catalogue.
With respect to internal connections and related services for Year
5 of the Program, after review and analysis by staff and approval by
the Board of Trustees at a meeting on January 8, 2002, El Paso I.S.D.
decided to renew its relationship with IBM as service provider for Year
5. As noted above, El Paso I.S.D. posted a new Form 470 for Year 5,
though not required to do so under Program rules due to the renewal.
Nevertheless, El Paso I.S.D. wanted to inquire as to any interest from
other possible vendors, in an effort to determine whether or not
renewal was cost-effective and should take place. No responses or
inquiries were received by El Paso I.S.D. from vendors to the 2002 Form
470 for IC/IA Services sufficient to convince El Paso I.S.D. not to
renew its existing contract with IBM; El Paso I.S.D. invited further
responses from any such inquiring vendor, but substantive information
or materials were not received on a timely basis, if at all. During an
internal process, El Paso I.S.D. itself reduced the funding levels it
would seek from the Program for Year 5, due to El Paso I.S.D.'s desire
to reduce the scope of the projects thereunder. Thereafter, El Paso
I.S.D., in consultation with IBM, finalized the specifications for the
specific goods and services necessary for completion of such internal
connections and related projects. The funding requested for such
projects for Year 5 of the Program represented a significant reduction
in amounts as requested by El Paso I.S.D., and as awarded by SLD, for
Year 4.
After further negotiations with IBM, El Paso I.S.D. and IBM entered
into Statements of Work dated January 2002, as well as an Addendum to
Customer Agreement for January 2002 SOWs (collectively, the ``Year 5
Contract''). The Year 5 Contract also contained similar Special
Procurement Provisions. The Year 5 Contract effectively represented the
renewal and extension of the IBM Customer Agreement, to cover Year 5
projects and new statements of work.
As noted above, funding for El Paso I.S.D. under Year 5 of the
Program was denied by the SLD. Such denial was dated March 10, 2003,
although Year 5 of the Program actually began on July 1, 2002. In other
words, El Paso I.S.D. did not learn of a decision on its Year 5 funding
until about three months before Year 5 ended.
El Paso I.S.D. appealed the decision of the SLD to FCC. By FCC
Order 03-313 dated December 8, 2003 in Matter of Request for Review of
the Decision of the Universal Service Administrator by Ysleta
Independent School District, et. al., CC Docket Nos. 96-45 and 97-21
(the ``Ysleta Order''), the FCC effectively upheld the denial of Year 5
funding, but granted a waiver of Program rules to permit El Paso I.S.D.
and several other school districts to re-file its application for Year
5 funding under certain conditions. El Paso I.S.D. believes that its
Year 4 and Year 5 procurement for a service provider under the Program
complied with applicable state and federal law. Nevertheless, the FCC
effectively found that certain aspects of such procurement did not
comply with Program rules. On the other hand, the FCC implicitly
admitted that ambiguities and/or past course of dealing might have
confused districts as to such legal issues, and therefore permitted re-
filing of the applications. El Paso I.S.D. has done so, though its
requested figure is much less than before, due to reductions in market
prices, obsolescence of several projects, and completion of all or part
of some projects using other resources, among other things. El Paso
I.S.D. still believed that its conduct was appropriate and not in
violation of Program rules. Nevertheless, in the circumstances El Paso
I.S.D. [as well as the other affected districts] decided not to appeal
the Ysleta order to the courts and to instead take advantage of the
FCC's allowance of re-filing of the application at issue. The relief
permitted by the FCC's ruling was an acceptable compromise in the
district's view, and the time and expense of protracted litigation was
not justified.
benefits to el paso i.s.d. students from e-rate funding
El Paso I.S.D. is very thankful for the E-Rate funding that it has
previously received. That funding has provided immeasurable benefits to
students of El Paso I.S.D. We believe it is important for Congress to
recognize the wonderful things that have been accomplished at the front
lines of education, due to its funding of the Program.
In Year 1 of the Program, the awarded Program funds allowed El Paso
I.S.D. to provide 1,263 local long-distance service connections for
telephones in El Paso I.S.D. and provided high-speed Internet access to
2,479 computers at El Paso I.S.D. In addition, such funding allowed
eligible campuses to have connections to the Internet and provided
structural cabling to all such campuses. With Year 2 Program funding,
El Paso I.S.D. was able to continue to provide and supply high-speed
Internet access to all the EPISD campuses and to provide additional
1,800 local long-distance service connections for telephones. El Paso
I.S.D. used Year 3 Program funding to continue to provide
telecommunications services to EPISD's telephones and high-speed
Internet access to computers. El Paso I.S.D. also was able to obtain
new telephone connections for campuses, upgrade networks at all
eligible campuses for new telephone systems, and to install additional
structural cabling to eligible campuses. El Paso I.S.D. was also able
to procure network interface cards and upgrade network switches for all
eligible campuses. With Year 3 funding, El Paso I.S.D. was in addition
able to procure maintenance and hardware support services for network
electronics. In Year 4 of the Program, El Paso I.S.D.'s award was used
to continue to provide telecommunications and Internet access with El
Paso I.S.D.'s telephones and computers. It also provided an entire
redesigned of El Paso I.S.D.'s computer network. The wide area network
became a dedicated fiber network as part of this redesign. Structural
cabling was also added to eligible campuses and horizontal cable to all
campuses was upgraded with enhanced category 5 cable. Fiber optic lines
were added to telecommunications lines at eligible campuses and network
electronics were upgraded with switches and related components. El Paso
I.S.D. also received a new email system for its employees. It also
procured new application service. The Year 4 funding also provided
funding for virtual schooling, technology-instruction integration, and
technology planning.
A major benefit of the Program funds for El Paso I.S.D's teachers
and students was acquisition of a computer network and connectivity to
and amongst campuses. The network required cabling and wiring in
schools and provision of specialized network electronics. Using Program
funds, in combination with its own resources, the network was installed
and implemented. One cannot over-emphasize the point that, without
Program funds, it would have taken many, many years for El Paso I.S.D.
to create and complete such a network across the district. Indeed, due
to the time delays that would have been involved, and the attendant
issues of obsolescence in the meantime, it is indeed questionable that
the network would have ever been fully complete and compatible. El Paso
I.S.D. believes that its experience in this regard has been shared by
many school districts across the country.
A related benefit from Program was high-speed Internet access. The
prior Internet access provided speed of 1.5 mps. Program funding
permitted El Paso I.S.D. to provide such access both through
installation of appropriate cabling and network electronics, as well as
provision of Internet access services. There was a major problem with
campuses using the old system to do classroom work assignments through
the Internet or other network resources because it was too slow. Slow
speed was due to the saturation of T-1 line that had been providing
service. Essentially, over time classroom Internet usage rates
increased significantly at El Paso I.S.D. and demand on the system
increased for that reason and due to increasing file sizes. The number
and size of files and presentations available for educational purposes
also increased significantly. In other words, more websites often had
more large, video or multi-media presentations available for review, as
opposed to previous times. Using the old Internet access, it was
difficult, if not impracticable, for El Paso I.S.D. students to fully
utilize such educational resources. Importantly, due to the slowness of
the old system, it at times was difficult for students to even getting
any access to the Internet and many stopped trying to do so. The old
system was causing a severe detriment to the education of El Paso
I.S.D. students. It was no longer working and El Paso I.S.D. students
were beginning to fall further behind other students in technology
matters as a result. It is also important to realize that the Texas
Essential Knowledge in Skills requirements include technology as part
of the required curriculum for students in Texas. In addition, teacher
evaluations are based upon their use of technology. State-wide demands
were also placing additional pressure upon El Paso I.S.D. to increase
the use of technology. The old system was unable to meet that
challenge.
Fortunately, due to Program funding, this challenge was in fact
met. In addition, the funding not only allowed many more students to
gain access to the Internet, it also permitted such Internet experience
to be reasonably practicable. Furthermore, Program funding also
included web and file service that permitted students to learn high-
tech skills involving developing websites and in sharing research. That
was something that could not have been done using the El Paso I.S.D.
own resources.
El Paso I.S.D. has also been pleased with the result from its
acquisition of video carts with Program funding. Indeed, El Paso I.S.D.
since then has purchased many more video carts, using its own
resources, and is in process of acquiring more. El Paso I.S.D. is
seeking to make sure that each campus has at least one such cart. These
specialized video carts allow up to eight interactive sessions to occur
simulteously. There are often used for video-conferencing whereby one
teacher can provide instruction to classes at multiple schools. It is
also used to permit multiple classrooms to have interactive sessions to
hear and talk to distinguished visitors. In essence, each cart allows
broadcasting from a single site to other sites across the district, as
a form of distance learning. In addition, the El Paso I.S.D. broadcast
studio can provide broadcasts through the video carts to particular
classrooms district-wide. The video carts are very popular with both
teachers and students and have proven to be a great learning tool. They
have allowed El Paso I.S.D. to share the resources of better or
specialized teachers with more students. It has had a dramatic effect
at the classroom level.
As you can see, E-Rate funding has permitted El Paso I.S.D. to
complete needed projects in the technology areas, in an effort to
provide its students with a fair opportunity to succeed in the future.
To be clear, through Program funds, El Paso I.S.D. did not seek to
achieve, and did not achieve, a technological advantage over average
school districts. Instead, the district sought to use such funding to
catch up to those other districts. Although El Paso I.S.D. has not been
able to fully ``bridge the gap'' in this regard, E-Rate funds have
permitted it to at least come within range of being able to do so.
Without the Program funds, El Paso I.S.D. and similarly-situated
participants would technologically now be so far behind a typical
school district so that it could never expect to catch up as a
practical matter.
El Paso I.S.D. sought the Program funding to aid the eligible
schools. Such funding, however, though has also provided incidental
[and initially unintended] benefits district-wide and throughout the El
Paso community. By way of example, the network advances achieved with
Program funding also make it possible for El Paso I.S.D. to comply with
certain of the Adequate Yearly Progress and No Child Left Behind Act
requirements. With the network, there also can be greater
accountability at the campus level, better review of campus-level data
and information, better communication between central office and
campuses, and greater sharing of resources amongst campuses. In
addition, due to the increased connectivity afforded from E-Rate
projects in combination with El Paso I.S.D.'s own resources, the
district was able to utilize distance-learning to reach students and
parents for educational programs. Using one such program, over 225
``virtual learning'' students were able to complete high school
requirements and graduate from El Paso I.S.D. this year; those young
adults [principally from areas of eligible schools] would not otherwise
have received high school diplomas, with resultant detriment to their
own lives and those of their families, to the local economy, and to the
local community. El Paso I.S.D. has also developed the Orion project
with the local university, community college, and others to provide
dual enrollment as well as specialized training in No Child Left Behind
Act and other issues, for both students and teachers. The goal is to
create a county-wide educational network to provide educational growth,
and hopefully economic growth for the depressed local economy. Rather
than simply have a collection of disparate, independent centers of
basic, secondary, or higher education, El Paso I.S.D. and these other
educational bodies are seeking to establish El Paso County as an
``educational community'', through creative and cost-effective sharing
of technological information and resources. Again, these benefits were
not sought from the funding, but El Paso I.S.D. has been able to
leverage the Program funds using other resources in order to work on
this greater good for the community as a whole. El Paso I.S.D. believes
that a principal purpose of the Program was to benefit local
communities, through provision of funding to aid the technology
programs of schools.
It is important to raise this issue of ``leveraging'' the Program
funds. As discussed in detail elsewhere, Program funds are limited in
amount and also may be legally expended only on certain sorts of
technology goods and services; therefore, districts must commit
significant resources on their own in order to ensure proper
implementation of the projects. Consequently, Program funds must be
``leveraged'' by a grantee-district with other sources of funds. In
addition, a project constructed with Program funds also should be
``leveraged'' by a grantee-district with other non-Program projects, in
order to meet technology needs. El Paso I.S.D. recognizes that the
Program was not created to fulfill all technological needs of school
districts, but instead provides a substantial ``down payment'' to be
leveraged by the districts.
FRUSTRATIONS WITH THE PROGRAM
Although thankful for the funding from the Program, El Paso I.S.D.
believes it is also important for Congress to understand frustrations
that El Paso I.S.D. has had with the operation and administration of
the Program. Those frustrations are believed to be shared with many
other school districts across the country.
Probably the primary concern of El Paso I.S.D. and other school
districts revolves around an inability to fully understand the ever-
changing Program requirements, based upon changes in the actual rules
as well as changes in SLD's interpretation of such rules. As El Paso
I.S.D. and many other districts have learned, doing something the same
way as successfully done in the prior funding year, even in the absence
of any formal Program rule changes, is no guarantee that the SLD will
approve such approach in the current funding year. Indeed, that is the
principal issue with El Paso I.S.D.'s Year 6 appeal. Furthermore, many
have complained about the SLD's previous apparent refusal to make its
manual of eligibility requirements for goods and services available to
the public, leading many well-meaning districts to inadvertently seek
ineligible goods or services or misunderstand those requirements. El
Paso I.S.D., of course, recognizes that some annual changes in SLD
policy are probably warranted, but wishes that such changes are
announced publically and in sufficient time for districts to comply
with the same. Furthermore, the Program rules have proven to be vague
and ambiguous on a large number of points, making it difficult for
districts to seek compliance. For example, in El Paso I.S.D.'s own
experience, different persons with the SLD, different E-Rate
consultants, different service providers, different attorneys, and
different staff persons will have differing interpretations of
particular Program rules. If nationally-recognized E-Rate experts in
Washington, D.C. in constant communication with SLD officials do not
agree upon rule interpretations, it is difficult, if not impossible, to
expect a typical school district elsewhere in the nation to fully and
properly understand what is expected of it under the rule.
Another major frustration with the Program arises from the SLD's
continued delays in making funding decisions. This frustration is
believed to be shared by many, if not most, applicants. A funding year
under the Program runs from July 1 of one year to June 30 of the
following year. Generally, a recipient of Program funding must complete
the project in question by such June 30 date [although short extensions
in certain categories have been permitted by the SLD]. The SLD,
however, has routinely issued decisions on Program funding requests
long after the beginning of the funding year. For instance, in Year 4
of the Program, El Paso I.S.D. was notified of the SLD's decision
almost three months into the funding year in question. In Year 5, the
decision of the SLD was received about nine months after the
commencement date of the funding year. For Year 6 of the Program, El
Paso I.S.D. received notice of the SLD decision about six months after
the start of the funding year. In short, the SLD has issued its
decisions after the funding year begins, and not beforehand. As a
result, the districts are hard-pressed to adequately and properly
complete the funded projects, with appropriate oversight.
Such delays in decision-making also wreak havoc on a school
district's ability to plan technology projects, whether or not based
upon E-Rate funding. A district's technology projects for a particular
funding year are generally dependent upon what Program funding was
awarded in the prior funding year. If such funding was denied in whole
or part, the district might need to re-urge such request in the next
funding year. By way of example, using a ``pipeline'' analogy to
reflect the linear nature of many projects, a district cannot be
expected to request funds to build mile 5 of a pipeline without knowing
whether mile 4 of the pipeline has been funded for construction. Due to
the SLD's late announcement of funding decisions, districts have little
time to develop projects for the next funding year before Form 470s for
that year must be posted. In El Paso I.S.D.'s case, it has often
learned of the SLD decision on a particular funding year after its Form
470 for the next funding year is due. El Paso I.S.D.'s experience is
not unique.
Similarly, many technology projects must be integrated in order to
be usable. It is not uncommon for a district to plan a particular
project eligible for Program funding, along with a related ineligible
project using its own funds. Oftentimes, the timing of such projects
must be coordinated. For example, a district's plans to acquire
computers for a classroom is necessarily linked to its request for
eligible cabling to classrooms. With the delays in decisions on Program
funding, the district's plans for the other projects are delayed and
disrupted.
In this regard, due to delayed decision-making, districts are often
in the uncomfortable position of wondering whether to use precious
resources of their own on needed technology projects for which E-Rate
funding requests have been long pending. If a district decides to do
the project outside of E-Rate, only to later get an Program award, it
can effectively lose the requested E-Rate funding, as well as the
ability to otherwise use those funds of its own for other needed
technology projects.
It is also important to remember that technology constantly
changes. Under current Program rules, it is not unusual for a district
to be required to issue specifications for particular goods in October
of a year in its Form 470, with a decision by the SLD on funding taking
place perhaps 12-18 months later, and actual procurement much later.
Oftentimes, and El Paso I.S.D. experienced this as well, requested
goods are obsolete, no longer compatible with other items, or no longer
manufactured at the time actual acquisition thereof is to occur.
In this vein, it is important to point out that the SLD has
reportedly suspended awards for the 2003 and 2004 funding years while
it resolves problems arising from a change in its accounting system. It
is not entirely clear when the SLD will again issue funding
commitments.
As a related matter, the appeals process with the SLD and FCC of
funding decisions is slow. Not only are decisions delayed in the first
place, but delays in appellate decisions aggravate the problems
described above.
El Paso I.S.D. realizes that the Program was in its infancy when
these problems arose. It is a relatively new federal program, and
``growing pains'' should have been expected. The structure of the
Program was different from other federal programs, and the roles of the
SLD and USAC were somewhat unusual. The complaints about ambiguous
rules and requirements with the Program are in large part similar to
those made about any new federal program during its early years. It
often takes a number of years for the ``gray areas'' to be identified
and addressed. It is also important to remember that the Program also
experienced a dramatic increase in both the number of applications and
in the dollar amount of monies requested. The regulatory bodies were
presumably, and not surprisingly, overwhelmed to some extent as a
result.
El Paso I.S.D., despite its frustration [and that of other
districts], recognizes that staff of the SLD and USAC were probably
trying to do the best job they could with limited resources, and were
also acting in good faith with respect to handling of the Program
[except, perhaps with respect to somewhat-suspicious funding denials by
SLD after the Ysleta order was issued]. Moreover, El Paso I.S.D. does
wish to acknowledge that the FCC has more recently issued a number of
orders and new rules addressing a wide variety of issues in the
Program, and is expected to issue more in the near future. Those orders
are welcome, and provide much more guidance and clarification to
applicants and service provider as to Program requirements. It is hoped
that those orders will limit this sort of frustration commonly
experienced by applicants in seeking to understand the Program.
LESSONS LEARNED BY EL PASO I.S.D.
El Paso I.S.D. has learned a number of lessons from its Program
participation. In particular, due to the above-described problems that
El Paso I.S.D. encountered with the Program, El Paso I.S.D. has also
reviewed and studied causes of such problems. Although El Paso I.S.D.
would prefer to place full responsibility upon others for those
problems, it recognizes and concedes that it bears some of the
practical, if not legal, responsibility for the same.
For instance, El Paso I.S.D. in Year 4 of the Program [unlike prior
or subsequent Program years] appears to have relied too heavily upon
its service provider, IBM, in developing the specifics of the
statements of work. As mentioned above, El Paso I.S.D. lost a number of
key employees with Program experience and expertise shortly before the
Year 4 process began. El Paso I.S.D. also had a relatively new
technology director with essentially no Program experience [though very
experienced generally in technology areas]. Consequently, El Paso
I.S.D. sought to select a ``strategic technology solution provider'' to
provide additional assistance with respect to Program matters. In the
circumstances, that was a reasonable approach. On the other hand, IBM
submitted statements of work for Year 4 to El Paso I.S.D. for review
with limited opportunity for extensive study and analysis before the
deadline for submission of the Year 4 Form 471s. Accordingly, El Paso
I.S.D. technology department did confirm that the projects represented
by statements of work were consistent with its Technology Plan and were
ones desired by the district. Unfortunately, there was insufficient
time for a detailed review and analysis by various affected departments
of El Paso I.S.D. to ensure that those projects were in fact initially
configured to meet the specific goals of such department or that each
such project [although functionally sufficient] was the preferred
solution of the particular department compared to other approaches. El
Paso I.S.D. feels that its review was legally sufficient, but in
hindsight believes that more review and analysis would have been
better. Of course, the Special Procurement Provisions and other
provisions in the Year 4 Contract did provide El Paso I.S.D. with an
opportunity to further review and modify projects even after an award
of Program funds. El Paso I.S.D. in fact exercised these special
contractual rights and modified several projects from the initial
proposals, in accordance with Program rules, in order to better satisfy
the needs of the district. Nevertheless, in retrospect, the preferred
approach would have been to internally develop project details with
little or no assistance from the service provider [recognizing, of
course, that the service provider is still a valuable source of
expertise for which it would inappropriate to ignore or discount
entirely].
On a related topic, looking back at the situation with further
knowledge and experience, El Paso I.S.D. now wishes it had had a better
understanding in advance of the benefits of one or more Year 4 projects
in comparison to the costs thereof. This concern is principally
directed at the Year 4 ``SOW maintenance'' project, which cost about
$27 million. El Paso I.S.D. now questions whether the benefits of the
project justified such a cost, not only to the Program but also to El
Paso I.S.D. for its 10% share. El Paso I.S.D. expended a significant
amount of its own funds on this project, and has not been satisfied
with it. The maintenance project involved a number of different sub-
parts [such as maintenance of certain existing technology, inventorying
of existing technology goods, etc.], though the ``help desk'' was a
principal part thereof. The ``help desk'' was very effective in
permitting El Paso I.S.D. to quickly identify and address problems of
users, with a great benefit to student, teacher, and administrative
productivity. Importantly, the ``help desk'' immediately referred calls
from ineligible schools to the technology department, in order to
ensure such assistance services were provided exclusively to eligible
locations.
From a purely functional perspective, the ``help desk'' worked.
Unfortunately, El Paso I.S.D. did not realize at the time of
acquisition the legal effect under Program rules of characterization of
the ``help desk'', and thus that the ``help desk'' would not survive
the end of the Year 4 term. That was a definite surprise to the
district. El Paso I.S.D. was under impression that the ``help desk''
would survive and that the district would continue to run it in the
future, using its own staff. That did not prove to be the case. El Paso
I.S.D. reviewed different alternatives, but Program rules prevented
some from being utilized and cost considerations interfered with
others. In the process of that additional review, El Paso I.S.D. also
discovered that the ``help desk'' configuration used certain
proprietary software of a third party, for which an individual license
for the district [as opposed to a presumed nationwide IBM license] was
cost-prohibitive. The design of the ``help desk'', in retrospect, did
not necessarily conform to the long-term needs of the district, and
made it difficult to sustain in that configuration. Ultimately, and in
light of the denial of Year 5 funding by the SLD, El Paso I.S.D. could
not afford bearing the entire cost of continuing the ``help desk'', and
IBM ceased providing such services to the district. The ``help desk''
did not meet the expectations of El Paso I.S.D. for the project. In
this regard, the district expected the ``help desk'' to achieve a much
greater reduction in pending work orders than actually experienced. To
be clear, though, El Paso I.S.D. believes that it received substantial
value from the maintenance project in Year 4 of the Program, but, in
20/20 hindsight, feels that the overall costs thereof may have
outweighed the long-term value to the district. As a result of these
concerns, El Paso I.S.D. significantly decreased its request for
maintenance contract funding for Year 5 of the Program, and deleted
requests for similar sorts of funding in future years.
In short, although El Paso I.S.D. in good faith sought to make
cost-effective acquisitions, it now questions whether the purchases met
its expectations and fully justified the costs. It is, of course, not
unusual for anyone to ``second-guess'' a purchase of any good or
service. ``Buyer's remorse'' is a well-recognized phenomenon based in
large part on the fact that a purchase rarely, if ever, meets all
initial expectations or desires of the buyer. Even persons who spend
extraordinary amounts of time and effort in studying and analyzing
proposed purchases often suffer from ``buyer's remorse'' after actually
making the selection and using the product or service in question. El
Paso I.S.D. does not feel that its acquisitions violated any Program
rules, but nevertheless wishes that additional, extra effort had been
made in analyzing and understanding the projects in advance. Such
effort might not had lead to a different result [due to outside
variables], but should have at least offered a better opportunity to
avoid the problems experienced by the district.
Another important ``lesson learned'' of El Paso I.S.D. involves
readiness for the projects. There are two main components of readiness:
(a) readiness to manage installation and completion of the projects;
and (b) readiness to manage the actual usage of the projects after
completion. As a condition to Program participation, a district must
essentially certify in the Form 471 that it is ready to and capable of
implementing the proposed project(s), specifically:
25. The eligible schools and libraries listed in Block 4 of
this application have secured access to all of the resources,
including computers, training, software, maintenance, and
electrical connections necessary to make effective use of the
services purchased as well as to pay the discounted charges for
eligible services.
El Paso I.S.D. believes that its readiness was sufficient to meet that
minimum standard. On the other hand, it also feels that even more
resources should have been committed by the district to ensure project
success.
When it first received notice that a substantial award had been
made to it in Year 4 of the Program, El Paso I.S.D. quickly reviewed
whether or not it had sufficient staffing to oversee and supervise the
installation of the desired projects, wondering whether ``it had bit
off more than it could chew'' [especially since the late award by the
SLD left a significantly reduced time period for completion of all the
requested projects]. Through re-assignment of staff and new hires
[including retention of a program manager designated to oversee day-to-
day issues on the project installation], and the extra efforts of
existing staff, El Paso I.S.D. was able to devote sufficient resources
for that phase of the project. Nevertheless, the district probably
initially under-estimated the amount and extent of effort that would be
required to monitor and supervise completion of the projects. Even
though its commitment was adequate, El Paso I.S.D. also now feels in
hindsight that even further commitment of staffing and other resources
to the supervision of project installation would have been preferable.
Additionally, as noted above, readiness also concerns the ability
of a district to implement the project at the end-user level, in order
to gain the full expected benefits thereof. It is important to keep in
mind that many eligible projects under the Program [e.g.--new servers
and cabling] provide benefits to teachers and students, without
necessarily necessitating additional training. On the other hand, other
technology projects [whether or not acquired using Program funds] do
require a district to invest significant resources of its own in
training and related usage issues. For example, without training of
teachers in use of a new software program for classroom use, the
program may prove to have limited practical benefit. This investment is
not just on an administrative level. Indeed, the teachers themselves
must invest additional time on their own in developing new lesson plans
or materials, or converting old materials to the new system, to take
advantage of the new software program. Ideally, the training should be
on-going, and incorporate ``best practices'' learned district-wide. El
Paso I.S.D. formerly had technology coordinators at most, if not all,
campuses. These persons, among other things, aided and trained teachers
on a continuing basis on technology matters. El Paso I.S.D. was
somewhat advanced, compared to other school districts, in having such
campus-level technology staff. Such training and assistance, though, is
generally ineligible for funding under the Program. Unfortunately, due
to serious budget concerns, those positions were eliminated before
implementation of the Year 4 projects. In retrospect, El Paso I.S.D.
feels that, although not necessarily legally required or even the
industry-standard, the district should have made budget cuts elsewhere
and made provision at the time to re-institute the technology-
coordinator program at campuses, in order to take better advantage of
classroom-level projects. El Paso I.S.D. believes that project
implementation was successful, but feels that there was and is room for
improvement which the technology coordinator program could support.
Upon further analysis of its technology acquisitions, whether or
not using Program funds, El Paso I.S.D. also believes that additional
planning, above and beyond a technology plan, is appropriate for many
projects for which Program funding is sought. For instance, a
particular network component may satisfy the technology plan, may
fulfill the functional needs, may be at a low price, and may work
perfectly, but still be a poor purchase for a particular district. In
isolation, the component may be ideal, but the acquisition needs to be
considered in light of the total technology universe at the district
and in the community. Ideally, a district should review and analyze,
from an engineering perspective and otherwise, whether a proposed
project is in fact compatible with all of its existing systems, whether
the design of the project actually satisfies discrete technological
goals, whether the technological goals fulfill particular educational
goals, and whether there is a capacity in the community to support and
sustain the project in questions over the long run. This sort of review
should permit a district to make more intelligent purchasing decisions.
For instance, a new server may be ``faster'', but is not necessarily
better than the existing one if ``large capacity'' is what the district
really requires. A particular software program may meet educational
goals, but may be unacceptable if it is not fully compatible with
existing hardware systems. Community support is critical; if the locale
has no persons capable of operating or supporting a particular project
in the future, the sustainability, and thus value, of the project may
be called into question.
That sort of study and evaluation would ordinarily require
experienced, highly-skilled persons familiar with ``cutting-edge''
technology issues, with the requisite training and certification in the
field of computer or electrical engineering. Ideally, such a review and
analysis could be performed in-house by El Paso I.S.D. and other school
districts. Unfortunately, that is generally not realistic. In the first
place, many locales outside of ``hi-tech'' communities do not have a
sufficient population of such experienced and skilled persons so as to
permit a school district to find and retain an adequate number of such
persons on its staff. In any event, to the extent a community has such
persons available for hire by a school district, a district generally
would be unable to pay a market-rate salaries sufficient to attract and
retain such persons. Although, like other districts, El Paso I.S.D. has
many experienced and skilled employees in its technology department,
those persons do not necessarily have the top-flight credentials and
experience to handle this sort of additional analysis. Consequently,
such services have to be retained from third parties, hopefully third
parties who are also vendors of products which may be at issue in the
evaluation. Such services can be very expensive. El Paso I.S.D. doubts
that many, if any, districts have engaged in such an exhaustive review
and analysis before seeking Program funding. Nevertheless, the district
feels that such an approach [even if not required by Program rules]
would provide substantial benefits to it, and better ensure the right
projects for the district are implemented. El Paso I.S.D. is in the
process of putting in place a comprehensive engineering and design
review of its technology systems, which it would hope to be able to
supplement on a periodic basis, in order to better guide its
acquisitions of technology in the future [whether or not under the
Program].
In a somewhat related vein, El Paso I.S.D. also recognizes that it
is important for technology acquisitions, whether or not using Program
funds, to be coordinated amongst many departments of the district. For
instance, if even a particular product meets the requirements of
teachers and other educators, and also is deemed to be a good,
compatible product by the technology department, a problem may still
exist if the particular schools do not have facilities sufficient to
locate and maintain the product. El Paso I.S.D. has encountered such a
problem with certain campus-level servers. Specifically, at a few
school sites with severe space limitations, servers were placed in
janitor closets to reduce noise in classroom areas. Unfortunately, some
of those closets did not necessarily have sufficient cooling for ideal
server usage. In other cases, they did have sufficient cooling, but the
evaporative cooling systems [whereby the air is cooled by the addition
of moisture, rather than its deletion as in normal air conditioning;
evaporative cooling is common in the desert Southwest among houses,
businesses, and schools] unfortunately generated too much moisture for
ideal server usage. El Paso I.S.D. incurred additional costs for server
support at these limited locations. After extensive review of various
costly alternatives, the district is planning to relocate those servers
to a centralized location with adequate space, cooling, and ventilation
[from which they will continue to serve the same eligible campuses in
the same way]. This sort of site-specific, detailed, operational issue
is not something that ordinarily would be considered by any school
district when making a technology purchase. Nevertheless, El Paso
I.S.D. believes such a review and coordination amongst various
departments would yield significant benefits. Such a process is
difficult to design, establish, and implement, but the district is
working towards doing so.
El Paso I.S.D. furthermore enjoys a much better understanding of
the true, complete costs of Program participation. As discussed
elsewhere in this statement, a district ordinarily must expend much
more money than its 10% share in order to implement Program projects.
There are many necessary costs that are ineligible for Program funding,
but are vital for the project to succeed. El Paso I.S.D. made a
substantial monetary commitment in Year 4 of the Program, above and
beyond the awarded Program monies. It believes that such commitment was
in excess of many other participating districts. In retrospect, though,
El Paso I.S.D. realizes that an even greater district commitment, both
initially and continuing over time, is needed to achieve the desired
goals and expectations of technology projects.
By way a somewhat different ``house'' analogy, one may view an
award under a Program as a gift of a ``shell'' of a house, with simply
the foundation and framing in place. That is a great gift, but is not a
cost-free one. The house only achieves its full value if the recipient
of the gift then expends its own resources to add the plumbing,
electrical, roofing, HVAC, walls, and other facilities and to furnish
the finished house with furniture, fixtures, and appliances. The cost
of the work needed to properly implement the gift of the ``shell''
house would typically be much greater than the value of the gift. In
the case at hand, the Program only funds certain items, and to a
certain extent. Beyond that, the participating district must make a
major commitment of financial, staffing, and other resources to the
funded projects, in order to ensure that they fulfill the intended
goals.
To be absolutely clear, El Paso I.S.D. does not believe that it
violated any laws or Program rules. Nevertheless, using 20/20
hindsight, there are things that El Paso I.S.D. would have like to have
done differently with respect to Year 4 of the Program, and Year 5 of
the Program to some extent as well. In short, although its efforts were
``good enough'', the district believes there was room for improvement.
Importantly, El Paso I.S.D. has striven to avoid these sorts of
problems with respect to subsequent-years participation in the Program.
It feels that it handled Year 5 better than Year 4, Year 6 better than
Year 5, and Year 7 better than Year 6. El Paso I.S.D. believes Year 8
participation will be even better than the prior years. Honest mistakes
can and will be made by any participant in the Program [indeed, by any
participant in any federal program of any kind]; on the other hand, El
Paso I.S.D. has sought to identify any errors, learn from those errors,
correct those errors, and avoid similar errors in the future. For
example, El Paso I.S.D. now exclusively or almost exclusively develops
specifics for Program projects on its own. It also has developed in-
house expertise on Program matters, and has retained an independent E-
Rate consultant for assistance [who is not a vendor to El Paso I.S.D.
of technology items]. The district also has re-started its technology-
coordinator program at campuses. Sustainability of projects without
Program funding [which has turned out to be doubtful] is also a primary
consideration for El Paso I.S.D. The district also has invested more of
its own resources in training and campus assistance on technology
matters, to better ensure that monies spent on technology have the
desired impact on the education of students. El Paso I.S.D. has a more
realistic view of what sort and quantity of projects can be feasibly
and efficiently implemented by it in any particular year, considering
all of the other necessary ineligible costs, and has therefore
substantially revised its Program funding requests.
El Paso I.S.D. believes that many similarly-situated school
districts seeking to participate in the Program may experience some or
all of such problems, amongst others, and is sharing its ``lessons
learned'' in order to provide guidance to those districts, as well as
to aid Congress in its review of the Program as a whole. The primary
theme running through these lessons is ``additional district
commitment''. A Program participant, in order to fully enjoy the
benefits of Program projects, should make a greater commitment of its
own staff, money, and other resources in determining its technology
needs, preparing and designing projects, overseeing and supervising
project installation, and in ensuring effective implementation of the
projects. Though El Paso I.S.D. believes its commitment in these
regards was at least legally sufficient, it also now feels that even a
greater commitment was and is warranted to ensure project success.
REFORMS WITH THE PROGRAM
Within the last year or so, the FCC has adopted a number of rule
changes to the Program and has commenced proceedings to adopt
additional rule changes. The SLD in such time period also appears to be
much better in making important policies and information available to
the public, so that districts can better seek to comply with Program or
SLD requirements. These changes are welcomed, and seem to go a long
ways towards addressing both the concerns of El Paso I.S.D. expressed
above, along with Program problems or abuses that have been reported in
certain locations elsewhere in the country.
Nevertheless, El Paso I.S.D. does have some recommendations on
further reforms in the Program. The district's reforms focus primarily
on issues arising to the experiences of it and similar school
districts. Since El Paso I.S.D.'s experience did not involve fraud or
similar conduct [contrary to what may be the situation in other cases
addressed by this Committee], the focus is on these other issues.
In the first place, particularly in light of the delays in awards
under the Program, it would be preferable for districts to be permitted
a complete 12-month period after receipt of the award notice, in which
to complete the projects. Alternatively, the period for completion of
projects could run for a period of 18 to 24 months after the
commencement of the funding year. This additional time would allow for
better review and control of project completion.
El Paso I.S.D., not surprisingly, would request that overall
funding of the Program be expanded. The Program is basically funded by
fees imposed on telecommunication billings, rather than the general
revenues of the federal government. Even a slight increase in such fees
would result in much greater educational benefits for students
throughout this country.
It is also important for Congress to recognize that, under the
Program, many technology items are not available for funding. For
instance, there may be funding for cabling to classrooms, but not for
computers in the classroom. In addition, and very importantly, Program
funds generally cannot be used for training of teachers or other
district personnel to fully and adequately utilize the equipment funded
under the Program, or even to retain personnel specifically assigned to
teach the faculty on how to take advantage of the new equipment during
instructional exercises. The goal of the Program is to reach the
students. Although El Paso I.S.D. strives to use its own funds to
bridge the gap between Program-acquired items and the actual
instructional effect on students, apparently not all school districts
can or will do so. Due to problems that have arisen in the past with
the Program, there would likely need to be some limits and restrictions
on use of such funding. Nevertheless, if certain training or retention
costs for districts in connection with new Program goods were made
eligible for E-Rate funding, the benefits to the students from such
goods should increase.
Whether from the universal services fees or regular budgeting, El
Paso I.S.D. also believes that the FCC and SLD do need additional
funding, in order to allow prompter handling of applications, appeals,
and even audits. The problems with delays in decision-making are
probably best served through additional personnel resources for these
agencies.
Of course, the ``Lessons Learned'' section above also highlights
issues that El Paso I.S.D. believes are appropriate for consideration
by other Program applicants. Some of those issues perhaps might be the
subject of changes in Program rules. By way of example, if an applicant
is seeking a major overhaul of its entire computer network, perhaps the
Program rules should require, in addition to the technology plan, some
sort of engineering analysis to better ensure that the network design
is appropriate for the applicant and compatible with its other
components.
Incidentally, and as something not directly experienced by it, El
Paso I.S.D. also wishes to highlight an area of potential abuse under
the Program in the future. There are a number of companies who act as
E-Rate consultants. With the complexity and confusion surrounding
Program requirements, that sort of expertise is very valuable to
applicants and service providers. Some of these E-Rate consultants are
very accomplished, reputable, and experienced. Unfortunately, not all
necessarily fall in that category. El Paso I.S.D. is concerned that
abuses might arise amongst some of these consultants. Although El Paso
I.S.D. has not contracted with this second category of consultant, it
believes that other districts nationwide have done so on occasion. It
is El Paso I.S.D.'s understanding that one or more of such ``lesser''
consultants may charge fees to their clients on a contingency basis,
based upon the amount of the award received from the SLD by such
clients. That sort of compensation method could easily lead such
consultants to over-estimate what technology requirements are needed
for districts and to request much greater funding than actually needed.
In other words, one wonders whether some of the complaints lodged
against certain vendors under the Program may in the future be
applicable to some of such consultants.
El Paso I.S.D. again wishes to point out that the FCC and SLD have
already adopted a number of Program reforms and have issued
clarifications on many of the ``gray areas'' of Program rules. Those
reforms and clarifications are expected to continue in the future.
Since, the regulatory agencies appear to have already addressed or to
be in the process of addressing many of the problems with the Program,
it is not entirely clear that direct Congressional legislation is
needed at this time to address those issues [except with respect to the
issue of increased funding].
OVERALL EVALUATION OF THE PROGRAM
El Paso I.S.D. believes that, notwithstanding the problems, the
Program has been very successful in bringing much-needed technology to
school districts across the country. Such technology has brought great
benefits to the students involved. The Program has certainly made
allowed El Paso I.S.D. to make great strides in catching up to other,
more affluent school districts and providing its students with a fair
opportunity to compete and succeed in the real world. To be clear, El
Paso I.S.D. has not sought, and has not acquired, technology projects
far in advance of other districts. Instead, the Program funding,
combined with El Paso I.S.D's own resources, has allowed it to get
closer to catching up with a typical school district in the nation.
CONCLUSION
In conclusion, El Paso I.S.D. has greatly appreciated the
opportunity to participate in the E-Rate program over the years. Such
participation has greatly benefited the students at El Paso I.S.D.,
giving them a fair opportunity to compete with their peers from other
communities.
El Paso I.S.D., like other school districts, also supports efforts
to reform problems or abuses with the Program. It regrets any role that
it may have unintentionally and unwittingly had with respect to any
such problems.
El Paso I.S.D. has acted in good faith, and in what it believed to
be a reasonable fashion in compliance with albeit-ambiguous Program
rules. El Paso I.S.D. does not believe it did anything illegal, and
certainly does not believe there is any basis to justify a recovery
against the district. In 20/20 hindsight, of course, there are things
that El Paso I.S.D. would likely have done differently.
Mr. Chairman, thank you again for this opportunity to present
EPISD's positions and views on the E-Rate Program.
Mr. Walden. We appreciate your testimony. Thank you for
joining us by video conference today.
Mr. Bohuchot.
TESTIMONY OF RUBEN BOHUCHOT
Mr. Bohuchot. One quick statement. On page 3 of the
document that I turned in, toward the bottom there is a number
$84 million some odd hundred thousand dollars. It should be $86
million. Thank you.
[The prepared statement of Ruben Bohuchot follows:]
[GRAPHIC] [TIFF OMITTED] T6098.049
[GRAPHIC] [TIFF OMITTED] T6098.050
[GRAPHIC] [TIFF OMITTED] T6098.051
[GRAPHIC] [TIFF OMITTED] T6098.052
[GRAPHIC] [TIFF OMITTED] T6098.053
[GRAPHIC] [TIFF OMITTED] T6098.054
Mr. Walden. And that is your opening statement, sir? All
right. Thank you.
Ms. Foster, welcome. Do you have an opening statement?
TESTIMONY OF SHARON FOSTER
Ms. Foster. Yes, thank you.
Mr. Chairman, thank you for the opportunity to speak to you
this morning, well, this afternoon now. My name is Sharon
Foster. I am currently the Executive Director of Technology
Information Systems for the Ysleta Independent School District
in El Paso, Texas.
During my career as an educator, I have had experience in
virtually every aspect of classroom and administrative work. I
have been a classroom teacher, campus administrator, technology
trainer, director of instructional technology, and currently
the Executive Director of Technology Information Systems.
That position requires me to oversee instructional
technology, administrative information systems, and
telecommunication networks. All of my experience is with large
urban districts with student populations of over 45,000
students.
I worked in the El Pas Independent School District, a
neighboring district of YISD, for 15 years, the last eight of
which where I was the head of the Instructional Technology
Department. Part of my responsibility in that position was that
of the E-Rate coordinator.
I served as E-Rate coordinator for the first 3 years of the
E-Rate program. As the E-Rate coordinator, I met with other
technology and telecommunications staff to identify projects
for which EPISD would seek E-Rate funding.
In addition to determining the appropriateness and scope of
the E-Rate projects, I would make sure that all application
requirements were met in a timely manner and addressed in the
request for additional information from the schools and
libraries division of the Federal Communications Commission.
In August 2000, I left EPISD in order to join YISD as an
employee. My departure was not related to the E-Rate program in
EPISD. I left EPISD prior to the bidding process for the year 4
submission.
At YISD, I assumed the position of Director of
Instructional Technology. As Director, I worked with YISD's E-
Rate coordinator, Richard Duncan, and other staff members to
determine future E-Rate projects for the District in years 4,
5, 6, and 7.
In other words, I was involved in YISD's participation in
the E-Rate program, but not principally responsible for such
participation.
I recently was named the Executive Director for Technology
and Information Systems at Ysleta and now, once again, I am
responsible for overseeing the E-Rate projects. The most
significant improvement that E-Rate has enabled to be achieved
in my experience as been the improvement to school district
infrastructure with both EPISD and Ysleta.
As done by most school districts across the nation, EPISD
and YISD use the initial E-Rate projects to improve the speed
and reliability of voice and data networks. E-Rate projects
provide the basics for each district's network which supports
virtually any type of technology based instruction, including
high speed Internet access to all classrooms, distance learning
systems, video to classrooms, integrated phone networks, and
other improved network functionality.
E-Rate funding has allowed for acquisitions by school
districts of network electronics that insured high speed access
and for the cabling and distributed networks across every
instructional area. Most school districts would never have been
able to afford the cabling and network initiatives that E-Rate
funded.
The E-Rate program has been the mechanism that many large
under-funded school districts have used to improve
telecommunication infrastructure. School districts have
discovered that virtually all instructional initiatives require
one essential element, namely a high speed reliable
telecommunications network. One of the great successes of the
E-Rate program is that it has been able to help school
districts enormously in developing those networks. With that
said there are several issues in the administration of the
program that have created obstacles to districts and planning
projects, providing continuity and managing the projects from
year to year.
Technology projects are linear, and in the case of most
school districts, are planned in phased in implementations.
Planning for those projects can be done with estimated E-Rate
funding from 1 year to the next. But, so far, the experience of
most districts has been that funding is nearly always delayed.
For example, currently, YISD is managing proposed projects
for years 5, 6, and 7 of the E-Rate program. Some of those
funds have been awarded. Some have not. In some cases decisions
on initial and/or continued funding have not always been clear.
In planning a multi-year project it is extremely difficult
to provide assurances to campuses when it is unclear how fast
implementation can proceed based on unknown levels of funding
and/or indefinite schedules for release of funds. The delays
have proven frustrating to districts.
In the case of YISD, we have tried, and for the large part
succeeded in applying for funds based on correct interpretation
of E-Rate funding guidelines. There have been instances when we
have had to provide additional information, explanation to the
SLD for guidance and in virtually every case, our position has
been determined to be correct.
In the very few instances when our interpretation of
funding or use guidelines have not been upheld, our
interpretation of E-Rate guidelines were made in good faith,
reasonably based, and in a line with how other school districts
have interpreted those same guidelines.
It has been difficult and has taken a tremendous staff
effort to maintain our understanding of funding guidelines. In
particular, knowledge of eligible products, eligible locations,
and how you determine in what instances campuses are not
eligible for E-Rate funding have been at best less than
straightforward.
We understand the need for E-Rate's guidelines to evolve
and for the guidelines to change in some instances, but that
makes the district's efforts, especially in multi-year project
planning or long-term network development, extremely difficult.
One increasing common issue with E-Rate program among
school districts is the best use of funds to provide for the
appropriate network design and development that both support
instructional needs of the particular district and that allow
the district to take advantage of the support, the network, in
the future.
The E-Rate funds have been used overwhelmingly for the
upgrade of the networks, and though the funds cannot be used
for specific instructional purposes, the distinction between
hardware and software that is exclusively instructional is
difficult to maintain.
Districts are using networks to support Web based projects,
administrative information management systems, submission of
state mandated reports, and E-mail systems that are important
to both administrative and instructional functions, and it's
difficult if not impossible to segregate.
In my view, what districts and E-Rate administrators have
found most difficult about the use of E-Rate funds is managing
multi-year projects, implementing large projects without
adequate support resources, insuring that teachers' skill sets
match the upgrades in the network capability and instructional
potential, and dealing with the changes in regulations and
application of rules. I have found with both EPISD and YISD
that one of the essential elements in the use of E-Rate funds
is insuring that the projects supported by each funding are
successful.
However, without a support mechanism for the teachers who
will be using the technology, including training, staff
development, and campus-based technology support services it is
virtually impossible for districts to implement technology
projects that would be successful and use the full potential of
the networks that E-Rate has funded.
That would be the task of all school districts, including
YISD, that use E-Rate funds. In many instances districts have
been criticized for failing to capitalize fully on the
improvements afforded through E-Rate. In my experience some of
that lost capacity has been almost predictable.
In the first years of the E-Rate program, districts for the
most part applied for only what they could implement. It is my
personal opinion that in the following years of the E-Rate
program, when the vendors began to have more of a role in the
application process and when further ambiguities arose
regarding the scope and extent of the E-Rate program, many
school districts across the country may have asked for too much
too quickly and were not in the best position to fully support
the technology projects for which funding was awarded.
Such districts likely had the needs for that technology and
justifiably requested E-Rate funding for those projects, but in
hindsight perhaps should have been less ambitious in order to
better assure fully effective implementation.
As school districts have more skillfully used E-Rate funds
and have developed support staff for the technology
infrastructure made possible by the E-Rate program, I believe
it is more critical for districts to insure that technology
infrastructure and capability is driven by instructional need;
that teacher technology skill sets are established through
staff development and training; and that campus based
technology support is provided. In my opinion, technology
projects fail when there is no identified instructional need
for the technology; when teachers are asked to use technology
that does not support their teaching outcomes; when teachers
are asked to use technology without sufficient training; or
when campuses are required to support technology without
adequate resources.
Although the E-Rate program has enabled vastly improved
networks for school districts, the use of those networks has
been limited by the lack of funding for the training in campus-
based support that would help better insure full success. In
some instances school districts have had to abandon technology
projects or have implemented projects that did not provide the
results that were hoped for due to training, staff development,
and support issues.
For school districts like El Paso in Ysleta, the E-Rate
program has been a successful program. It does, however,
require some adjustments on the part of both the school
district, in general, and the E-Rate program.
However, without the funding provided by E-Rate program,
there is no question that many of the instructional initiatives
and some of the instructional programs in progress in these
school districts would not have been possible. Such funding has
significantly benefited the instructional process at each of
these districts.
YISD is not a wealthy district. Its free and reduced lunch
average is 86 percent. In general, YISD has a low economic
profile. The 2000 profile selected economic characteristics
issued by the United States Census Bureau estimates the per
capital income for 1999 in El Paso, Texas was $14,388 per year.
It should be noted that YISD's boundaries do not include
the areas generally recognized as being the most affluent in El
Paso. So the figures for the census tracks within YISD
boundaries would be probably lower.
For comparison, according to the same survey, the annual
per capita income for 1999 in the United States was $21,587 and
for the State of Texas it was $19,000, and for the Washington,
D.C. area it was $28,659. As one can readily see, YISD students
are in poor financial circumstances and in great need of the
benefits from the projects that can be completed using E-Rate
funding.
The primary impact on YISD of E-Rate funding that is no
longer available is that instructional advantages available
through a typical telecommunications network would in all
likelihood no longer be available.
Mr. Walden. Ms. Foster, how much longer do you have in your
testimony?
Ms. Foster. Thirty seconds.
Mr. Walden. You are about 11 minutes into. Okay.
Ms. Foster. I am sorry.
Well, I will just tell you, to close it up, if the E-Rate
program should go away, it would significantly damage our
instructional program and as access for our students.
Thank you.
[The prepared statement of Sharon Foster follows:
Prepared Statement of Sharon Foster, Executive Director, Technology
Information Systems, Ysleta Independent School District
BACKGROUND
Mr. Chairman, thank you for the opportunity to speak to you this
morning. My name is Sharon Foster. I am currently the Executive
Director of Technology Information Systems of the Ysleta Independent
School District (``YISD'') in El Paso, Texas. I have been asked to
provide this statement for this hearing of the House Energy and
Commerce Committee's Subcommittee on Oversight and Investigations
entitled ``Problems with the E-Rate Program: Waste, Fraud, and Abuse
Concerns in the Wiring of Our Nation's Schools to Internet''. A copy of
my curriculum vitae is attached to this statement.
During my career as an educator, I have had experience in virtually
every aspect of classroom and administrative work. I have been a
classroom teacher, campus administrator, technology trainer, Director
of Instructional Technology and acting Executive Director for
Technology Information Systems. I am currently the Executive Director
of Technology Information Systems for YISD in El Paso, Texas, a
position that requires me to oversee instructional technology,
administrative information systems, and telecommunication networks.
All of my experience is with large urban districts with student
populations over 45,000. I worked in El Paso Independent School
District (``EPISD''), a neighboring district of YISD, for 15 years, the
last eight of which were as head of the Instructional Technology
Department. Part of my responsibility in that position was that of E-
Rate Coordinator. I served as E-Rate Coordinator for years 1 through 3
of the E-Rate Program. As E-rate Coordinator, I met with other
technology and telecommunication staff to identify projects for which
EPISD would seek E-Rate funding. In addition to determining the
appropriateness and scope of the E-Rate projects, I would make sure
that all application requirements were met in a timely manner and
addressed any requests for additional information from the Schools and
Libraries Division of the Federal Communications Commission (the
``SLD'').
In August of 2000, I left EPISD in order to join YISD an as
employee. My departure was not related to the E-Rate program at EPISD.
I left EPISD prior to the bidding process for year 4 of the E-Rate
Program. At YISD, I assumed the position of Director of Instructional
Technology. As Director, I worked with YISD's E-Rate coordinator,
Richard Duncan, and other staff members to determine future E-Rate
projects for the District (years 4, 5, 6, and 7). In other words, I was
involved in YISD's participation in the E-Rate program, but am not
principally responsible for such participation.
I recently was named Executive Director for Technology and
Information Systems at Ysleta and now, am once in again responsible for
over-seeing E-Rate projects.
WHAT E-RATE HAS DONE FOR DISTRICTS
The most significant improvement that E-Rate has enabled to be
achieved in my experience has been the improvement to school district
infrastructure, with both EPISD and YISD. As done by most school
districts across the nation, EPISD and YISD used the initial E-Rate
projects to improve the speed and reliability of voice and data
networks. E-Rate projects provided the basics for each district's
network, which supports virtually any type of technology-based
instruction, including high-speed internet access to all classrooms,
distance learning systems, video to classrooms, integrated phone
networks [such as phone service to every classroom], and other improved
network functions. Very early on in the E-Rate program, dial-up or
other non-broadband Internet access was identified as inadequate for
technology-based instruction in the classroom. E-Rate funding has
allowed for acquisitions by school districts of network electronics
that ensured high-speed access, and for the cabling that distributed
network access to every instructional area.
Most school districts would never have been able to afford the
cabling and network initiatives that E-Rate funded. Moreover, without
the E-Rate funds and the flexibility in their use, most school
districts would never have been able to develop the in-house expertise
for such extensive cabling projects. YISD explored the feasibility of
training and using district-employees as cablers for the network
cabling, and its turnover costs in employees alone would have been
prohibitive. Skilled network technicians were able to seek employment
in virtually locale, and YISD would have lost employees as to whom it
had spent a great deal of money to train. E-Rate funding allowed poor
school districts to cable schools on an aggressive schedule, using
vendors specializing in that work, and thereby allowing them to try to
catch up to more affluent districts in terms of computer networking.
An example of the way that the E-Rate program allowed fully
functioning networks was in the implementation of the YISD telephone
network. While YISD could not use E-Rate funds for some of the network
costs [for example, the purchase of the individual phone sets], E-Rate
funds did allow YISD to purchase the PBX and switching equipment, and
funded the cabling to the classroom. YISD could never have afforded the
integrated phone system it now has without the use of E-Rate funds.
That telephone system has benefited teachers and students at the
district.
Similarly, the E-Rate program has allowed school districts to
upgrade network electronics on reasonable schedules. Indeed, for
districts like YISD, they have been able to manage the upgrades and use
the network routers, servers and other electronics in very effective
ways. Cabling upgrades, for example from 10-Base T cabling to cabling
with more capability and reliability, have been possible via E-Rate
funding. These upgrades have provided benefits to faculty and students,
and aided the instructional process.
CONCERNS AND PROBLEMS WITH E-RATE PROGRAM
The E-Rate program has been the mechanism that many large, under-
funded school districts have used to improve telecommunication
infrastructure. School districts have discovered that virtually all
instructional initiatives require one essential element: namely, a
high-speed, reliable telecommunications network. One of the great
successes of the E-Rate program is that it has been able to help school
districts enormously in developing those networks.
There are several issues in the administration of the program that
have created obstacles to districts in planning projects, providing
continuity, and managing the projects from year to year.
Technology projects are linear, and in the case of most school
districts, are planned in phased implementations. Planning for those
projects can be done with estimated E-Rate funding from one year to the
next, but so far the experience of most districts has been that funding
is nearly always delayed. For example, currently, YISD is managing
proposed projects for years 5, 6, and 7 of the E-Rate program. Some of
those funds have been awarded, some have not, and in some cases the
decisions on initial and/or continued funding have not always been
clear. In planning a multi-year project, it is extremely difficult to
provide assurances to campuses when it is unclear how fast
implementation can proceed, based on unknown levels of funding and/or
indefinite schedules for release of funds. The delays have proven
frustrating to districts.
In the case of YISD, we have tried and for the largest part
succeeded in applying for funds based on correct interpretation of E-
Rate funding guidelines. There have been instances when we have had to
provide additional information and explanation to the SLD for guidance,
and in virtually every case our position has been determined to be
correct. In the very few instances when our interpretation of funding
or use guidelines have not been upheld, our interpretation of E-Rate
guidelines were made in good faith, reasonably-based, and in line with
how other school districts have interpreted the guidelines.
It has been difficult, and has taken a tremendous staff effort, to
maintain our understanding of funding guidelines. In particular,
knowledge of eligible products, eligible locations, and how to
determine in what instances campuses are not eligible for E-Rate
funding have been, at best, less than straightforward. We understand
the need for E-Rate's guidelines to evolve, and for guidelines to
change in some instances, but that makes the district's efforts,
especially in multi-year project planning or long-term network
development, extremely difficult. School districts are generally also
faced with equity issues; in other words, ensuring that all campuses,
including those that are not E-Rate eligible, receive fair and
equitable treatment by the district in terms of technology acquisition
and funding.
One increasing-common issue with the E-Rate program amongst school
districts is the best use of funds to provide for the appropriate
network design and development that both supports instructional needs
of the particular district and that allows the district to take
advantage of and support the network in the future. The E-Rate funds
have been used overwhelmingly for the upgrade of networks, and though
the funds cannot be used for specific instructional purposes, the
distinction between hardware and software that is exclusively
instructional is difficult to maintain. Districts are using networks to
support web-based projects, administrative information management
systems, submission of state-mandated reports, and e-mail systems that
are important to both administrative and instructional functions, and
difficult if not impossible to segregate.
In my view, what districts and E-Rate administrators have found
most difficult about the use of E-Rate funds is managing multi-year
projects, implementing large projects without adequate support
resources, ensuring that teacher skill-sets match the upgrades in
network capabilities and instructional potential, and dealing with the
changes in regulations and application of rules. I have found, with
both EPISD and YISD, that one of the essential elements in the use of
E-Rate funds is ensuring that the projects supported by such funding
are successful. However, without a support mechanism for the teachers
who will be using the technology, including training and staff
development, and campus-based technology support services, it is
virtually impossible for districts to implement technology projects
that will be successful and use to full potential the networks that E-
Rate funds have enabled. That will be the task of all school districts,
including YISD, that use E-Rate funds.
In many instances, districts have been criticized for failing to
capitalize fully on the improvements afforded through E-Rate. In my
experience, some of that lost capacity has been almost predictable. In
the first years of the E-Rate program, districts for the most part,
applied for only what they could implement. It is my personal opinion
that, in the following years of E-Rate program, when vendors began to
have more of a role in the application process and when further
ambiguities arose regarding the scope and extent of the E-Rate program,
many school districts across the country may have asked for too much
too quickly, and were not in the best position to fully support the
technology projects for which funding was awarded. Such districts
likely had the needs for that technology, and justifiably requested E-
Rate funding for those projects, but in hindsight perhaps should have
been less ambitious in order to better assure fully effective
implementation.
As school districts have more skillfully used E-Rate funds, and
have developed support staff for the technology infrastructure made
possible by the E-Rate program, I believe it is more critical for
districts to ensure that technology infrastructure and capability is
driven by instructional need, that teacher technology skill-sets are
established through staff development and training, and that campus-
based technology support is provided. In my opinion, technology
projects fail when there is no identified instructional need for the
technology, when teachers are asked to use technology that does that
support their teaching outcomes, when teachers are asked to use
technology without sufficient training, or when campuses are required
to support technology without adequate resources.
Although the E-Rate program has enabled vastly improved networks
for school districts, the use of those networks has been limited by the
lack of funding for the training and campus-based support that would
help better ensure full success. In some instances, school districts
have had to abandon technology projects, or have implemented projects
that did not provide the results that were hoped for, due to training,
staff development, and support issues. One specific example was the
initial success in EPISD technology projects when when Campus
Technology Coordinators (CTC) were part of all technology planning and
implementations. When funding for CTC's was no longer available,
several projects decreased in usefulness because of the difficulty
individual campuses had in making sure teachers were adequately
supported and that equipment was always working and available for use.
In short, staff development for technology use must meet instructional
needs, and funding for staff development, like the funding for network
and technology projects, must be on a consistent, realistic, multi-year
basis.
For school districts like EPISD and YISD, the E-Rate program has
been a successful program. It does, however, require some adjustments,
on the part of both school districts in general and the E-Rate program.
However, without the funding from provided by the E-Rate program, there
is no question that many of the instructional initiatives and some of
the instructional progress in these schools districts would not have
been possible. Such funding has significantly benefited the
instructional process at such districts.
CLOSING REMARKS
YISD is not a wealthy district; its ``free and reduced lunch''
average is 86%. In general, YISD has a low economic profile. The 2000
Profile of Selected Economic Characteristics, issued by the United
States Census Bureau, estimates the per capita income for 1999 in the
El Paso, Texas at $14,388 per year. It should be noted that YISD's
boundaries do not include the areas generally recognized as being the
most affluent of El Paso, so the figures for census tracts within
YISD's boundaries would probably be lower. For comparison, according to
the same survey, the annual per capita income for 1999 in the United
States was $21,587, for the State of Texas was $19,617, and for the
Washington D.C. was $28,659. As one can readily see, YISD students are
in poor financial circumstances, and in great need of the benefits from
the projects that can be completed using E-Rate funding.
The primary impact to YISD if E-Rate funding is no longer available
is that instructional advantages available through a typical
telecommunications network would, in all likelihood, no longer be
available. It would be virtually impossible for YISD to fund the
maintenance of the network, and within several years we would have a
much smaller access to Internet resources, limited student e-mail
availability, and virtually no services for teachers in the way of
voice or data network capability. In such a case, our goal would be to
continue to offer the best services we could to teachers and students,
but, realistically, that level of network service would be very small
in comparison to the current levels. Ultimately, the instructional
variety and opportunity would be decreased for the students of YISD. I
think that would be true for other poor districts throughout the
country.
Thank you again for providing me with this opportunity to present
testimony.
Mr. Walden. Thank you. We appreciate your comments. They
were very much on point.
Ms. Glogovac, welcome.
TESTIMONY OF PAULA GLOGOVAC
Ms. Glogovac. Thank you, Mr. Chairman, and subcommittee
members. I appreciate the opportunity to speak with you today.
My name is Paula Glogovac. I was a contractor for Sun
Microsystems, where I provided E-Rate program management
resources to the company.
My role as a program manager was to review the E-Rate
program rules for applications and service providers and to
make sure those rules were communicated to the Sun sales and
marketing team. I was the knowledge base for any questions
regarding the E-Rate program to the Sun sales and marketing
team, and starting in year 6 of the E-Rate program, I reviewed
470's that were actually posted on USAC's Website, looking for
internal connection needs, and would try to make initial
contact with the applicant or their suggested contacts to
qualify them for Sun opportunities.
I did this throughout the entire United States. I supported
Sun's internal accounts receivables, payables, and order entry
groups in processing all the paper work. I was the single point
of contact for Sun with USAC and the SLD for paper work process
and any issues Sun might have had.
My experience with E-Rate programs started at the end of
year 1 when I was a full-time Sun employee covering the K-12
educational market in support of the Sun sales team across the
United States. I consistently ran the program while at Sun for
the next 2 years as a full-time employee.
I managed Sun's involvement in the E-Rate program as a
contractor for the last 5 years. I attended the E-Rate service
provider training in San Diego that was provided by USAC and
the SLD, and I might add it was very beneficial. I also
participated in the bi-weekly service provider conference calls
on a regular basis to stay current with the program, which also
allowed me to ask questions that were relevant at the time.
What I have seen with this program is that in many cases it
does work for schools and libraries that have effectively
learned how to adhere to the rules, understand the process and
value the much needed support. In several cases, service
providers are not following the program rules, as I have
experienced myself.
For example, some have been developing the 470's for small
schools and capturing the sales along with it, without the
knowledge of this being against the program rules by the
applicant. They prey upon applicants that have no knowledge of
the program but are told that this service provider can get
them money for computers. I saw it a lot.
This happened in year 6 across the United States with small
charter schools, religious schools, and special schools. Some
consultants actually blocked service providers from responding
to the 470's that are posted by not allowing them to get
appropriate technical information to size products and services
for what the account needs or by stating that the applicant is
going to use a State contract to purchase from.
Even if you are on the State contract, they are choosing
what they want versus having a service provider provide them
with information on what is available to them. Some service
providers are providing ineligible products and services
knowing that they are not eligible under the program rules, as
I will get into in just a few moments. This makes the applicant
feel like they are getting a better solution and leaves those
of us who are adhering to the rules not an option.
I also see applicants making several program rule
violations. Some applicants will prerelease their RFPs prior to
the posting of the 470's and then will close the RFP response
prior to the 28-day waiting window.
Some will require a mandatory prebid conference attendance
prior to or very shortly after the 470 being posted. This makes
it almost impossible for a service provider to respond to these
applications unless they have had prior notification of the RFP
from the applicant.
Some applicants will release an RFP with ineligible
products or services or with clear violations of the program
rules. In one case just this year, a consortium applicant
required a 3-percent kickback on all sales. In another case, an
applicant's RFP was for global positioning products and
services.
In other cases, I have seen on the 470 forms and in RFPs
applicants specifying specific brand names of products and not
allowing anyone else to respond. In making contact with some of
these applicants, I have heard that they are already working
with a vendor, that they are only buying off their State
contract, that they are using the same vendor as last year,
that they already have enough responses or they do not even
return my fax, phone calls, or E-mails even though that is the
suggested method of contacting these vendors or applicants.
But not much is publicly stated about what the
investigations have found through all of these contacts that I
have made and publicized to the whistleblower hotline. I am
still seeing some of the same activities happening today as I
did in year 6.
Today when I see a possible violation, I actually try to
tell the applicant what the violation is and recommend that
they call the 800 number at USAC to get their take on it and
ask what they can do about it. I do not know how successful
that is. It is anyone's guess.
In one case I was brought in by the Sun sales team to work
with them on the E-Rate Project that they had been selected
for. It was an E-mail solution. In this case, as I started to
get more involved in it, I had serious questions about the
integrity of what was going on with this applicant and the
originally awarded service provider. The applicant was El Paso
Independent School District, and the selected service provider
on the original 471 form was IBM.
I had been given a Statement of Work that was provided to
Sun by IBM and had El Paso ISD's name on it. I reviewed the
Statement of Work, and it had several issues. They included
ineligible products and services and had products that did not
pertain to just an E-mail solution.
I sent an E-mail off to the service provider E-mail Alias,
asking if these products and services were eligible, and the
response back in most cases was no.
We had a conference call with El Paso ISD and IBM
representatives discussing these issues, and IBM's response was
that we should take this off line to discuss it, that they had
FCC lawyers that handled this kind of stuff. In my opinion,
saying that in front of the applicant gives them the belief
that IBM is behind this 100 percent and I would buy into that
as an applicant, as well.
I did take this off line with Don Riddick from IBM. Don
told me not to worry about that, that they would take care of
it. I was to fill out the service substitution form, and that
would take care of everything. He did not appear to be
concerned about the products and services that were being
offered in the Statement of Work that were not eligible.
In trying to fill out the service substitution form, I
realized that IBM did not include their E-mail software
solution on any line item. I informed the Sun sales team, and I
was instructed to call Woodrow Lee from IBM.
When I spoke with Mr. Lee, he informed me that they did not
include it because their E-Rate consultant had advised them not
to. In the Statement of Work it was listed as Lotus Notes, and
in my E-mail to the service provider Alias, I specifically
asked if Lotus Notes was eligible, and they said no.
I responded back to Mr. Lee that they must have known it
was not eligible and did not include it on their itemized list
on the 471. Again, he said no, but their E-Rate consultant had
advised them not to.
If that was the case, I did not know how I could substitute
out E-mail software solution for one that did not exist on
their original 471. IBM agreed that Sun should also leave off
their software solution.
I believe that it would not be acceptable since the
original 470 products and services must match the 471, and in
turn, the service substitution form also needed to match the
products and services selected.
This was confirmed to me by SLD in another E-mail. Sun has
substantial discounts that they provide to educational
institutions. In this case, since we were asked by the
applicant to work through IBM on this project, we were not able
to pass along those educational discounts.
We did offer to go direct with El Paso ISD, and the price
would be substantially lower for El Paso ISD. El Paso ISD again
directed Sun to work through IBM. IBM also stated to Sun that
we needed to work through them.
We did, however, provide our best possible pricing to IBM,
considering that we were providing all of the products and
installation services, but IBM did not like our price. It was
unclear to Sun why IBM required us to provide them with a price
that allowed them to take approximately 51 percent of the
overall cost for the project, as they specified on the original
471 form, with Sun doing most of the work, not to mention that
Sun was providing an E-mail solution that could cover the
entire school district versus the 5,000 accounts that were
mentioned in IBM's Statement of Work.
When Sun would not come down in our price to IBM, IBM told
Sun they were going to rebid the project and release an RFP
that would be due in approximately 1 day. It was clear to the
Sun sales team that even though they had been selected amongst
three vendors, one of which was IBM, that Sun would not get the
business unless IBM had made a significant amount of money off
the E-mail solution.
In closing today, I would like to say that the intent of
the E-Rate program is very good one. Service providers and
applicants that do not feel ownership in working within the
program rules and guidelines should not jeopardize those
applicants and service providers that do adhere to the program
rules and value what the program does for them.
There needs to be more extreme measures taken against the
waste, fraud, and abuse, and there are tools out there that can
help. There are some proficient sets of tools for service
providers and applicants to help them with the E-Rate process.
These tools could be modified to assist USAC and the SLD in
providing a traceable method for service providers and
applicants to work together. Without the traceable contact
between service providers and applicants, it will be very
difficult to monitor the waste, fraud, and abuse.
These tools could also help in identifying patterns of
consultants and service providers that might be working
together, as well as service providers and applicants. Exposing
the program violations and the offenders in a public forum is
key to fixing some of these problems. It is also important for
those that report waste, fraud, and abuse to get some sort of
notification of what happened with the reporting. This would
encourage more reporting of these issues when they see results
from it versus nothing for years.
By eliminating the waste, fraud, and abuse, all of our
schools and libraries will have an opportunity to take full
advantage of what this program has to offer.
Thank you.
[The prepared statement of Paula Glogovac follows:]
Prepared Statement of Paula Glogovac
My name is Paula Glogovac. I was a contractor for Sun Microsystems,
Inc., where I provided E-rate Program Management Resources to the
Company. My role as a Program Manager was to review the E-Rate Program
Rules for Applicants and Services Providers and to make sure those
Rules were communicated to the Sun Sales and Marketing Team. I was the
knowledge base for any questions regarding the E-Rate Program to the
Sun Sales and Marketing Team. Starting in Year 6 of the E-Rate Program,
I reviewed 470's as they were posted, looking for Internal Connections
needs and would try to make initial contact with the applicant or their
suggested contact(s) to qualify them for Sun opportunities. I did this
throughout the entire United States. I supported Sun's internal
accounts receivables, payables, and order entry groups in processing
paperwork. I was the single point of contact for Sun with USAC and the
SLD for paperwork processing and issues.
My experience with the E-Rate Program started at the end of Year 1,
when I was a full-time Sun Employee covering the K-12 Educational
Market in support of the Sun Sales Team in the United States. I
consistently ran the program while at Sun for the next 2 years. I
managed Sun's involvement in the E-rate Program as a contractor for the
last 5 years. I attended the E-rate Service Provider Training in San
Diego that was provided by USAC & SLD. I also participated in the Bi-
Weekly Service Provider Conference Calls on a regular basis to stay
current with the program.
What I have seen with this program is that in many cases it does
work for Schools and Libraries that have effectively learned how to
adhere to the rules, understand the process and value the much needed
support. In several cases, service providers are not following the
program rules. For example; some have been developing the 470's for
small schools and capturing the sales along with it, without the
knowledge of this being against the program rules, by the applicant.
They prey upon applicants that have no knowledge of the program, but
are told that this service provider can get them money for computers.
This happened in Year 6, across the United States with small charter
schools, religious schools and special schools. Some consultants
actually block service providers from responding to the 470's that are
posted by not allowing them to get appropriate technical information to
size products and services for what the account needs, or by stating
that the applicant is going to use a State Contract to purchase from.
Even if you are on the state contract, they are choosing what they want
vs. having a service provider provide them with information on what's
available to them. Some service providers are providing ineligible
products and services, knowing that they are not eligible under the
program rules, as I will get into in just a few moments. This makes the
applicant feel like they are getting a better solution.
I also see Applicants making several program rule violations. Some
applicants will pre-release their RFP's prior to the posting of the
470's and will then close the RFP response prior to the 28-day waiting
window. Some will require a mandatory pre-bid conference attendance
prior to or very shortly after the 470 being posted. This makes it
almost impossible for a Service Provider to respond to these
applications, unless they had notification of the RFP from the
applicant. Some applicants will release an RFP with ineligible products
or services or with clear violations of the program rules. In one case,
just this year a consortia applicant required a 3% kickback on all
sales. In another case, an applicants RFP was for Global Positioning
products and services. In other cases, I have seen on the 470 forms and
in RFP's applicants specifying specific brand names of products and not
allowing anyone else to respond. In making contact with some
applicants, I have heard that they are already working with a vendor,
that they are only buying off their state contract, that they are using
their same vendor as last year, that they already have enough responses
or they don't return my faxes, phone calls or e-mails even though that
is their specified method of contacting them. Very little has been
highly publicized about these issues, until just recently. But not much
is publicly stated about what the investigations have found once you do
report these violations. I'm still seeing some of the same activities
happening today as I did in Year 6. Today when I see a possible
violation, I actually try to tell the applicant what the violation is
and recommend to them to call the 800 number with USAC to get USAC's
take on whether it's a violation or not and what can be done about it.
I don't know how successful that is.
In one case, I was brought in by the Sun Sales Team to work with
them on an E-rate Project that they had been selected for. It was an E-
mail solution. In this case as I started to get more involved in it, I
had serious questions about the integrity of what was going on with
this applicant and the originally awarded service provider. The
applicant was El Paso Independent School District and the selected
Service Provider on the original 471 forms was I.B.M. (International
Business Machines). I had been given a Statement of Work that was
provided to Sun by IBM and had El Paso ISD's name on it. (See Reference
#1) I reviewed the Statement of Work and it had several issues. They
included ineligible products and services and had products that didn't
pertain to just an E-mail Solution. I sent an e-mail off to the Service
Provider E-mail Alias asking if these products and services were
eligible and the response back was NO. (See Reference #2) We had a
conference call with El Paso ISD and I.B.M. representatives discussing
these issues and I.B.M.'s response was that we should take this offline
to discuss, but they had FCC lawyers that handled this kind of stuff. I
did take this offline with Don Riddick from IBM. Don told me not to
worry about it that they would take care of it. I was to fill out the
service substitution form and that would take care of everything. He
didn't appear to be concerned about the products and services that were
being offered in the Statement of Work that were not eligible. In
trying to fill out the service substitution form, I realized that IBM
didn't include their e-mail software solution on any line item. (See
Reference #3) I informed the Sun Sales Team and I was instructed to
call Woodrow Lee from I.B.M. When I spoke with Mr. Lee, he informed me
that they didn't include it on there because their E-rate Consultant
had advised them not to. In the Statement of Work it was listed as
Lotus Notes and in my e-mail to the Service Provider Alias, I
specifically asked if Lotus Notes was eligible and they said NO. I
responded back to Mr. Lee that they must have known it wasn't eligible
and didn't include it on their itemized list on the 471. Again, he said
no, but their E-rate Consultant had advised them not to. If that was
the case, I didn't know how I could substitute our e-mail software
solution for one that didn't exist on their original 471. IBM agreed
that Sun should also leave off their software solution. I believed that
it would not be acceptable, since the original 470 products and
services must match the 471 and in turn the service substitution form
also needed to match the products and services selected. This was
confirmed to me by the SLD in another e-mail. Sun has substantial
discounts that they provided to Educational Institutions. In this case,
since we were asked by the applicant to work through I.B.M. on this
project, we were not able to pass along those Educational discounts. We
did offer to go direct with El Paso ISD and the price would be
substantially lower for El Paso ISD. El Paso ISD again directed Sun to
work through IBM. IBM also stated to Sun that we needed to work through
them. (See Reference # 4) We did however, provide our best possible
pricing to IBM considering that we were providing all the products and
installation services, but IBM didn't like our price. It was unclear to
Sun why IBM required us to provide them with a price that allowed them
to take approximately 51% of the overall cost for the project, as they
specified on the original 471 form, with Sun doing most of the work.
(See Reference #5) Not to mention, that Sun was providing an e-mail
solution that could cover the entire school district vs. the 5,000
accounts that were mentioned in IBM's Statement of Work. When Sun
wouldn't come down in our price to IBM, IBM told Sun they were going to
rebid the project and release an RFP that would be due in approximately
1 day. (See Reference #6) It was clear to the Sun Sales Team that even
though they had been selected amongst three vendors, one of which was
IBM, that Sun would not get the business unless IBM had made a
significant amount of money off of the E-mail Solution.
In closing, I would like to say that the intent of the E-Rate
Program is a very good one. Service Providers and Applicants that don't
feel ownership in working within the program rules and guidelines,
should not jeopardize those Applicants and Service Providers that do
adhere to the programs rules and value what the program does for them.
There needs to be more extreme measures taken against the waste, fraud
and abuse and there are tools out there that can help. There are some
proficient sets of tools for Service Providers and Applicants to help
them with the E-rate Process. These tools could be modified to assist
USAC & the SLD in providing a traceable method for service providers
and applicants to work together. Without that traceable contact between
service providers and applicants, it will be very difficult to monitor
the waste, fraud and abuse. These tools could also help in identifying
patterns of consultants and services providers that might be working
together, as well as service providers and applicants. Exposing the
program violations and the offenders in a public forum is key to fixing
some of these problems. It's also important for those that report
waste, fraud and abuse to get some sort of notification of what
happened with their reporting. This would encourage more reporting of
these issues when they see results from it. By eliminating the waste,
fraud, and abuse, all of our schools and libraries will have an
opportunity to take full advantage of what this program has to offer.
[GRAPHIC] [TIFF OMITTED] T6098.055
[GRAPHIC] [TIFF OMITTED] T6098.056
[GRAPHIC] [TIFF OMITTED] T6098.057
[GRAPHIC] [TIFF OMITTED] T6098.058
[GRAPHIC] [TIFF OMITTED] T6098.059
[GRAPHIC] [TIFF OMITTED] T6098.060
[GRAPHIC] [TIFF OMITTED] T6098.061
[GRAPHIC] [TIFF OMITTED] T6098.062
[GRAPHIC] [TIFF OMITTED] T6098.063
[GRAPHIC] [TIFF OMITTED] T6098.064
[GRAPHIC] [TIFF OMITTED] T6098.065
[GRAPHIC] [TIFF OMITTED] T6098.066
[GRAPHIC] [TIFF OMITTED] T6098.067
[GRAPHIC] [TIFF OMITTED] T6098.068
[GRAPHIC] [TIFF OMITTED] T6098.069
[GRAPHIC] [TIFF OMITTED] T6098.070
[GRAPHIC] [TIFF OMITTED] T6098.071
[GRAPHIC] [TIFF OMITTED] T6098.072
[GRAPHIC] [TIFF OMITTED] T6098.073
[GRAPHIC] [TIFF OMITTED] T6098.074
[GRAPHIC] [TIFF OMITTED] T6098.075
[GRAPHIC] [TIFF OMITTED] T6098.076
[GRAPHIC] [TIFF OMITTED] T6098.077
[GRAPHIC] [TIFF OMITTED] T6098.078
[GRAPHIC] [TIFF OMITTED] T6098.079
[GRAPHIC] [TIFF OMITTED] T6098.080
[GRAPHIC] [TIFF OMITTED] T6098.081
[GRAPHIC] [TIFF OMITTED] T6098.082
[GRAPHIC] [TIFF OMITTED] T6098.083
[GRAPHIC] [TIFF OMITTED] T6098.084
[GRAPHIC] [TIFF OMITTED] T6098.085
[GRAPHIC] [TIFF OMITTED] T6098.086
[GRAPHIC] [TIFF OMITTED] T6098.087
[GRAPHIC] [TIFF OMITTED] T6098.088
[GRAPHIC] [TIFF OMITTED] T6098.089
[GRAPHIC] [TIFF OMITTED] T6098.090
Mr. Walden. Thank you. Thank you for your testimony.
Mr. Hawthorne, welcome.
TESTIMONY OF NATHANIEL HAWTHORNE
Mr. Hawthorne. I think I will stand.
Mr. Walden. I think your microphone is not on, sir.
Mr. Hawthorne. Thank you.
I think I will pass on an opening statement, and I will
stand ready to respond to any questions.
Mr. Walden. All right. Thank you very much.
[The prepared statement of Nathaniel Hawthorne follows:]
[GRAPHIC] [TIFF OMITTED] T6098.091
[GRAPHIC] [TIFF OMITTED] T6098.092
[GRAPHIC] [TIFF OMITTED] T6098.093
[GRAPHIC] [TIFF OMITTED] T6098.094
[GRAPHIC] [TIFF OMITTED] T6098.095
[GRAPHIC] [TIFF OMITTED] T6098.096
[GRAPHIC] [TIFF OMITTED] T6098.097
[GRAPHIC] [TIFF OMITTED] T6098.098
[GRAPHIC] [TIFF OMITTED] T6098.099
[GRAPHIC] [TIFF OMITTED] T6098.100
[GRAPHIC] [TIFF OMITTED] T6098.101
[GRAPHIC] [TIFF OMITTED] T6098.102
[GRAPHIC] [TIFF OMITTED] T6098.103
[GRAPHIC] [TIFF OMITTED] T6098.104
[GRAPHIC] [TIFF OMITTED] T6098.105
[GRAPHIC] [TIFF OMITTED] T6098.106
[GRAPHIC] [TIFF OMITTED] T6098.107
[GRAPHIC] [TIFF OMITTED] T6098.108
[GRAPHIC] [TIFF OMITTED] T6098.109
[GRAPHIC] [TIFF OMITTED] T6098.110
[GRAPHIC] [TIFF OMITTED] T6098.111
[GRAPHIC] [TIFF OMITTED] T6098.112
[GRAPHIC] [TIFF OMITTED] T6098.113
[GRAPHIC] [TIFF OMITTED] T6098.114
[GRAPHIC] [TIFF OMITTED] T6098.115
[GRAPHIC] [TIFF OMITTED] T6098.116
[GRAPHIC] [TIFF OMITTED] T6098.117
[GRAPHIC] [TIFF OMITTED] T6098.118
[GRAPHIC] [TIFF OMITTED] T6098.119
[GRAPHIC] [TIFF OMITTED] T6098.120
[GRAPHIC] [TIFF OMITTED] T6098.121
[GRAPHIC] [TIFF OMITTED] T6098.122
[GRAPHIC] [TIFF OMITTED] T6098.123
[GRAPHIC] [TIFF OMITTED] T6098.124
[GRAPHIC] [TIFF OMITTED] T6098.125
[GRAPHIC] [TIFF OMITTED] T6098.126
[GRAPHIC] [TIFF OMITTED] T6098.127
[GRAPHIC] [TIFF OMITTED] T6098.128
[GRAPHIC] [TIFF OMITTED] T6098.129
[GRAPHIC] [TIFF OMITTED] T6098.130
[GRAPHIC] [TIFF OMITTED] T6098.131
[GRAPHIC] [TIFF OMITTED] T6098.132
[GRAPHIC] [TIFF OMITTED] T6098.133
[GRAPHIC] [TIFF OMITTED] T6098.134
[GRAPHIC] [TIFF OMITTED] T6098.135
[GRAPHIC] [TIFF OMITTED] T6098.136
[GRAPHIC] [TIFF OMITTED] T6098.137
[GRAPHIC] [TIFF OMITTED] T6098.138
Mr. Walden. All right. Thank you very much.
Mr. Caine, welcome.
Mr. Caine. Thank you.
Mr. Walden. Do you have an opening statement for us today?
TESTIMONY OF CHRISTOPHER G. CAINE
Mr. Caine. I do.
Mr. Chairman and Ms. DeGette, thank you very much.
I am Chris Caine, Vice President of Governmental Programs
for IBM.
I appreciate this opportunity to provide IBM's perspective
regarding the E-Rate program. We have a long history of
commitment to public education and working to help our Nation's
leaders improve K through 12 schools. Therefore, we responded
willingly in 1997 when FCC Chairman Reed Hunt requested our
help in educating school districts about the newly created E-
Rate program.
We recognize that you and other members of this committee
have raised important questions about a number of issues
surrounding the program, including incompatible technologies
that do not work together, equipment delivered but not
installed, billing for equipment or services not provided, and
procurement irregularities. And these are important issues and
they should be addressed.
But we believe in IBM that overall the E-Rate program has
been a success in helping millions of disadvantaged students
bridge the digital divide. IBM is here today voluntarily
because we care about the program and we want to help you and
others make it the best it can be.
IBM has participated in the program as a service provider
since its inception. Our extensive experience in E-Rate and in
K through 12 education has given us an insight into the E-Rate
program and how its goals can be fully realized.
Some have suggested that IBM has been too involved in the
procurement process because school officials listened to advice
from IBM prior to issuing a request for proposal. We strongly
disagree. The SLD guidance encourages vendors to share their
experience with schools and specifically authorizes vendors to
provide assistance in the development of an RFP as long as the
resulting procurement is neutral. IBM has confidence in school
districts to objectively consider technical options from
various sources and apply their good judgment to make sound and
proper procurement decisions.
Deploying a modern network infrastructure is not a simple
task, especially under the often tight schedules imposed by the
E-Rate program. So it is important that the schools get the
right technical and project management help, and I think we
heard that from some of our earlier speakers.
As this committee has learned from prior hearings,
students, teachers, and communities will suffer if much needed
equipment is left stacked in a warehouse for lack of
coordination or technical skills. This is why IBM supported the
choice by the El Paso Independent School District, among
others, to use a systems integration approach for selected E-
Rate projects.
As a systems integrator, IBM can provide a single point of
accountability to insure that all components of the network
will be installed as planned and will work properly together.
In El Paso IBM delivered good, tangible value on time and on
budget.
Deploying complex network systems is not a plug and play
activity. A collection of the lowest priced piece parts is
often not the most cost effective decision. That approach may
not optimize the cost of the overall solution, and the parts
may not work together effectively.
Implementing such projects under the strict rules of the E-
Rate program and dealing with the old physical infrastructure
that is frequently found in many school districts carries
substantial risk and requires considerable program management
experience. For these reasons, we believe systems integration
is a valuable approach.
El Paso selected IBM as its E-Rate systems integrator in
January 2001, following an open, two-step procurement process
permitted under Texas law. In the first step, El Paso ranked
bidders based on technical qualifications, experience, and
pricing information. As a result of this step, El Paso selected
IBM as the most qualified bidder.
In the second step, the district entered into detailed
negotiations with us and satisfied itself that we were the most
cost effective vendor for meeting its comprehensive network
requirements.
As part of our E-Rate engagement in El Paso, IBM provided
maintenance support, including a centralized help desk to keep
the network up and running. We believe that quality maintenance
is critical for a school district to get the full value out of
its technology investments, another thing we just heard
recently from other speakers on the panel here.
The Consortium for School Networking agrees. The
consortium, which is made up of education leaders in technology
from school districts across the country, notes the importance
of a formalized support infrastructure. In addition, the group
reports that over 95 percent of school districts with more than
20,000 students, such as El Paso, use help desks to provide
technical support.
This industry standard practice is a good way to provide
fast resolution for network problems and insure high network
availability. It is important to remember that the E-Rate
program is relatively new and that the rules are still
evolving. Since the beginning of the program, we have complied
with the rules as we understood them at the time. It is very
unfortunate that El Paso and other school districts were denied
funding, despite the fact that they had followed application
approaches that the SLD has previously approved.
However, we believe the FCC ultimately reached a fair and
balanced decision in its Ysleta order. Significantly, the
Commission acknowledged that some E-Rate program rules were
unclear and applied inconsistently. Consequently, the
Commission took the unusual step of waiving its rules to allow
these applicants to conduct rebids and to reapply for the
denied funding.
The Commission also expressly noted that IBM could
participate in these rebid applications. IBM has always taken
compliance with E-Rate rules very seriously. Now that the
Commission has provided additional clarification, we are
working even harder to insure our compliance. We have hired two
highly regarded E-Rate experts from the applicant community and
consolidated expertise into an E-Rate Center of Competence as a
resource for IBM staff.
Our Center of Competence is actively engaged with the SLD.
For example, we are proactively seeking to resolve questions
about the rules, working to improve clarity of our statements
of work and participating in the on-line product data base
pilot program.
Members of the committee, IBM is committed to the ongoing
success of E-Rate, and we will continue to work with the SLD,
the Commission and you to improve the program. As you can see
in our written statement, we have offered some recommendations
for the program, the most important of which is to make the
rules as simple and as clear as possible.
Thank you for the opportunity to be here, and I will look
forward to answering your questions.
[The prepared statement of Christopher G. Caine follows:]
Prepared Statement of Christopher G. Caine, Vice President,
Governmental Programs,, International Business Machines Corporation
INTRODUCTION
Mr. Chairman, Members of the Subcommittee, I am Christopher G.
Caine, Vice President, Governmental Programs for IBM. I appreciate the
opportunity to appear before this Subcommittee to provide IBM's
perspective regarding the E-rate program.
IBM has had a long history working with our nation's educators. For
example, in 1986 IBM pioneered the use of technology in classrooms with
the introduction of Teaching and Learning with Computers, a pioneering
use of technology in the classroom. Since 1994, through our Reinventing
Education program, IBM has given almost $75 million in philanthropic
technology grants and worked with school partners to improve student
achievement. As a result of this grant program, the Center for Children
and Technology, which has researched technology and learning for over
two decades, estimates that over 90,000 teachers and millions of
students are using the educational technology tools created by IBM and
our school partners. Last year alone, we provided over $35M in grants
to elementary and secondary schools, making IBM the largest corporate
contributor to K-12 education. And to advance the cause of public
school reform, IBM organized and hosted National Education Summits in
1996, 1999 and 2001, bringing together the nation's governors and
business and education leaders to collaborate on this important goal.
Clearly, IBM was committed to improving schools through the
application of information technology long before the E-rate program
was created.
IBM AND E-RATE
Because of IBM's strong commitment to improving K-12 education and
bringing the opportunities created by information technology to all
students in our nation, we were pleased when Congress created the E-
rate program as part of the Telecommunications Act of 1996. We believed
then as we believe today that the program was structured properly to
provide greater assistance to those schools that have the greatest
need, helping to provide opportunities for economically disadvantaged
students to participate in the ``information age.''
Shortly after the FCC established the initial rules to govern the
E-rate program in 1997, I participated in a small meeting of high-tech
leaders where then-FCC-Chairman Reed Hundt asked us directly to help
educate schools across the country about the opportunities of E-rate.
IBM willingly responded by creating a booklet that described the new
program, and we mailed a copy to over 12,000 school districts in the
nation. We followed up by providing seminars about E-rate for school
officials and meeting with individual districts to talk about how E-
rate could help them meet their communities' educational needs and
objectives.
IBM has participated in the E-rate program as a service provider
since its inception, and we believe that the program has been an
enormous success in bringing the vast resources and opportunities of
the Internet to deserving students. E-rate funding has allowed many of
our country's poorest school districts to bridge the ``digital
divide''.
The E-rate program has provided the opportunity to many poorer
school districts to explore new ways to use technology to enhance
teaching and learning. Many districts have found that the universal
access to the Internet that E-rate funding provides has exposed their
students to a depth and breadth of material that their local teachers
could not possibly have developed and delivered on their own. The
program has the added benefit of helping to prepare our nation's
students for the career requirements of a highly competitive,
technology-based economy.
Since the beginning of the Erate program, IBM has served well over
200 E-rate customers in over 30 states. As the largest computer company
and IT services company in the world with a history of applying our
world-class research capabilities to educational challenges, IBM has
provided a broad range of eligible networking products and services
under the E-rate program. IBM has the resources to support many of the
largest school districts across the country.
We believe that IBM has an excellent record of helping schools
achieve their educational objectives under the E-rate program,
delivering complex networking solutions--on time and on budget--to meet
the increasingly sophisticated demands of districts with tens of
thousands of students, teachers and staff.
E-RATE INVESTMENTS TO IMPROVE EDUCATION
Our experience has shown that with clear goals and proper planning,
school districts can leverage information and communication technology
to transform the learning environment, providing effective tools for
teachers and leading to measurable improvements in student achievement.
Therefore, IBM fully endorses the E-rate program requirement that
schools base their technology investments on a comprehensive Technology
Plan that is aligned with their educational goals.
As the El Paso Independent School District stated in its 2000-2001
Technology Plan:
``In addition to a sound background in traditional academics,
today's students must be competent and confident in using a
wide range of technology in a variety of settings. Today, and
in the future, most career paths require the use of computers
and a wide-range of other technology. In short, students must
be as comfortable using a computer or other technology as they
are in using a pencil and paper.''
In our work over the last decade with school partners in our
Reinventing Education program, IBM has encouraged schools to take a
systemic approach to education reform, consistent with the goals of the
E-rate program. For technology to be used effectively in the classroom,
it must be fully integrated in the curriculum, and professional
development opportunities must be provided for teachers so that they
can learn how to use it. If these principles are followed, the
resulting improvements can be dramatic. Indeed, as research has shown,
students in Reinventing Education classrooms have outperformed their
peers on standardized achievement tests. Fortunately, the E-rate
program created by Congress is making it possible for more students to
enjoy the educational benefits of technology in the classroom.
IBM also believes that network infrastructure that schools install
today should be designed to avoid rapid obsolescence by supporting
evolving technical requirements and by accommodating reasonably
projected future growth in demand for network capacity. The network
infrastructure should support not only basic Web usage and e-mail, but
should also be designed to support sensible, proven technologies that
can greatly improve the productivity and effectiveness of the
educational environment, such as online dissemination of lesson plans,
classroom administration, and stored broadcasts or real-time,
interactive video instruction to enable distance learning and sharing
of the best-available teaching resources. Based on their educational
goals and available resources, school districts must make the ultimate
decision about what technology they should deploy.
TECHNOLOGY CHALLENGES FACING SCHOOLS
Many school districts have required substantial investments in
recent years to upgrade their network infrastructures so that they
could meet their educational objectives and prepare their students for
the networked world. But deploying a modern enterprise network is not a
simple task. For example, a district with 50,000 students plus
thousands of teachers and administrators has networking requirements
that are at least as complex as those of a small city. Many districts
do not have sufficient technical staff and knowledge to handle these
projects on their own. They require considerable assistance with the
deployment, configuration, project management, technical support and
maintenance for their large, complex network infrastructure projects.
The Erate program has made it possible for many economically
disadvantaged school districts to obtain the technology products and
services that they need to offer their students the same opportunities
as more fortunate districts.
Certain constraints imposed by the E-rate program structure and the
school environment, generally, create additional challenges in
deploying advanced network infrastructure. For example, the annual E-
rate funding cycle requires that major projects be performed on an
artificially accelerated basis, compressed to fit into a narrow time
window between receipt of E-Rate funding approval (often after long
delays) and the funding year deadline. Meeting this tight schedule is
further complicated by having to work around classroom schedules, after
hours and during school holidays. And the simple fact that many school
buildings were built decades ago, long before the Internet and the need
for wiring classrooms were contemplated, can present difficult
deployment problems, such as asbestos removal and inadequate electrical
supply.
Given the complexity of the task of installing, integrating and
maintaining a sophisticated network environment, especially under the
often-tight schedules imposed by the E-rate annual funding cycle, it is
important that school districts get the right technical and project
management help. And if a school district hires multiple vendors
separately to perform portions of the work, they may also find it
difficult to coordinate among them.
Congress, the FCC and the SLD are well aware of the potential for
waste if expensive equipment is left stacked in a warehouse for lack of
planning, coordination, or technical skills. IBM has also seen cases
where computers sit unused, gathering dust in classrooms, because
schools had not invested sufficiently in technical support, maintenance
or teacher training. In each case, expensive investments are idled, the
school's instructional objectives and technology vision are frustrated,
and E-rate goals of bridging the digital divide go unfulfilled.
IBM HELPS SCHOOLS MEET THESE CHALLENGES
One way that IBM has responded to these challenges has been by
proposing a systems integration approach for selected E-rate projects.
Systems integration is recognized as the most effective procurement
model for governments and businesses undertaking complex IT projects.
In fact, the Federal Government's use of systems integrators is
longstanding and extensive. Since each school district's requirements
are unique and districts often have varying levels of technology
resources, schools have seen great value in working with a technology
partner like IBM.
As a systems integrator, IBM can provide a single point of
accountability so that school administrators are assured that all
components of their network will be installed on time, within budget,
and will work properly together. IBM can take responsibility for all of
the work performed by multiple vendors and subcontractors, and for
keeping school officials and boards of education informed. And by
overseeing the entire project, IBM is able to provide a fixed-price
commitment to a school district, enabling it to plan its budget and
funding needs more precisely and avoid costly overruns. Once installed,
IBM can provide ongoing technical support and maintenance to ensure
that the network stays up and running so the school district can obtain
the full benefit of its E-rate-funded investment.
IBM does not consider systems integration to be a ``one size fits
all'' approach. Some school districts choose to hire a systems
integrator to manage their project, while other districts prefer to act
as their own general contractor. IBM offers its products, services, and
experience either way. IBM strives to be a true partner to many of our
nation's poorest school districts, helping them through the labyrinth
of technological solutions for their needs, as well as through the E-
rate process itself, while providing proven solutions. At the heart of
each partnership is a firm understanding of the connection between
infrastructure and educational results, and a commitment by IBM to
assist the school district with its technology goals.
2001 E-RATE FUNDING FOR EL PASO INDEPENDENT SCHOOL DISTRICT
Among the school districts that IBM has served as part of the E-
rate program is the El Paso Independent School District (EPISD or El
Paso), which at the time served over 63,000 students in 52 elementary
schools, 16 middle schools and 16 high schools, with over 8,000
employees. EPISD is an economically disadvantaged district, with a
large portion of its students eligible for the National School Lunch
Program. The mission of EPISD is to meet the diverse needs of all
students and empower them to become successful members of a global
community. EPISD developed a thorough and forward-looking Technology
Plan designed to achieve its educational goals.
The selection by EPISD of IBM as its strategic technology partner
provides an example of IBM's role as a systems integrator in the E-rate
program. El Paso had participated in the E-rate program from Funding
Years 1 through 3 with service providers other than IBM. In December
2000, El Paso posted a Form 470 for Year 2001 on the Universal Service
Administrative Company, Schools and Libraries Division (``SLD'') Web
site in accordance with E-rate program rules. El Paso also issued a
Request for Proposal (RFP) in December 2000 detailing El Paso's
requirements and describing the form of the prospective contract.
EPISD selected IBM as its systems integration partner in January
2001 after evaluating competitive bids from IBM and seven other
vendors, following a negotiated solicitation process in accordance with
Texas State procurement regulations, FCC rules and SLD requirements in
effect at the time. El Paso recognized that the complex network
solution they sought to procure to support their educational objectives
was not a simple, commodity purchase in which the cheapest initial
proposal would necessarily be the most cost-effective solution over
time. So EPISD issued an RFP and followed an open, transparent, ``two-
step'' procurement process permitted under Texas law. In the first
step, EPISD ranked systems integration partner bidders based on
technical qualifications, experience and pricing of skilled labor. As
the result of this step, EPISD selected IBM as the most qualified
bidder to implement the network environment as envisioned in its
Technology Plan.
In the second step, the District entered into detailed negotiations
with IBM to agree to contractual terms, with price as a primary factor
in the final selection. EPISD satisfied itself that it was receiving
the right combination of cabling, equipment, software and services at a
fair and reasonable price that, considering all of the factors, made
IBM the most cost-effective vendor for meeting its comprehensive
network requirements. At the end of the second step, EPISD staff
presented its decision and rationale for consideration by the Board of
Trustees in open, public meetings. The Board then voted in favor of the
recommendation and issued formal authorization for the contracts. The
SLD subsequently reviewed EPISD's E-rate funding request in thorough
detail and awarded E-rate funding to EPISD in October 2001.
EPISD's contracts with IBM allowed the District to bid out portions
of the purchases to ensure competitive prices and provided for
termination if the District became dissatisfied with IBM's performance.
IBM believes that the EPISD technical staff and Board had sufficient
procurement expertise and experience to make sound decisions to ensure
they received the best value for the money.
The lowest priced initial solution is often not, over time, the
most cost-effective use of taxpayer dollars. IBM believes that
selection of a systems integrator is an effective approach for
procuring complex information technology systems. Where school
districts seek a comprehensive networking solution, as in El Paso, the
proven ability of the integrator to manage such a difficult project to
completion on time and on budget is particularly relevant.
Federal and state procurement laws provide for government
procurements of complex IT systems, like the one in El Paso, through
the use of a procurement model that weighs vendor qualifications,
technical expertise and management experience, along with price, to
choose the most cost-effective provider. The FCC recognized this point
in two key decisions governing the E-rate program. The Commission's
1997 Universal Service Order gave schools ``maximum flexibility to take
service quality into account and to choose the offering--that meets
their needs most effectively and efficiently.'' (emphasis added) And in
its 1999 Tennessee Order, the Commission upheld a bid selection process
in which price was an important factor, but was explicitly given a
lower weighting than technological approach. In other words, price was
not required to be the most important selection criterion.
The work that EPISD procured in 2001 under the E-rate program was
particularly complex. IBM acted as a systems integrator, or general
contractor, providing a single point of contact and accountability so
that EPISD could be assured that the network and all of its components
would be installed as planned and work properly. IBM worked closely
with EPISD's senior management and technical staff to ensure that the
network solution and product selection met the requirements as
specified by the District in line with their approved Technology Plan
and that the solution complied with E-rate eligibility rules as EPISD
and IBM understood them. We also made regular presentations to the
Board of Trustees to keep them apprised of progress and to seek their
direction and approval.
IBM implemented a network solution, providing internal connections
necessary for high-speed Internet access to enable distance learning
and to take advantage of the educational resources available on the
Internet. We accomplished this challenging task to connect and
integrate these schools into an advanced communication network in a
very compressed time frame, as required by E-rate program rules. We
delivered everything that we committed to deliver, on time and on
budget--and it worked.
Providing a modern technology infrastructure to support education
is important and will create long-term benefits for our students. Such
infrastructure may require significant investment, but it is an
investment we must be willing to make. Implementing network projects of
this size, scope and complexity for a fixed price under the strict
rules and time constraints of the E-rate program carries substantial
risk and requires considerable program management experience. A
collection of the lowest priced piece parts is often not the most cost-
effective decision. That approach may not optimize the cost of the
overall solution, and the parts may not work together effectively. It
may be tempting to go with such a ``cheaper'' solution, only to find
out later that the District's educational goals are not met when the
network cannot be deployed as planned or is frequently down.
IBM has the resources and capability to meet the challenges of
implementing complex network systems under the E-rate program. Based on
customer satisfaction surveys and comments from key EPSID staff, IBM
believes that we met or exceeded the District's expectations. IBM is
proud of the job that we did. We believe that we built the right
solutions and delivered the value that we promised to the District.
For Funding Year 2001, IBM implemented and integrated a total of
nine projects, including cabling, network electronics, server upgrade,
Web and file servers, Fiber Internet Access, video, e-mail, Web access
and technical support. The following section provides further detail on
the technical support IBM provided to EPISD.
IBM TECHNICAL SUPPORT SERVICES FOR EPISD
Prior to the projects IBM undertook at EPISD, the District had only
begun to introduce a modern technology infrastructure, and they lacked
sufficient technical staff to properly support their new network
infrastructure. To meet their needs, EPISD sought a service provider to
assist with technical support under the E-rate program. The use of
vendor resources in such cases is common, as illustrated by a study by
the Consortium for School Networking (CoSN)., made up of education
leaders in technology from school districts across the country and
others CoSN found that over half of the school districts surveyed
outsourced at least some of their technical support.1
---------------------------------------------------------------------------
\1\ Consortium for School Networking study available at http://
classroomtco.cosn.org/survey_tech_press.html
---------------------------------------------------------------------------
IBM provided technical support and maintenance to EPISD using a
methodology IBM had honed through many years of support for customers
with similar reliability requirements and with environments of similar
complexity. The goal was to enable the network infrastructure to
operate reliably and with little downtime, so that it would be
available to students and teachers to support learning in the
classroom. IBM first set up a Technical Services Office (TSO), which
designed, developed and implemented the support services. The TSO
provided project coordination, site and connectivity networking
services support, network infrastructure support, Web maintenance
support, Local Area Network (LAN) and network hardware maintenance
support, and help desk support. The IBM services achieved the following
improvements for EPISD:
Higher network availability.
The ability to resolve network problems quickly, shortening downtime.
Routine maintenance and technical change management methods to reduce
unplanned connectivity outages.
Network performance metrics to track quality of service and
improvements.
A single-point-of-contact help desk to screen calls and route them
either to the IBM network support for eligible services, or to
EPISD's own desktop PC support function for services not
covered by E-rate.
Trouble report status accessible by Web or phone.
IBM believed then, as it does now, that an effective technical
support and maintenance program is an essential element of any school
district's technology investment. We believe that quality maintenance
support is critical for a school district to get the full value out of
its technology investments. School districts are also coming to the
realization that technical support is a critical element of their IT
budget that can no longer be treated as an afterthought to be handled
by technologically savvy teachers and students in their spare time. As
CoSN has observed:
``Ever-broadening use of personal workstations and the
Internet in schools has increased the awareness of support
costs and the need for a more formalized support
infrastructure. The increasingly complex technology
infrastructure makes the historically informal support
approaches less adequate or practical.'' 2
---------------------------------------------------------------------------
\2\ http://classroomtco.cosn.org/gartner_intro.html
---------------------------------------------------------------------------
CoSN reports that over 95 percent of school districts with more
than 20,000 students use help desks to provide technical support, so
this is a very common practice among large districts such as El Paso.
3 Help desks are a good way to provide fast resolution of
network problems and ensure high network availability.
---------------------------------------------------------------------------
\3\ http://classroomtco.cosn.org/survey_tech_support.html
---------------------------------------------------------------------------
2002 EPISD E-RATE FUNDING DENIAL
In November 2001, a month after receiving its funding award for E-
rate Year 2001, EPISD posted a Form 470 on the SLD website for Funding
Year 2002. According to EPISD, the District wanted to inquire into any
additional vendor interest in providing internal connection or Internet
access services, and to ensure that renewing the IBM contract would be
cost-effective and advisable. It did not issue an RFP for Funding Year
2002, and received no response to the Form 470 posting that it
considered sufficient to prompt non-renewal. Consequently, El Paso
conducted an internal review of its projects for 2002 and discussed
pricing in detail with IBM prior to its decision to renew the contract.
El Paso's Board of Trustees voted to renew IBM's contract on January 8,
2002. Through the first half of calendar year 2002, IBM continued
implementation of its Year 2001 E-rate contract, successfully
installing the new network and support infrastructure for EPISD.
The 2001 funding year ended on June 30, 2002, without El Paso
receiving a funding decision for Year 2002. In anticipation of
eventually receiving 2002 funding, IBM, at its own risk and expense,
continued to provide technical support for EPISD beyond the end of our
Year 2001 service contract. This support continued for six months until
the end of calendar year 2002, when IBM reached the point at which it
was unwilling to continue service without being paid. IBM did not
subsequently seek payment from EPISD after E-rate funding was denied,
despite the fact that IBM incurred millions of dollars in expenses in
providing technical support services for those extra six months.
El Paso did not receive the SLD decision denying its Year 2002
application until March 10, 2003. Among the reasons for the denial, SLD
criticized EPISD's use of the ``two-step'' procurement process for
EPISD's Year 2001 application (which the SLD had approved the prior
year), and therefore questioned whether EPISD had adequately
established that IBM was the most cost effective vendor for Year 2002.
IBM supported El Paso in its appeal of the SLD funding denial to the
FCC, and IBM also filed its own appeal at the FCC. IBM urged the
Commission to expedite the appeals of EPISD and other similarly
situated school districts. The Commission's Ysleta Order subsequently
upheld the SLD's denial of Year 2002 funding for EPISD, Ysleta and six
other school districts. The Order was released on December 8, 2003,
eighteen months after the end of the 2001 funding year.
While waiting for the delayed Year 2002 funding decision, IBM and
EPISD discussed various options for continuing technical support
services in the event that funding was ultimately denied. EPISD
originally had intended to transition technical support services over
to its internal staff over time, but this plan was dependent upon
renewal of E-Rate funding. EPISD and IBM had not planned the project to
address the eventuality that E-Rate funding for the technical support
service would be approved for one year and then abruptly cancelled for
subsequent years. As of December 2002, it was still too early in the
implementation of the services for the EPISD staff to have gained
enough experience with the system to effectively take over operation of
it themselves. EPISD considered purchasing the system from IBM
4, but it did not believe that alternative was viable given
the short timing and lack of funding.
---------------------------------------------------------------------------
\4\ Since IBM had been providing technical support to the District
as a service, E-rate rules did not permit us at the end of the contract
to donate the tools that we were using to EPISD.
---------------------------------------------------------------------------
This was a frustrating time for both EPISD and IBM. Substantial
start-up effort and cost were expended on establishing the Technical
Support Office, the help desk, the maintenance procedures, the tools
and the supporting computer systems. It is very unfortunate that a
change in the interpretation or application of the Erate rules caused
much of the return on this investment to be unnaturally truncated. IBM
also regrets that El Paso, Ysleta and other schools were delayed by a
year or more in the implementation of their Technology Plans due to
denial of their Year 2002 funding applications, which were submitted to
the SLD in good-faith reliance upon the SLD's previous approval of
similar applications. However, EPISD did receive full value from the
other important E-Rate projects IBM implemented for Year 2001.
THE COMMISSION'S YSLETA ORDER
IBM believed that we had complied with all applicable rules
relating to the El Paso projects and Year 2002 proposals, including
Erate program rules, state procurement rules and communities' local
procurement requirements, as we understood them at the time. In
addition to complying with the rules, IBM met its commitments in
delivering products and services to our funded Erate customers--some of
the largest school districts in the country with the most challenging
network requirements.
Significantly, the Commission, in ruling on the funding appeals by
IBM and our school district partners in El Paso, Ysleta and elsewhere,
acknowledged that some E-rate program rules were unclear and applied
inconsistently. The Commission's Ysleta Order said: ``SLD could
reasonably have been construed as sanctioning the two-step Systems
Integration process by approving the El Paso Independent School
District's application'' for Year 2001. ( 69) Further, the Ysleta
Order ``acknowledge[d] that the Commission's use of varying phraseology
in the same decision [concerning whether price must be ``the primary
factor'' or only ``a primary factor''] created some ambiguity on this
issue.'' ( 50) And as the Commission noted, some applicants received
funding despite circumstances similar to those of the denied
applications associated with IBM. For example, while some of IBM's E-
rate customers were criticized for including a broad list of internal
connections services on their Forms 470, other districts that were not
working with IBM received funding despite using the same or similar
lists of services.5
---------------------------------------------------------------------------
\5\ [W]e acknowledge that SLD has approved other funding requests
in the past that utilized all-inclusive FCC Forms 470 similar to that
submitted by Ysleta. (Ysleta Order, 35)
---------------------------------------------------------------------------
Because of applicants' ``substantial and widespread reliance on
prior SLD'' funding decisions and to avoid imposing an ``unfair
hardship'' on applicants, the Commission took the unusual step of
waiving its rules to allow these applicants to conduct ``rebids'' and
reapply for denied funding under the new guidance issued as part of the
appeals order. The Commission expressly noted that IBM would be
eligible to participate in these rebids.
IBM believes that it is very unfortunate that El Paso, Ysleta and
other school districts were denied funding for Year 2002, despite the
fact that they followed application approaches that SLD had previously
funded. However, given the circumstances, we commend the Commission for
reaching a fair and balanced decision on these districts' funding
appeals. What is most important is that the Commission provided
additional guidance on E-rate rules to ensure that they are interpreted
as intended and gave these school districts the opportunity to conduct
rebids under this guidance so that they would not lose out on Year 2002
funding opportunities.
IBM'S RELATIONSHIPS WITH SCHOOL DISTRICTS
Some have suggested that IBM may have exerted improper influence on
the procurement process at certain school districts, because school
officials listened to advice from IBM prior to issuing a Request for
Proposal (RFP). We strongly disagree. IBM has been successful in
winning E-rate contracts from many districts across the country, but
this is not surprising, since IBM for many years has been a major
information technology supplier to both commercial and governmental
customers. IBM has a reputation for being able to handle the most
challenging systems integration projects, and the company has a long
history of providing innovative IT solutions for K12 education.
In some cases, individual school districts interested in applying
for E-Rate funding shared with each other, or IBM shared with a school
district, sample RFP documents that other school districts had
previously used successfully. School districts could learn from these
examples and tailor an RFP to meet their needs. SLD guidance encourages
vendors to share their experience with schools and specifically
authorizes vendors to provide assistance in the development of an RFP,
as long as the resulting procurement is neutral. IBM strives at all
times to comply with applicable state, local, and E-rate rules and
regulations.
It is appropriate for vendors to get to know their school
customers, understand their needs, goals, and Technology Plans, and
offer advice. In fact, school districts should be encouraged to seek
input from as many competing vendors as possible. As a company that has
worked closely with American public school systems for decades, it is
natural for school administrators to seek our advice and for us to
offer thoughts on technology-related education matters. IBM believes
that school districts can objectively consider input from various
sources and apply their own good judgment to make sound procurement
decisions. School officials understand very well that they must comply
fully with all applicable procurement regulations and must obtain the
approval of independent boards of education for their procurement
decisions.
ELIGIBILITY OF PRODUCTS AND SERVICES
The SLD's guidance on eligibility of products and services for E-
rate discounts is contained in the Eligible Services List. Since the
beginning of the E-rate program, applicants and service providers have
frequently raised questions about interpretation of the ESL. In
response, the SLD has periodically updated the ESL to elaborate and
provide clarification about what products and services are covered.
However, given the rapid advances in networking and information
technology, it is very difficult to provide a clear, definitive
statement on the eligibility of the broad range of products and
services that a school district might consider as part of its
technology infrastructure. There is always room for improvement, and
SLD should strive to provide greater clarity and certainty about
eligibility by continuing to update and refine the ESL.
Given the evolving nature of the ESL, it is understandable that
there would be varying interpretations about whether a certain product
or service is considered eligible. IBM has made a good-faith attempt to
understand and comply with the ESL as it existed at the time, and we
have added and deleted products and services from our E-rate portfolio
as a result of the periodic changes in the ESL. However, we are very
concerned that new guidance in the ESL might be applied retroactively
to declare a product or service that was previously approved for
funding by SLD now ineligible and subject to recovery of funds from the
applicant or service provider.
IBM is very willing to work with the Commission and SLD to identify
areas of the Eligible Services List that would benefit from further
clarification, but we believe that new guidance should only apply
prospectively.
ONGOING SUCCESS OF E-RATE
IBM is committed to the ongoing success of the Erate program, and
we will continue to work with the SLD, the Commission and Congress to
improve the program so that it can continue to help bring the latest
tools for learning to schoolchildren, teachers and communities.
IBM has always taken compliance with the E-Rate rules very
seriously, and we have spent considerable time trying to understand and
comply with the rules. Each region in our Erate sales team was
responsible for monitoring, understanding, and complying with program
rules. Employees who worked on E-rate projects participated in annual
training sessions and periodic conference calls and e-mail updates.
Each year every IBM employee must certify that he or she will comply
with IBM's Business Conduct Guidelines requiring compliance with all
applicable laws and regulations. Employees who participate in sales to
government entities, such as E-rate school customers, must read and
certify to a separate set of Public Sector Guidelines.
Now that the Commission has provided additional clarification, we
are working even harder to ensure our compliance. We have hired two
highly regarded E-rate experts from the applicant community and
consolidated expertise into an E-rate Center of Competence as a
resource for IBM staff and our customers. Our Center of Competence is
actively engaged with the SLD. For example, we are proactively seeking
to resolve questions about the rules, working to improve the clarity of
our statements of work, and participating in the online product
database pilot.
RECOMMENDATIONS TO IMPROVE E-RATE
IBM offers the following recommendations to improve the E-rate
program and help ensure its continuing success:
1. Make rules simple and clear. Ensure rules are simple, consistent,
clear and fully disclosed to the public. The entire rules
structure must be open and public. In particular, processing
criteria used by the SLD to review applications and invoices
should be open and publicly available. Capturing all questions
asked by applicants and service providers and their answers in
a wide ranging Frequently Asked Questions (FAQ) would help to
improve program integrity, clarity and compliance.
2. Expedite application reviews and appeals. Provide SLD with adequate
resources to process applications and appeals in a timely
manner. Appeals and prior year applications pending at SLD
should have top priority for processing over current year
applications.
3. Provide adequate advance notice of rules changes. Advance notice of
changes in FCC rules and SLD guidance should be given so that
applicants will have adequate time to plan budget changes.
Changes that have significant impact on applicants should be
made after longer advance notice.
4. Clarify the Eligible Services List. SLD should provide illustrative
examples of both eligible and ineligible products and services
to help clarify the Eligible Services List and create greater
certainty for applicants and service providers. SLD should
create a Web-based Eligible Services List with links to SLD's
answers to questions posed by applicants and service providers
over time.
5. Identify E-rate consultants and their business relationships. IBM
agrees with the recommendation of SLD's waste, fraud and abuse
task force that E-rate consultants should disclose their
business relationships with service providers for both
applicants and other service providers to see. Alternatively,
consultants who also sell eligible services on a third party
basis should be prohibited from involvement in the procurement
process on behalf of applicants.
Thank you for the opportunity to be here to offer IBM's perspective
on the E-rate program and how it can be improved. I look forward to
answering your questions.
Mr. Walden. Mr. Caine, thank you for being here, and thank
you all for your testimony this afternoon and for your patience
throughout the day. I know this has been a long hearing. It is
an important issue, and I want to assure all of you and
everyone else listening in that it is our goal as well to make
sure that the--we are picking up some audio somewhere. It is
me. That is a frightening thought. I do not know if there is a
way to--well, if you could turn off your microphone for now
because we are hearing all of that back here.
Thank you.
I just want to assure people that it is our goal as well to
figure out how to make E-Rate work because we have seen how it
does not work and we have seen how vendors have misused it to
their advantage and how some school districts have been
overtaken by, frankly, greedy vendors who have gone out of
their way to rip off the system, and so we are committed to try
and figure out how we make it work, work right, work fairly
because there are a lot of districts that need to be wired and
operated.
Ms. Glogovac, in your comments, you made reference to
awareness of a consortium that gets a 3-percent kickback, I
believe was your term.
Ms. Glogovac. This year I was reviewing 470's. I believe it
was in the May or June timeframe, and I saw that there was an
RFP for a consortium.
In reviewing the RFP, I believe it was on line. It read
that they were looking for a 3-percent kickback from the
vendors that were going to get the business.
Mr. Walden. Tell me what the consortium is.
Ms. Glogovac. I do not know exactly. I cannot remember off
the top of my head, but I----
Mr. Walden. But these would have been school districts?
Ms. Glogovac. I believe it was school districts that were
allowed to use this contract.
Mr. Walden. Who was putting together the contract?
Ms. Glogovac. The consortia was.
Mr. Walden. Who is the----
Ms. Glogovac. I do not know the exact name of the
consortia. I did not bring that information with me.
Mr. Walden. Okay.
Ms. Glogovac. I did report it to the whistleblower hotline.
Mr. Walden. All right. Good. But in general terms, just so
I understand, when you say ``consortia,'' is that a consortia
of vendors?
Ms. Glogovac. No, it is a consortia of applicants. So it
could be a number of school districts, private schools lumped
into one application.
Mr. Walden. Right, and they basically said, ``You come
provide this to us, and we will give you``?
Ms. Glogovac. Basically it was an RFP that said they were
looking for E-Rate products and services, and in order to go
through this RFP and win the business for the RFP, you had to
provide them back 3 percent of whatever you sold into those
applicant sites.
Mr. Walden. I wonder from your experience would that be a
violation of the USAC rules?
Ms. Glogovac. I think we heard today that, yes, it is.
Mr. Walden. I would think so as well.
You did report that to the hotline, you said?
Ms. Glogovac. Yes, I did.
Mr. Walden. That is what I thought. Okay.
What I would like to do now is have you walk us through
what happened again with IBM and the E-mail solution. Sun
Microsystems, as I understand it, was selected to provide the
E-mail services by the school district.
Ms. Glogovac. According to what I was told by the Sun sales
team, there was what they called a bake-off. There were three
vendors, one of which was IBM and I believe the other vendor
was Novell; were brought in, and they presented their E-mail
solution to the school district, and I do not know if the board
was there or who was there. I was not privy to that
information, but Sun was actually selected.
And then Sun was told that they needed to work back through
IBM for the project.
Mr. Walden. Okay, and yet when Sun submitted a proposal,
IBM wanted to add costs, 51 percent?
Ms. Glogovac. What happened was Sun provided a cost to IBM.
IBM had a specific number associated with it based on the
original 471 they submitted and, I guess, were awarded.
Mr. Walden. Okay. Let me see if I understand this. So is it
accurate then to say Sun came in and said, ``Here is an E-mail
solution that will work for your district''?
Ms. Glogovac. Yes.
Mr. Walden. ``And here is what we think it costs to do
that.''
Ms. Glogovac. Correct.
Mr. Walden. And then you were told by the district you had
to work back through IBM?
Ms. Glogovac. No, we were told that we needed to work
through IBM.
Mr. Walden. By whom?
Ms. Glogovac. By the district.
Mr. Walden. Yes, that is what I mean. The district told you
that you have got to work through IBM.
Ms. Glogovac. Yes.
Mr. Walden. And it is your recollection then that IBM said,
``We have got to up this cost by 51 percent''?
Ms. Glogovac. No, what IBM was telling Sun was, ``You need
to lower your cost in order for us to get what we need out of
the amount that was designated for this project.''
Mr. Walden. What were they going to do with that money? Do
you know?
Ms. Glogovac. I do not know.
Mr. Walden. Mr. Caine, are you familiar with that
situation?
Mr. Caine. I would be happy to comment on it, Mr. Chairman.
We disagree with the characterization that Sun has
presented. We were selected as the systems integrator, as I
mentioned in my opening statement.
Mr. Walden. Okay.
Mr. Caine. We pointed out certain risks to the school
district, that if they were to implement the Sun E-mail
solution, they needed to consider as the systems integrator,
the party responsible for bringing it all together, all of the
parts together.
Mr. Walden. Right.
Mr. Caine. These risks included schedule delays, need to
rework designs, the need for SLD change approvals and possibly
increased costs, which is the dialog we were having with our
applicant and our partner, the school district.
IBM also pointed out the pros and cons of a non-Sun and
non-IBM solution, as Ms. Glogovac said, Novell.
Mr. Walden. Okay.
Mr. Caine. Ultimately the school district chose neither
IBM's solution nor Sun's solution. They chose Novell. So we
believe we played the role as a systems integrator fairly,
pointing out to the school district the appropriate
considerations they needed to keep in mind on this particular
topic.
So neither IBM nor Sun received the E-mail solution. An
entirely independent vendor, Novell, did.
Mr. Walden. And, Ms. Glogovac, do you have a comment on
that?
Ms. Glogovac. I guess my comment would be that why would
IBM not consult with El Paso prior to selecting Sun during the
three-step process of selecting Sun amongst the three vendors
if they were playing that role.
Mr. Walden. All right. Now, Sun had already installed the
system in EPSID, right?
Ms. Glogovac. That I do not know.
Mr. Walden. All right. Okay. Mr. Tafoya, you state in your
testimony that your school district lost a number of employees
shortly before the funding year 4 application process, and your
technology director had essentially no program experience.
Did the district rely on its strategic technology provider
to fill the gap in knowledge on E-Rate experience?
Mr. Tafoya. It was my belief because, again, as I said, I
was not directly involved at that time with the E-Rate program;
I was in the district, and so I was watching the progress of
the program. It was my belief that they really did not, if I
understood your question correctly, have the resources
internally to provide that kind of leadership to answer those
technical questions.
Mr. Walden. You relied on a strategic technology provider?
Mr. Tafoya. That is correct. That is what I saw.
Mr. Walden. Okay, and to your knowledge, prior to issuing
the request for a strategic provider, did the district consult
with USAC or other E-Rate authority as to the propriety of this
approach?
Mr. Tafoya. Again, it was my understanding in the
conversations that I heard at the board meetings that I
attended that we were compliant with all of the current rules.
Mr. Walden. Okay, and you state that IBM, after it was
chosen as a strategic technology provider, submitted statements
of work to your district for review with limited opportunity
for extensive study and analysis before the E-Rate application
deadline. Could you elaborate on that comment?
Mr. Tafoya. I am sorry. Part of that broke up at the very
end there.
Mr. Walden. Yes. The question is this. You state that IBM,
after it was chosen as the strategic technology provider,
submitted statements of work to your district for review with
limited opportunity for extensive study and analysis before the
E-Rate application deadline. In other words, you did not have
much time to review this; is that correct, or your district did
not?
Mr. Tafoya. No.
Mr. Walden. Could you elaborate on that? Why was that? What
happened?
Mr. Tafoya. I believe there were a couple of reasons that
that took place. One was that after the award was made, you had
a limited window of opportunity for the actual execution of the
work itself, and I think the other thing that happened is
because of the scope of the number of projects that were
involved, there was a real scramble to make sure that we got
all of that addressed as quickly as we could.
I think there was a big concern on the part of the district
that, with an award of this magnitude, which was highly
publicized in the community, that we did not want to have any
appearance whatsoever of having essentially misrepresented what
we are capable of doing, and by that I mean that we wanted to
make sure that the money that was awarded was used, that it
was, you know, the intent of the board.
Mr. Walden. Right.
Mr. Tafoya. And it was the intent of the administration to
make sure that based on the original design that we were able
to deliver within that timeframe what we said we could.
Mr. Walden. Okay. You state the work submitted by IBM was
consistent with the district's technology plan.
Mr. Tafoya. Yes, sir.
Mr. Walden. Does the technology plan provide guidelines as
to the specific scope and size of the projects?
Mr. Tafoya. It was scalable. Yes, sir, it did, but again,
as I said, what happened was, which I saw as a problem for the
district looking at it externally in this capacity, was that
the award was made, and there was approximately 90 days of lost
time. And I believe that that window of opportunity that was
sunk really did affect the overall technology implementation.
Mr. Walden. All right. You state in your testimony the help
desk operation did not necessarily conform to the long-term
needs of your district. Do you believe the district got its
money's worth?
Mr. Tafoya. Frankly, no.
Mr. Walden. Why?
Mr. Tafoya. I think, again, there was a lot of confusion as
to who was going to own the equipment after the help desk was
installed. There were a number of work orders that were left
that were unattended to simply because, again, we ran out of
time and ran out of opportunity to utilize the equipment that
was available.
Mr. Walden. How much did you pay for that help desk
operation?
Mr. Tafoya. It is my recollection it was somewhere in the
neighborhood of $27 million.
Mr. Walden. Twenty-seven million dollars for the help desk?
Over what period of time and for how many schools?
Mr. Tafoya. That would have been over approximately I would
say a 6-month period of time, and it would have been for the 53
eligible schools.
Mr. Walden. So 6 months, 53 eligible schools, $27 million?
Mr. Tafoya. Yes, sir.
Mr. Walden. Just for a help desk?
Mr. Tafoya. That is correct.
Mr. Walden. What did the help desk do? Is this where you
just call and say, ``I am having trouble with my server. What
do I do?'' Is this a support desk?
Mr. Tafoya. Essentially that is what it was, and I believe
that was one of the reasons that there was concern and
questions that were being asked within the district as to what
the value at that point was of what we were receiving.
Mr. Walden. I hope there were questions. I mean, I do not
know. Some of you all do this, but I mean, I pay software
support services for software I have, but $27 million in 4
months seems like an awful lot. I do not know.
Ms. Foster, do you have a reaction to that? Is that normal?
Is that what is going on out there with our E-Rate money?
Ms. Foster. I do not think that is normal. I think it is
excessive.
Mr. Walden. By how much? What would I expect? I mean, I do
not know.
Ms. Foster. You know, really, there are all sorts of
products and they all have different bells and whistles. So it
would be hard to say, but my opinion would be that it is very
excessive.
Mr. Walden. I mean, let's go back a second here. Twenty-
seven million over 4 months, right? Fifty-three schools. Now, I
am not a mathematician, but you could hire people probably for
a good share of their life for that money and put them in the
district, couldn't you? Pay them a million bucks a piece and
you have got 27 people.
Mr. Caine. Mr. Chairman.
Mr. Walden. Yes.
Mr. Caine. I would be happy to comment.
Mr. Walden. Please do.
Mr. Caine. I think there are a couple of things we have to
remember. First of all, the 1 year timeframe that the E-Rate
program imposes upon school districts and their service
providers to both come up with the 470's, the statements of
work, and the plan, to submit the application----
Mr. Walden. I am aware of that.
Mr. Caine. [continuing] to get the funding approval, okay,
eats up a fair amount of time.
Mr. Walden. That is why they operate on a 15-month budget
year.
Mr. Caine. So when you get your approval, then you have a
limited period of time on which to execute your plan.
Mr. Walden. Okay.
Mr. Caine. Because the funding year stops. In this case, it
stopped at June 30.
Mr. Walden. Right.
Mr. Caine. You do have some capacity to continue work until
September.
Mr. Walden. All right.
Mr. Caine. So the program rules have a very compressed and
a very intensive timeframe for both application approval and
execution.
Mr. Walden. Right.
Mr. Caine. This is why we feel as a systems integrator that
that is a good approach, because if we are willing to sign up
for that as a school district's partner in this process, we
will have the accountability to make sure that it ends on time
and on budget.
Now, let me go exactly to your point. The help desk was
more than just a help desk as you know it. Okay? There is a lot
of risk in the timeframe to execute. So, therefore, there is a
lot of pressure to get it done, and I talked in my opening
statement about who suffers if you do not get it done.
So there were startup costs involved because in El Paso we
were going from no infrastructure and no maintenance to support
this infrastructure that we were building to something. This
was a large, complex system.
Mr. Walden. But in that startup cost phase you just
referenced----
Mr. Caine. Yes.
Mr. Walden. [continuing] is that part of the $27 million?
Mr. Caine. Yes.
Mr. Walden. Okay.
Mr. Caine. Okay. So there are startup costs that, as I can
discuss later, were not evident; were not evident in the
following years or would not have been evident in the following
years. We never got to the following years. Okay?
So within two and a half months of beginning the operation,
IBM helped reduce the outstanding trouble tickets that the
school district had from the old El Paso help desk arrangement,
all right, from 600 down to 173. We thought that was good
value.
Mr. Walden. How much did they pay for the old help desk?
Mr. Caine. We were not their partner. So I cannot answer
that question, but my point, if I could just finish, my point
here is to say that there was a presentation made to the board.
The board reviewed the progress that had been made in that
funding year and seemed pleased with it.
Now, let me just say at the end of that funding year, El
Paso did not have funding approvals for the following year. We,
the company, stayed with the school district and ran that
maintenance and help desk service for 6 months following the
end of that year receiving no funds. So we stayed on with the
school district from June until the end of the year on our cost
because we knew that we had built this; we thought there was
good value to the school district; and we did not want to leave
the school district just hanging there.
Mr. Walden. I am sure they appreciated that.
Ms. Foster, do you know what your costs were for the help
desk prior to IBM?
Ms. Foster. No. I really was not responsible for the help
desk. So I could not tell you.
Mr. Walden. All right.
Mr. Hawthorne. May I make a comment on the help desk issue?
Mr. Walden. Yes. Somebody help me out here.
Mr. Hawthorne. I think one of the issues that got the
attention of IBM initially was that the help desk that was in
place, and representing Alpha got our attention, was that they
basically had no network, and it would take up to 4 months for
a teacher or students if there was a problem in the network to
get it repaired.
And so what happened is that IBM came in. Let me back up.
The school district realized that they really needed some help
in this area, and that was the impetus for focusing on the help
desk.
And I might suggest also that there is probably maintenance
in there. To just say that there was a help desk, that somebody
is sitting there to answer phones----
Mr. Walden. How many people were involved in the help desk?
Mr. Caine?
Mr. Caine. I do not know the exact number, Mr. Chairman.
Mr. Walden. And how long was the help desk in operation for
that $27 million?
Mr. Caine. Well, as I said, we started, and then we got it
up. We would have liked to have gotten it up earlier than we
did within that year.
Mr. Walden. That is fine.
Mr. Caine. It was up for 2\1/2\ months.
Mr. Walden. 2\1/2\ months?
Mr. Caine. 2\1/2\ months, until the funding year ended June
30.
Mr. Walden. And for that 2\1/2\ month period, that is where
the $27 million was allocated?
Mr. Caine. No, Mr. Chairman. That portion of the award for
that maintenance support, which included the help desk, was a
part of a startup.
Mr. Walden. How much was the help desk then?
Mr. Caine. I do not have the breakout number for you on
that, but for the maintenance for that network and for that
infrastructure, which Mr. Hawthorne just referred to, that
entire piece was $27 million, and we believe that within the
2\1/2\ months that it was up--so we basically got it up in
April----
Mr. Walden. So you got up a network. Let me see if I
understand this because I do not do what you all do. You
created, wired, hard wired the 53 schools, got a network up and
running among all those schools, and then had a support system
in place including staff to keep it running. Does that kind of
capture what you did?
Mr. Caine. Yes, that is correct. Yes, you have described it
correctly. I wanted to be care.
Mr. Walden. Yes, sure. No, that is all right. That is what
we are after here.
And for that you got paid $27 million, but is the $27
million just for the support or is it for the technicians to go
in and wire and hook things up and crawl around in the
buildings?
Mr. Pratt, do you know?
Mr. Pratt. Yes. There was the help desk. There was actually
onsite support, maintenance if somebody had to go out onsite to
do that. So that was all included in that. The number of people
between the onsite maintenance and the help desk were in the 40
range.
Mr. Walden. So 40 people?
Mr. Pratt. Yes. Also, it was a problem that the school
district at the time had no space on their facility to house
the Operations Center. So we had to go out within the city of
El Paso and find a location that was proximate to the district
that we could then outfit and build out, put all of the tools
in place.
So all of those things were rolled into that $27 million
startup cost.
Mr. Walden. Is that all E-Rate eligible?
Mr. Pratt. It was part of the service. It was required to
put that in place as part of the service which is eligible
under E-Rate based on the rules at the time.
Mr. Walden. All right. All right. My time has long since
expired. My apologies to my ranking member.
Ms. DeGette.
Ms. DeGette. Thank you, Mr. Chairman.
Ms. Foster, I was very impressed by your testimony. You
seem to really know this business quite well and have been
involved in it for a long time, and you also seem to be very
committed, as I am sure everyone here is, to the goals of the
E-Rate, which is to help low income students learn to use
computers and have a level playing field.
So let me ask you something we have been struggling with
today, which is how do we eliminate the waste, fraud, and abuse
that seems to be rampant in the program. One of the suggestions
has been, as you probably heard, that we increase the local
match to 20 percent. I am wondering from your perspective what
that would do for the E-Rate program in these low income school
districts.
Ms. Foster. I think that if you increased it to 80 percent,
it would be very difficult for districts, such as Ysleta, your
poorer districts, to continue to provide what we are currently
and to go forward with projects because one thing that you have
to consider is that E-Rate does pay for certain eligible
services, and mostly what we have used it for in the past and
what I always use it for was connectivity issues and teleco
issues.
But then there's a whole other thing. You are building this
infrastructure, but what you want to do with that is to educate
kids.
Ms. DeGette. Right.
Ms. Foster. And so, therefore, you have to train the
teachers, which is not E-Ratable. You have to buy the
computers, which is not E-Ratable, and that is very expensive.
Those types of services are very expensive, and so, therefore,
the district is already putting a huge chunk of money into
trying to go forward with these technology initiatives.
E-Rate does a great job in giving us our connectivity and
our teleco services, but then districts make a huge commitment
as well so that you have the tools necessary so that if you
raise that to 80 percent it would be very hard.
Ms. DeGette. And, in fact, we have seen some examples like
in our last hearing with Puerto Rico where they did all of the
connectivity, but then they did not actually put in the
computers or train the teachers, and that does not help the
students one iota, does it?
Ms. Foster. Not at all.
Ms. DeGette. For your school district, YISD, how much would
you estimate that you spend, and you probably know, for teacher
training and for hardware and other aspects that are not
covered by the E-Rate annually?
Ms. Foster. District-wide annually, we probably spend $8,
$9 million annually.
Ms. DeGette. And how many students do you have in your
district?
Ms. Foster. About 45,000.
Ms. DeGette. Ms. Glogovac, I am wondering if you can tell
me in your testimony you said you thought there were a lot of
tools out there for discovery of waste, fraud, and abuse that
are being under-utilized that perhaps we could look at. I am
wondering if you could explain some of those.
Ms. Glogovac. Well, I am lucky enough to get access to some
tools from Funds for Learning. I do not know if you are
familiar with them. They are an organization here in the D.C.
area. They are E-Rate consultants. They provide consulting
services to applicants and service providers, and Sun actually
purchased one of their packages that allows them to view the
470 forms line item by line item and identify which applicants
are looking for internal connections' needs.
You can also go in and view what the applicants have been
awarded for the last 5 years of E-Rate program, which kind of
tells you how they might be increasing in their requests, and
it also will allow you to pull up which service providers have
been selected by that applicant in those subsequent years,
which can provide you with information about a pattern of
consistently the same service provider or possibly consistently
the same consultants and service providers working together
with an applicant. So that is possible.
Ms. DeGette. What you are saying is that the regulators
could just look at that data on line and begin to see patterns.
Ms. Glogovac. Yes, you could.
Ms. DeGette. Which, in fact, is what they did, to deny some
of these IBM contracts and other contracts for El Paso and
other school districts. They saw patterns and said that is a
problem.
Ms. Glogovac. Right.
Ms. DeGette. I wanted to clarify something. You are not
here testifying today on behalf of Sun, correct?
Ms. Glogovac. That is absolutely correct.
Ms. DeGette. You do not work for Sun anymore because you
got laid off, right?
Ms. Glogovac. Correct.
Ms. DeGette. And you are just here testifying as to what
you saw in your years of employment with that company, right?
Ms. Glogovac. That is correct, and I also have a passion
for this program, the E-Rate program, and that is why I am here
today.
Ms. DeGette. And why is that?
Ms. Glogovac. I have two children that go to school and I
work in the school, and I know how hard it is for schools to
get funding for projects, and technology is at the top of the
list of most of the schools. And I think this program really
helps them out. I think it is important.
Ms. DeGette. Thank you.
Mr. Caine, I wanted to follow up on a question that the
chairman asked because I was a little confused when Ms.
Glogovac was testifying. She said Sun had a much lower rate
that they were able to offer educational institutions, but IBM,
as the manager in the El Paso situation, declined that.
I am wondering if you know why that was declined, that
lower rate.
Mr. Caine. Ms. DeGette, I do not believe that we
necessarily declined the lower rate. What we did is we looked
at what the integration implications were of a Sun offering. Of
course, the school district has to make these determinations,
which they ultimately did, on selecting the Novell solution,
but as you go to a fixed price contract and as the systems
integrator, we had to manage where all of the different funds
were going to ultimately come out for all of the different
parts of what the school district had asked for.
So when we presented, and we raised these issues with the
school district about the various options and implications of
the three vendor choices, the school district arrived at their
decision.
Ms. DeGette. So the school district was the one in your
recollection that decided not to use Sun. It was not IBM.
Mr. Caine. The school district ultimately made the decision
to take Novell, correct.
Ms. DeGette. And I am going to have staff bring you a
document. This was a document that was prepared by the USAC
about IBM's application. It says Evaluation of IBM's Statement
of Work. Do you see that on the top? I just want to make sure
we have the same.
Mr. Caine. Yes, I do.
Ms. DeGette. Okay. This is USAC's evaluation of the IBM
Statement of Work for the El Paso Independent School District
E-mail system for the funding year 2001, and it talks about the
various ineligibility issues that arise.
You can take a look on the second page of this document. At
the bottom it says, ``Specific areas of the Statement of Work
that raise questions are as follows.'' Do you see that there?
Mr. Caine. I do.
Ms. DeGette. And it says, ``Section 2.2 describes
implementation services that appear to include high level
ineligible consulting, such as updating the objectives and
vision. Furthermore, the scope of the work described raises a
question whether the extent of work that received funding
approved in the previous year was completed successfully.''
I am wondering if you can comment on whether or not IBM was
aware that they were violating program rules with this item or
were just misadvised by your employees and consultants about
what was allowable under the E-Rate program rules.
Mr. Caine. Well, Ms. DeGette, we have never seen this
document before. So----
Ms. DeGette. Well, are you aware of the issues raised there
about Section 2.2?
Mr. Caine. No, I am not personally aware.
Ms. DeGette. Who would be aware of that?
Mr. Caine. I am not sure I can tell you who specifically
would be aware of it. This is the first time we have seen the
document. I would say----
Ms. DeGette. Well, forget about the document. Do you know
about the issue that is raised right there?
Mr. Caine. Not specifically, no.
Ms. DeGette. So the USAC never told you that there was high
level ineligible consulting?
Mr. Caine. Well, I do not know the date of this document,
and so it is hard for me to answer your question precisely, Ms.
DeGette, because it does not have a date. I do not know
whether----
Ms. DeGette. Well, it is March 2003, sir, if that helps
you.
Mr. Caine. Okay. That is helpful, but it does not help me
answer the question, but it certainly is, therefore, the case
that that would be after our engagement with El Paso.
Ms. DeGette. Okay. Section 2.2--so you have never seen this
evaluation, even though you are in charge of--what is your
title? It is Vice President for Government Programs?
Mr. Caine. That is correct, but I am not----
Ms. DeGette. But you have never seen this evaluation of the
IBM Statement of Work?
Mr. Caine. Ms. DeGette, I have never seen this evaluation,
and I am not in charge of the overall E-Rate activity for the
company, but I am involved with it.
Ms. DeGette. Okay. Who is in charge of the E-Rate activity
for the company?
Mr. Caine. Let me explain my role if I could, as Vice
President of Governmental Programs, I have responsibility for
public policy issues for the company of which the E-Rate
program, Edits and Section, was one. So I have been involved
with the E-Rate program on behalf of the company, commenting on
its development when it was a legislative proposal and when it
became a regulatory reality and program.
Ms. DeGette. Okay. So you are a guy who can testify as to
the policy implications on behalf of IBM of the E-Rate,
correct?
Mr. Caine. That is correct.
Ms. DeGette. Who is in charge of the E-Rate applications
and the program within your company?
Mr. Caine. We have a management system in IBM that is a
distributed management system, a matrix management system.
There is no E-Rate division of IBM.
Ms. DeGette. So there is no equivalent within IBM of what
Ms. Glogovac did when she was at Sun?
Mr. Caine. I have to remember precisely the way she said
it, but I thought I heard her say that she was a subject matter
expert; is that correct?
Ms. Glogovac. Single point of contact.
Mr. Caine. Okay. So we have a management system within IBM
that allows different people to get close to the customer
because we have a very large company. So we have sales people
and we have execution people who will get to know what the
requirements of a school district are all across the country.
Obviously we have been working with school districts for a
long time. So we have a matrix management system that brings a
team of people together when working with a school district
about what their needs are, E-Rate or not. In the context of an
E-Rate discussion, it would be a number of different people. We
have regular discussions about the E-Rate rules. We have
conference calls. We have now, as I said in my statement,
created a Center of Competence within the company.
But at the end of the day the organizational structure
within the IBM company relative to the E-Rate program uses the
fundamental matrix management system we have as an enterprise.
Ms. DeGette. So what you are saying is for each team that
goes out there in the field to advise the El Paso school system
or the Denver public school system or any other school system,
you are relying on the members of each of those individual
teams to have the familiarity with eligibility under the E-Rate
program.
Ms. DeGette. That is correct, and they are backed up by
people who are not necessarily customer facing, but are
knowledgeable about the program and the rules as----
Ms. DeGette. Who are those people?
Mr. Caine. Those people, they would be people within the
company, again, broken up into different section that would be
dealing with the public sector and education.
Ms. DeGette. Are those people identified as resources for
those folks out in the field?
Mr. Caine. Sure, and the staff. We have made these people
available to the staff of the subcommittee for numerous
interviews over the last----
Ms. DeGette. And how many of those people are there?
Mr. Caine. I cannot tell you exactly how many there are.
Ms. DeGette. Okay. Mr. Chairman, I would like it if Mr.
Caine could supplement his--I am sorry. Is Mr. Hawthorne
helping out there? Do you know Mr. Hawthorne?
Mr. Caine. Yes.
Mr. Hawthorne. One of the resources sitting right here.
This matrix that he is talking about, they were authorized to
contact Alpha Telecommunications for E-Rate help.
Ms. DeGette. That is the folks out in the field that Mr.
Caine is describing. Was Alpha basically the consultant for IBM
on eligibility issues under the E-Rate program?
Mr. Hawthorne. That is correct, as I pointed out in my
testimony. That is correct.
Ms. DeGette. Okay, and are you the only consultant or is
Alpha the only consultant that they were using?
Mr. Hawthorne. That I do not know.
Ms. DeGette. Okay. Do you know the answer to that, Mr.
Pratt?
Mr. Pratt. Yes, ma'am. We have evolved over time as the
program has grown, and in the early days we had retained Alpha
as part of our expertise on the E-Rate program, and that was
nationally. They were available to us nationally. We have
evolved now. As Mr. Caine has said, we have brought in from the
applicant community, we brought in additional experts. We have
approximately five folks. We have training that is conducted on
a yearly basis as the E-Rate cycle starts again, brings up to
speed on the eligible services, but we do have a central point
that is responsible for making sure that we are all applying
and adhering to the----
Ms. DeGette. And the central point is Alpha?
Mr. Pratt. No, it was initially, and we have now expanded.
In addition to still using Alpha, we now have our own folks. As
I said, we have got five IBM folks that are actually providing
that support.
Mr. Caine. Ms. DeGette, we hired Alpha to help us deepen
our internal expertise about the program. We felt we had
expertise, but we wanted more. They were a very knowledgeable
and respected E-Rate enterprise. So we hired them as a
consultant to help us internally.
Ms. DeGette. That is great. What I am wondering is when all
of your sales people are out in the field trying to work with
these school districts and other educational entities, is there
someone or a group, and I guess you are saying now there is.
Mr. Pratt, when was that group established within the
company?
Mr. Caine. When was it established?
Ms. DeGette. Yes, I was asking Mr. Pratt since he seems to
know.
Mr. Pratt. Yes, we started formulating it toward the end of
last year in terms of the current population that is in the
group that is supporting us today.
Ms. DeGette. The end of 2003?
Mr. Pratt. Yes, as we have evolved.
Ms. DeGette. Okay.
Mr. Pratt. That is where the group that is in place today
began, and then prior to that we were using folks like Alpha.
Ms. DeGette. Okay. So here is my question. There is some
sales team out in the field, and they are trying to do a big
contract. Were they required to vet that contract through Alpha
so that the people with the expertise could see whether there
were ineligible items there?
Mr. Hawthorne. That is correct, through Alpha.
Ms. DeGette. Was that a requirement that IBM put on its
sales folks? I know Alpha did it, but was it a requirement?
Mr. Pratt. Yes, ma'am.
Ms. DeGette. And the sales folks all knew that?
Mr. Pratt. Yes, ma'am.
Ms. DeGette. And now what happens, now that you have this
internal team?
Mr. Pratt. The same exact thing, but we have, as I said, we
have got an internal group now that has built up the expertise.
We brought them in with that same level. So the first point of
contact would be that team now.
Ms. DeGette. Okay. So I guess I will ask you, Mr.
Hawthorne, then since Alpha was apparently the E-Rate expert
hired by IBM at the time that these applications were
disallowed. Why from your perspective were there so many
ineligible items in these contracts, in these proposals?
Mr. Hawthorne. I do not recall any ineligible items in the
contracts.
Ms. DeGette. I mean, maybe you can take a look at that
document that I gave Mr. Caine.
Actually, Mr. Chairman, shall I go on on that?
I am going to yield, and I will come back to you, Mr.
Hawthorne.
Mr. Walden. All right. Mr. Bohuchot, let's start with you.
In your testimony you said on page 3, ``During the review
of the SOWs, I questioned the size and scope of the effort
being proposed by IBM. I was told that it was okay. `You never
get everything you ask for. The SLD always reduces the scope of
the work.' '' Who said that?
Mr. Bohuchot. I do not recall the name of the individual.
It was one of the Alpha people.
Mr. Walden. One of the Alpha people. Okay. Then walk
through with me how all of this works because the district's
pre-discount total you said went from $216,030,996 to
$129,185,228, a difference of nearly $85 million.
Mr. Bohuchot. Eighty-six.
Mr. Walden. All right. It is 84,845,768. Oh, that is right.
Okay. So that is the figure that we needed to correct.
Mr. Bohuchot. Right.
Mr. Walden. I stand corrected. So okay. Eighty-six million
dollars.
How do you go from a $216 million project to a 100--now, do
we change the one? No, we do not. Okay. So how do you go down
to about a $129 million project? That is a fairly substantial
change. What happened?
Mr. Bohuchot. Well, once IBM had been selected as the
strategic technology partner for the district, they had
aggressively started the work to go ahead and figure out what
the filing with the SLD was going to be, and when I was giving
those documents to sign, I was just blown away by $216 million.
Mr. Walden. It does tend to get your attention.
Mr. Bohuchot. Yes, and I asked some questions.
Mr. Walden. Of whom?
Mr. Bohuchot. Of the IBM and the Alpha people who were in
my office.
Mr. Walden. All right.
Mr. Bohuchot. And when that comment that you had quoted was
made, and I asked a few high level questions, and I had told
them at that time that I did not believe that that was a
correct filing, that we are going to reduce it or that I needed
to look at it in greater detail. The problem was that it needed
to be signed and sent to the SLD to meet a time line.
I did----
Mr. Walden. Who came up with the $86 million reduction?
Mr. Bohuchot. What we did is we subsequently met. After I
signed the documents that went forward to the SLD, I had let
the SLD know that I was going to look at the projects in detail
and more than likely was going to reduce the filing.
I had spent some time with the documents, the statements of
work that were given to me by IBM, and set a meeting with IBM
and Alpha, and we sat down to talk about it, and I was not
convinced that there was not some redundancy in cost. By the
time we had finished that meeting, we had reduced it by $86
million.
Mr. Walden. So there was redundancy in cost?
Mr. Bohuchot. In my opinion there was.
Mr. Walden. How so?
Mr. Bohuchot. There was for file service, for example,
there was the cost to set up the file servers, and you do the
conditioning work to get them ready to be installed, and then
the actual installation, and then when I looked at the
technical support Statement of Work, there was also--you seem
quizzical.
Mr. Walden. No, go ahead.
Mr. Bohuchot. Okay. When I looked at the technical support,
which was another filing, it seemed to be redundant, some of
that activity, with the file server activity. So when we kind
of agreed that there was some redundancy there, we went ahead
and reduced the technical support.
Mr. Walden. Did you have technical people on your team
evaluating this?
Mr. Bohuchot. Yes, sir.
Mr. Walden. So they took a look at this contractor. Was IBM
your technical person for the company?
Mr. Bohuchot. Well, yeah, they were.
Mr. Walden. The integrator. So you had your own tech people
looking at what IBM had put forward. Are they the ones who put
forward the $200 million recommendation?
Mr. Bohuchot. IBM did. I will say that, you know, when I
sat down with IBM, I had my wide area network director.
Mr. Walden. Sure.
Mr. Bohuchot. My No. 1 technician, in essence, with me, and
he was agreeing that, you know, everything was okay relative to
the file server filing and the technical support filing, and I
did take him outside the room, and I asked him not to say
anything until I finished the discussion.
Mr. Walden. Why? Why did you do that?
Mr. Bohuchot. Well, because he honestly believed that--he
did not understand the direction that I was taking relative to
try and see if there was redundancy.
Mr. Walden. I see.
Mr. Bohuchot. And he believed that the filings were
absolutely spot on. He had help to work on them and had a sense
of ownership in those also.
Mr. Walden. I see. So he helped put all of that together.
Mr. Bohuchot. He participated with IBM. So I had asked him
not----
Mr. Walden. So you were coming back from a management
standpoint saying, ``Justify what is in here.''
Mr. Bohuchot. Well, the item that got him to kind of settle
down was when I said to him, ``If you take the $49 million of
technical support and you divide it by $250 an hour, that is
102 people. Where are you going to put 102 people at?''
Mr. Walden. So your tech support was $49 million?
Mr. Bohuchot. Right.
Mr. Walden. Over what period of time?
Mr. Bohuchot. It would have depended. I mean, if we had 10
months to do the project, it would have been 10 months. If we
had----
Mr. Walden. What did you whittle it down to in that sector?
Mr. Bohuchot. We went from $49 million down to $13 million,
and quite frankly, at $13 million I kind of acquiesced there
because, you know, I really did not at that time know that it
would be $13 million. At that point I said okay.
Mr. Walden. Okay. So you got it down. How big is your
project compared to El Paso's?
Mr. Bohuchot. We have 165,000 students. So we are what,
four times?
Mr. Walden. How many schools?
Mr. Bohuchot. Two hundred eighteen schools.
Mr. Walden. I want to compare apples to apples here. I
represent an apple growing region. So I always like to do that.
We grow pears.
Mr. Bohuchot. As a percent, El Paso would have been larger
than DISD.
Mr. Walden. Yes, I guess that is my question.
Mr. Bohuchot. Right.
Mr. Walden. So you had a bigger project with more schools
with a smaller size help desk or help work?
Mr. Bohuchot. I thought it was going to be a huge help desk
for a while.
Mr. Walden. But you cut yours down to $13 million is my
point.
Mr. Bohuchot. Right.
Mr. Walden. And El Paso still stayed at $27 million, right?
For next year, but still, what is the difference?
Mr. Caine. I was going to clarify one of the comments about
El Paso, which was the following year, which was never funded.
That cost was cut in half basically in the proposal because the
startup costs----
Mr. Walden. So year 2. Was his year 1 or year 2?
Mr. Bohuchot. Year 5.
Mr. Walden. Year 5. Okay. What were your year 1 costs on
the help desk then?
Mr. Bohuchot. DISD has been very conservative relative to
filing for E-Rate. Our year 1 was, I think--well, I can tell
you exactly. Our year 1 filing was $12,272,000.
Mr. Walden. That is for your total project though, right?
Mr. Bohuchot. Internal connections was $12 million; telecom
was $105.
We have been very conservative for a number of reasons. One
is that we are cash strapped, revenue strapped district, and
having the commensurate matching funds has not been an easy
thing.
Mr. Walden. What happens now? I understand you have been
rejected.
Mr. Bohuchot. Well, we were rejected for E-Rate year 5. IBM
had asked us to appeal, and we had thought about that, but we
decided not to appeal.
Understand that this whole process was about a year, 10, 11
months in making. So during that time we had the benefit of all
the work that we did with IBM and the numbers that we developed
with them.
Mr. Walden. But your tech support staff today, are they
able to keep the network up and running and do all of that?
Mr. Bohuchot. Well, it kind of is not a fair question
because we did not get the funding that year. So we are just
now working on the funding for E-Rate year 6. So, I mean, our
tech support----
Mr. Walden. But don't you have a network up and running
today?
Mr. Bohuchot. Yes. For what we have got up and running,
which is a fairly robust network, we keep everything running
with the staff that we have that is full time.
Mr. Walden. And what does that cost you?
Mr. Bohuchot. Probably $600,000, $650,000 a year.
Mr. Walden. Thank you.
Mr. Caine and Mr. Pratt, the CIO of Dallas Independent
School District testifies that he questioned the size and scope
of the effort being proposed by IBM, and he says IBM told him
you never get everything you ask for. You just heard me go
through that, with the implication that the district should ask
for more than they plan to receive. At least that is the way I
would read it.
Is this how the system operates?
Mr. Caine. Mr. Chairman, we have a different
characterization than Mr. Bohuchot about what happened on this
particular point.
Mr. Walden. All right.
Mr. Caine. We disagree with his characterization, and I
will be happy to explain.
Mr. Walden. Yes, please do. How did you get to over $200
million?
Mr. Caine. Mr. Chairman, the initial proposal from IBM to
Dallas was $100 million, and it was not our proposal at $220
million.
Mr. Walden. Whose was it?
Mr. Caine. It was the decision of the school district.
Mr. Walden. Okay. We are somewhere between $100 and $200
million off here. Who made the decision to take your proposal
at $200 million, Mr. Bohuchot? Was it your folks?
Mr. Bohuchot. I received documentation to sign to forward
to the SLD of $216 million.
Mr. Walden. Who gave you the documentation?
Mr. Bohuchot. I suppose it was IBM. I mean, IBM was the
partner that was supposed to help us bring those out.
Mr. Walden. Okay. Mr. Caine, you seem to know that you
submitted $100 million, and Mr. Bohuchot says documentation is
$200 million. Who but the other $100 in there?
Mr. Caine. Mr. Chairman, our understanding is that Mr.
Bohuchot had a conversation with George McDonald, the SLD, and
after that conversation the $200 million was reduced, but we
never proposed originally the $200 million. We proposed a $100
million scope.
Mr. Bohuchot. If I can, maybe----
Mr. Walden. If you can enlighten us, yes, because I was
left with the impression from your comments, Mr. Bohuchot, that
it was IBM that brought you a $216 million contract or
proposal.
Mr. Bohuchot. I have a document here and its proposed
adjustments that was developed by IBM, and the numbers that we
are talking about, the $216 reduced, are in this document here.
Mr. Walden. Would it be possible for you to provide that?
Mr. Bohuchot. Sure.
Mr. Walden. For the record, without objection.
[The following was received for the record:]
[GRAPHIC] [TIFF OMITTED] T6098.139
[GRAPHIC] [TIFF OMITTED] T6098.140
[GRAPHIC] [TIFF OMITTED] T6098.141
[GRAPHIC] [TIFF OMITTED] T6098.142
[GRAPHIC] [TIFF OMITTED] T6098.143
[GRAPHIC] [TIFF OMITTED] T6098.144
[GRAPHIC] [TIFF OMITTED] T6098.145
[GRAPHIC] [TIFF OMITTED] T6098.146
Mr. Caine. And, Mr. Chairman, if I could just add that we
have provided all of our documents to the committee staff, as
well.
Mr. Walden. Including this one?
Mr. Caine. All of the documents that we have, yes.
Mr. Walden. All of the documents that you have?
Mr. Caine. Yes, all the documents----
Mr. Walden. Is this a document you recognize? Can you show
this?
Mr. Caine. I have to see it.
Mr. Walden. Oh, yes, that is always good in this process.
Mr. Caine needs to see that.
Yes, it has the IBM logo on it, Mr Caine. I will give you a
minute with that.
Mr. Hawthorne, do you have some knowledge of this?
Mr. Hawthorne. Your Honor, I do recall working with the
Dallas School District, and I recall that it was one of the
more sophisticated school districts that we worked with. And my
recollection is that the Dallas School District, the technology
person, drove the process, and that the member that originated
$200 million or thereabouts was a Dallas School District
member, not an Alpha or an IBM member, and that this number was
reduced not voluntarily. It was only reduced after Mr. Bohuchot
had a conversation with the SLD, specifically Mr.--I forget his
name.
Mr. Walden. McDonald?
Mr. Hawthorne. McDonald, yes.
So it was not reduced, in my opinion, as an independent
review.
Mr. Caine. And, Mr. Chairman, I do want to answer your
question about this.
Mr. Walden. Yes, please.
Mr. Caine. Yes, we did submit this document to the staff.
Mr. Walden. Okay. So we do have it. As you can tell, we
have a lot of them in the binder.
Ms. DeGette.
Ms. DeGette. Thank you, Mr. Chairman.
Okay. Mr. Hawthorne, if you could just take a look at that
document that I had given to Mr. Caine, the one that says
``evaluation of IBM Statement of Work,'' and maybe you are
familiar with some of these issues. I will simplify my
questioning.
If you can look at Appendix A, it says Appendix A,
``Eligibility Issues Contained in Statement of Work,'' and
first of all, have you ever seen this document from the USAC?
Mr. Hawthorne. No, I have not.
Ms. DeGette. What Appendix A appears to be, well, what it
says it is, the left column and the information that follows
describes information contained in the Statement of Work. The
right columns provides conclusions about the E-Rate eligibility
of the products or service described by the statements.
Do you see that there?
Mr. Hawthorne. I see it, yes, ma'am.
Ms. DeGette. Okay. So here is my question to you. It says
Section 2.2 is titled E-mail installation planning. Eligibility
comment: this may imply initial planning which is not eligible
per the eligible services list.
Were you aware of any problems with the title of Section
2.2, implying that there may be ineligible planning?
Mr. Hawthorne. What it says, ma'am, is ineligible initial
planning, which is outside the scope of E-Rate.
Ms. DeGette. So that was not contemplated?
Mr. Hawthorne. No, it does not say that planning is
ineligible because it is.
Ms. DeGette. Right.
Mr. Hawthorne. It is eligible.
Ms. DeGette. But what you are saying is there was no
ineligible planning contained.
Mr. Hawthorne. I was not aware of any initial planning. To
be perfectly honest, it was very difficult to get IBM moving on
the project at all because they wanted to wait until the
project was funded. So to my knowledge, there was no initial
planning.
Ms. DeGette. Okay. What about Item 2? Now, this clearly
says in the next category here Section 2.2, Item 2, is develop
distributed E-mail architecture. That was clearly in the
Statement of Work, but the eligibility comment says such an
activity clearly falls within the ineligible initial planning
category. Architecture must already be known for applicants to
indicate the products and services to be deployed, which is a
requirement of Form 471.
Now, did IBM run this by you before they put this section
in their Statement of Work? That is clearly ineligible.
Mr. Hawthorne. Well, the SLD says it is clearly ineligible,
but they also say that it clearly falls within the ineligible
initial planning category.
Ms. DeGette. Right. Develop distributed E-mail architecture
is within the ineligible initial planning category, right?
Mr. Hawthorne. Ineligible initial planning category. That
is what it says in the right-hand column, and again, I am not
aware of any initial planning done by IBM on this project.
Ms. DeGette. No, what the USAC is saying is this item,
develop distributed E-mail architecture, is ineligible because
it is within the initial planning category, but you disagree
with that?
Mr. Hawthorne. I know of no initial planning involving
this.
Ms. DeGette. Well, what they are saying the initial
planning is develop distributed E-mail architecture. You do not
think develop----
Mr. Hawthorne. During the initial planning stage?
Ms. DeGette. Yes.
Mr. Hawthorne. If it is in the initial planning stage, it
would be ineligible, but I do not recall that being done,
during the initial planning stage. There was no initial
planning.
Ms. DeGette. Let's talk about the fifth little section
there, the second one from the bottom, which says Section 2.2,
Item 12, is ``assist in developing standards for conductivity,
security, and access from outside the firewall,'' and the
comment is, ``Security features are not eligible under current
program rules and, thus, consultation in security standards
would not be eligible.''
What is your response to that?
Mr. Hawthorne. I do not know what current program rules you
are talking about. Are you talking about current current
program rules or are they talking about current rules that were
current at the time El Paso made its application?
Program rules change each year.
Ms. DeGette. Did this program rule change, since you are an
expert?
Mr. Hawthorne. My recollection is that connectivity dealing
with firewalls was eligible in 2001. I may be wrong.
Ms. DeGette. It was? Okay. Did IBM run this item past you
as the expert on the E-Rate eligibility?
Mr. Hawthorne. If it was in the Statement of Work, they ran
it, yes.
Ms. DeGette. So you saw the whole Statement of Work, right?
Mr. Hawthorne. Yes.
Ms. DeGette. Okay. Take a look at the next page of Appendix
A, and it says Section 2.5, ``Web maintenance overview
indicates that Cyber Control content filtering software will be
provided.'' Do you see that?
Mr. Hawthorne. Yes.
Ms. DeGette. Now, the comment is filtering software is not
eligible. What is your opinion on that?
Mr. Hawthorne. I would saying filtering software is not
eligible.
Ms. DeGette. But it was----
Mr. Hawthorne. I do not recall seeing this in the El Paso
Statement of Work.
Ms. DeGette. Okay, but the USAC apparently did see it in
the El Paso Statement of Work.
Mr. Hawthorne. So they say, yes.
Ms. DeGette. But you do not recall, and you reviewed that.
Mr. Hawthorne. I did personally.
Ms. DeGette. Okay. So you made a mistake? Would that be----
Mr. Hawthorne. Well, I am not above making mistakes, but I
make very few of them.
Ms. DeGette. Well, as I recall, your company received what,
about $2.4 million in fees as a result of the----
Mr. Hawthorne. From IBM, that is correct.
Ms. DeGette. For the El Paso project.
Mr. Hawthorne. That is correct.
Ms. DeGette. Were you the one that worked on this or were
there others that helped you review it?
Mr. Hawthorne. There were others, yes.
Ms. DeGette. How many others?
Mr. Hawthorne. There were three of us altogether.
Ms. DeGette. And did you review this and then did you
provide written comments to IBM about their proposal or did you
draft the Statement of Work?
Mr. Hawthorne. No, IBM provided the Statement of Work,
which we reviewed and we provided----
Ms. DeGette. And who was it you dealt with at IBM with
respect to the El Paso proposal?
Mr. Hawthorne. I believe it was Don Riddick.
Ms. DeGette. Don Riddick?
Mr. Hawthorne. Yes, that's my recollection.
Ms. DeGette. Okay. And did you provide any comments to Mr.
Riddick about ineligible items?
Mr. Hawthorne. Continually.
Ms. DeGette. Do we have that documentation?
Mr. Hawthorne. I believe I provided everything that was in
our possession regarding that.
Ms. DeGette. Okay. Now, Mr. Caine, when this initial
Statement of Work was developed by IBM for the El Paso
district, were you in your position at IBM at that time? I
think that was 2001.
Mr. Caine. Yes.
Ms. DeGette. Did anyone bring it to your attention, any
issues relating to ineligible items in the Statement of Work
for El Paso?
Mr. Caine. No.
Ms. DeGette. So that is why you told me earlier when I
showed you this document you did not have any idea, correct?
Mr. Caine. We have never seen this document before. We have
never and the IBM company has not seen this document before.
Ms. DeGette. As far as you know. You have never seen it.
Mr. Caine. No, but I am consulting with my colleagues, we
turned everything over to the subcommittee that we have, and we
have never seen this, and we do not know the date of it.
Ms. DeGette. Okay.
Mr. Caine. Can I just amplify one thing that Mr. Hawthorne
said?
Ms. DeGette. Sure.
Mr. Caine. The eligible services list has evolved
dramatically over the time, over the years of this program, and
different interpretations have been made about what is eligible
and what is not eligible throughout that time period. So in
defense of Mr. Hawthorne, it is very hard to make a definitive
statement about a document we have never seen before that is
making a decision about an eligible service without a time
context to know whether it aligns with the El Paso application
or not.
Ms. DeGette. Well, Mr. Caine, let me say this. We are
concerned, and we are not just trying to pick on IBM. We are
concerned because we are talking about millions and millions,
in some cases hundreds of millions of dollars from the E-Rate
fund which are just wildly going around and which could be used
to wire up these low income schools.
And I am going to ask Mr. McDonald to come back up in a
minute and talk about this, but it seems to me that when
corporations and their consultants are making so much money
from these projects, the letter of the regulations should be
followed, and I do not think you would disagree with that.
Mr. Caine. Not one bit.
Ms. DeGette. One bit.
Mr. Caine. Not one bit, and that is exactly why we believe
the rules and the criteria should be clear, and quite honestly,
they have not been either clear or consistently applied over
time.
Ms. DeGette. I would like to recall Mr. McDonald.
Mr. Walden. Mr. McDonald, could you rejoin us for this
panel? I think you have now been on all three panels, and as a
reminder, you remain under oath.
Ms. DeGette. Thank you, Mr. McDonald. I know you have had a
long day today.
Are you familiar with the document that I have been talking
with these gentlemen about?
Mr. McDonald. I am.
Ms. DeGette. And did you prepare that document?
Mr. McDonald. A colleague of mine on my staff did.
Ms. DeGette. And when was that document prepared?
Mr. McDonald. We did not date this. There are a series of
these drafts that we provided to your staff. IBM did not see
this analysis until last week when we sent a letter to them
asking them to comment on our tentative conclusions. So they
would not have recognized this document.
Ms. DeGette. Okay. I think I have got a copy of that. That
letter that was sent last week was sent to Bob Richter?
Mr. McDonald. That is correct.
Ms. DeGette. And he is addressed in your letter as the
National E-Rate program Executive, correct?
Mr. McDonald. Yes, I believe he is in the new Center of
Competence that Mr.----
Ms. DeGette. Is that right, Mr. Caine?
Mr. Caine. That is correct.
Ms. DeGette. Okay. Now, some of the issues that were
outlined in the evaluation of the IBM Statement of Work, were
those issues also contained in your letter that was sent to IBM
last week?
Mr. McDonald. Yes.
Ms. DeGette. So while they may not be familiar with this
particular document, they are familiar with those issues,
right?
Mr. McDonald. That letter just went out last Thursday.
Ms. DeGette. So were they apprised of the eligibility
issues before last week?
Mr. McDonald. No, ma'am.
Ms. DeGette. So, for example, in Appendix A, when I am
asking Mr. Hawthorne and Mr. Caine about these ineligibility
issues, they were never informed of that before?
Mr. McDonald. They were not informed before the letter last
Thursday. That is correct.
Ms. DeGette. Okay.
Mr. McDonald. We were working with the FCC about getting
this document out.
Ms. DeGette. All right. Well, let me ask you this because
we were talking about some of these issues that were in
Appendix A, Section 2.2, develop distributed E-mail
architecture, and the eligibility comment was such an activity
clearly falls within the ineligible initial planning category.
Can you explain why that item would be ineligible?
Mr. McDonald. Applicants are supposed to do technology
planning. They are supposed to develop their network concepts,
the planned architecture and so forth, and then put out a Form
470 that describes that actual services they need to fill that
technology plan. The planning developing architecture, that
kind of information, that kind of work is supposed to be done
ahead of time before filing the Form 470, and certainly before
filing the Form 471. That is ineligible for discount.
What is eligible for discount is the actual work to put
that technology plan in place.
Ms. DeGette. And do the vendors know that?
Mr. McDonald. I believe they do.
Ms. DeGette. And was that the case in 2001?
Mr. McDonald. That has always been the case.
Ms. DeGette. Okay. So the rules did not change around that?
Mr. McDonald. Firewall has changed since 2001.
Ms. DeGette. Okay. Now, so when you say here Section 2.3,
Item 3 indicates that IBM servers will be installed and
configured with free firewall software, you say here or your
colleague says firewall software is not eligible. But that was
not true in 2001? It was eligible?
Mr. McDonald. No, it was not eligible in 2001, and in
looking at the eligible services list, they would have seen
firewall is ineligible.
Ms. DeGette. Okay, and again, in 2001, were the vendors
well aware that firewall software was not eligible at that
time?
Mr. McDonald. They should have been. It was on our eligible
services list.
Ms. DeGette. And certainly consultants who were experts in
the E-Rate program would know that I would think.
Mr. McDonald. I would hope so.
Mr. Hawthorne. Consult----
Ms. DeGette. Let me finish.
Just one more question, Mr. McDonald. Where it says Section
2.5, Web maintenance overview indicates that Cyber Patrol
content filtering software will be provided, and then the
comment is filtering software is not eligible; was that the
rule in 2001?
Mr. McDonald. That has been the clear rule from the
beginning. I believe Congress addressed that when they passed
the Children's Internet Protection Act, I believe.
Ms. DeGette. Okay. What I would like you to do, just take
just a second and look over this Appendix A and tell me for all
of the items on Appendix A, were those rules in place in 2001
and should the vendors have known about it in 2001.
Mr. McDonald. I believe so.
Ms. DeGette. All right. Mr. Chairman, I would ask unanimous
consent that both this document, ``Evaluation of IBM Statement
of Work,'' and also the September 16 letter from the USAC to
IBM be entered in the record.
Mr. Walden. The letter is already in the record, but the
other information will be added.
Without objection, so ordered.
Ms. DeGette. And I would also say, Mr. Chairman, that I
would hope that the USAC where it is seeing issues like this,
where there is widespread ineligibility in these applications
would communicate that to the vendors immediately. I would hope
that would happen because I can now understand some of Mr.
Caine's confusion at least.
Mr. McDonald?
Mr. McDonald. At this point we were waiting for the FCC
decision on the basic big picture with the IBM procurement
approach, which was true of El Paso as well. So we did not know
what the guidance was going to be about the procurement
approach, and if the decision was it was improper and was
always improper, we would have sought to recover the money from
El Paso for everything independent of the services. We were
doing this analysis. Depending on what the FCC decided, then we
would pursue recovery based on the services. That was what was
going through our mind.
Ms. DeGette. Thank you.
Thank you, Mr. Chairman.
Mr. Walden. I believe Mr. Hawthorne wanted a follow-up.
Mr. Hawthorne. I am not sure what the procedure here is,
but could we have additional time to respond to this document
since we have just seen it today?
Ms. DeGette. Mr. Hawthorne, we would give you----
Mr. Walden. The record remains open for 10 days.
Ms. DeGette. I would not object to allowing you to send a
written response.
Mr. Hawthorne. When Mr. McDonald was speaking, and I am not
positive on this; I have to go back and review the rules, but
it says on Section 2.3, Appendix A, the second column,
``firewall software is not eligible,'' but then it says,
``Program rules require cost allocation for such components.''
I am not aware that the cost allocation process was even in
place when El Paso was funded. Again, I may be wrong. I would
just like an opportunity to review.
Ms. DeGette. Mr. Hawthorne, I have no objection whatsoever
to you being allowed extra time to respond.
Mr. Hawthorne. Thank you.
Mr. Walden. And our record does remain open.
Mr. McDonald.
Mr. McDonald. And our letter asks IBM to respond to us
within 30 days. They have asked for an extension of that, which
we will grant, to get back to us with a detailed response to
our analysis.
Mr. Walden. All right. I guess sort of fundamentally here,
Mr. Caine or Mr. Pratt, did El Paso need a $67 million system?
And did Dallas need a $216 million system?
Mr. Caine. Mr. Chairman, the E-Rate program asks school
districts to develop a technology plan, as we talked about this
afternoon.
Mr. Walden. Right.
Mr. Caine. It is that plan that service providers or
vendors like IBM are asked to respond to. We do not tell the
school district what they need. They set up the requirements,
and then we respond to their 470's and their RFPs accordingly.
That process goes through obviously a judgment and a
decisionmaking process by the schools and then boards. This was
a fairly open, very open process of the plan that the school
districts prepare--what is in the community's interest. Do they
need it? Do they have the appropriate funds to put up their
share as you were talking about earlier this afternoon?
And so we respond to what the community feels it needs.
Mr. Walden. Okay, but how does that gibe then with the sort
of cookie cutter approaches IBM came up with for various school
districts, the almost identical, if not identical, proposal?
Twenty-one of them?
Mr. Caine. Well, we would not necessarily say they were
cookie cutters. We were saying that the school districts
obviously are interested in understanding what other school
districts are doing. They can get that information from various
sources: the SLD Website. There are a number of Websites within
the E-Rate community.
Now, each school district has to come up with its own
technology plan.
Mr. Walden. Okay. Mr. McDonald, weren't these 470's pretty
much identical?
Mr. McDonald. They were.
Mr. Walden. Do you think that represents individual plans
from each district of those you saw in those 470's?
Mr. McDonald. I believe the committee staff has an E-mail
from Seattle from IBM to the Seattle Public Schools attaching
the 470, suggesting this is a good 470 that is very broad and
it gives us lots of flexibility.
So I think there is reason to believe that the 470's were
suggested by IBM.
Mr. Walden. Is this one of these where they basically ask
for every available service?
Mr. McDonald. The 470, I have used the word
``encyclopedic.'' It appears to try to cover every possible
service and equipment that is eligible under the program.
Mr. Walden. All right. I want to get back to my other
question. Did Dallas need a $216 million system?
Mr. Caine. Mr. Chairman, only they can answer that
question. We suggested to them that they did not at the
beginning.
Mr. Walden. Then let me have you go to Tab 41, and I
realize you say you told them $100 and some million dollar
system, but it is like two or three pages in here, and it is
from one of your folks, IBM H0026480, and it is from a James
Whitmer, I believe, who is with IBM.
Mr. Caine. Mr. Chairman, could I just ask are you on Tab 41
did you say?
Mr. Walden. I believe that is correct. Tab 41, and then
about three pages in, and you give your IBM number at the
bottom.
Mr. Caine. James Whitmer, yes, and you said the number was?
Mr. Walden. Zero, zero, two, six, four, eight, zero. Two,
six, four, eight, zero.
Mr. Caine. Okay.
Mr. Walden. And I go back to this because here, this
person, Jim Whitmer, is your IBM Global Services Integrated
Technology Services Sales, and it is dated in March. And, Mr.
Pratt, I believe you were cc'ed on this E-mail, and it says,
``We met with Dallas ISD staff today and our approach to any
changes will not require a new QA or PCRs. Worst case, they
will eliminate one of the SOWs which will most likely be the
video SOW. This would actually be a postponement until E-Rate
6. We will be meeting with them again this Thursday and will
encourage them to move ahead with the SOWs as submitted
totaling 216M. If there are any questions, please let me know.
Thanks. Regards, Jim Whitmer.''
So you are telling me you submit a $100 and some million
dollar proposal. It comes back at 200, but then your folks are
saying, hey, you know, we are going to try to get them to move
ahead as planned here for the full $216.
Mr. Pratt, do you have a comment on that or Mr. Bohuchot?
Mr. Caine?
Mr. Pratt.
Mr. Pratt. Yes, sir. I wasn't directly involved in the
conversation. I got copied on a lot of notes for Western
Region, but my understanding was that when DISD came back and
said the requirements due based on the technology plan, this is
what we need, we felt the integrity of the program would be
held up. If we started reducing at that point, there was a
question that the SLD would come back and say why was this
asked for in the first place.
And so it was better to continue with the original
submission.
Mr. Walden. Well, what that says to me is we never believed
in the original submission of 216. That was them. Now they are
coming back saying that is more than we need, and you are
saying, no, let's keep the 216 in there. They might ask other
questions? Is that what you are saying?
Mr. Pratt. Not necessarily other questions, but once we----
Mr. Walden. Well, you said it might bring into question, I
think you said, the integrity of the submission.
Mr. Pratt. The integrity of the submission. It would raise
questions as to why would you submit $216 million in the first
place if----
Mr. Walden. Well, isn't that a realistic question somebody
needed to ask? Why do you think it raises that question?
Mr. Hawthorne? Mr. Caine? We are talking a lot of--Mr.
Bohuchot, how do you respond to that?
It appears here--I will just read it again. ``We will be
meeting with them again this Thursday.'' I assume that means
you all, the school district, ``and will encourage them to move
ahead with the SOWs as submitted totaling $216 million.''
Mr. Bohuchot. I am supposing that we met on a Thursday, and
we jointly came to the conclusion that we should reduce the
filing, which generated the document that you have got.
Mr. Walden. Right, that then came out in May, right? That
says, ``The following summary shows adjustments based on
reduced number of schools, recent due diligence, and the
elimination of the video SOW.''
So, indeed, Mr. Whitmer was right. You are going to
eliminate, but I guess the question I have is: what happens in
between here? I mean, on the one hand, I am told--one second,
Mr. Hawthorne. I will give you time.
Mr. Hawthorne. Okay.
Mr. Walden. On the one hand, I was told it was not IBM's
plan. Then it seems to be like it is your techies and the
school district pumped it up. It comes back to IBM. IBM said,
``Hey, not our plan. We did not pump it up to 216. They did.''
But then when you start to question it, their people are
saying, ``We are going to try and keep them going at 216
because somebody may question why it was pumped up.'' Mr.
Hawthorne?
Mr. Hawthorne. You know, IBM certainly does not need any
help from me, but my recollection on this particular item was
that there was talk of a reduction, but when you are talking
reduction, you just can't start lopping stuff off. What you
have to do is look and see what is out there.
Do you just reduce by a certain dollar amount or do you see
how much you want to cut back on your maintenance? Do you see
how much you want to cut back on your internal connections?
It has to be some type of proportionate adjustment. You do
not just----
Mr. Walden. Well, I do not dispute that. That is not the
question here.
Mr. Hawthorne. Well, I think it is the question. From what
I have heard being bantered about here is that there was this
great reduction because someone looked at this and said, ``We
cannot afford this. We do not want to do this.''
Mr. Walden. No, that is not what I heard. What I heard was
from Mr. Bohuchot, they figured out it was gold plated. It was
far more than they needed for their system. Isn't that what you
basically said, Mr. Bohuchot? Eighty-six million?
Mr. Bohuchot. Quite frankly, a lot of it was because I felt
that I would end up here eventually regardless of what was
being filed.
Mr. Walden. Not everybody is that lucky, but we are glad
you are here.
Mr. Bohuchot. And here I am, and I would rather explain $17
million in technical support versus $43 million or whatever it
was.
Mr. Walden. All right.
Mr. Bohuchot. So you were suspicious of this; is that
right? Most people do not wake up in the morning and say,
``Gee, I think I am going to get to go to the O&I Subcommittee
some day.''
IBM and the district has a long, good standing
relationship. I personally have worked with numerous IBM
staffers. They were our partner implementing a major ERP
system, finance H.R. payroll, and quite frankly, without them,
we would not have got it done on time and under budget. So it
is not an IBM personal thing.
Mr. Walden. No.
Mr. Bohuchot. We hit a wall, and the wall said there is
$216 million there. Ruben, you have to sign the documents to
let it go. Are you comfortable signing it?
Quite frankly, I was not comfortable signing it.
Mr. Walden. Good for you.
Mr. Bohuchot. Well, I do not want to take credit for it.
Also I do not know if Mr. McDonald remembers, but I also
called George.
Mr. Walden. Right.
Mr. Bohuchot. And I said, ``George, I have signed this
thing, but I want to let you know that I am going to adjust
it.''
Mr. Walden. Do you remember that, Mr. McDonald?
Mr. McDonald. I do, sir.
Mr. Walden. You do. Okay.
I want to go to Tab 17, and you all may want to take a look
at this. Mr. McDonald, I think this was the document that you
recently referred to when you talked about Seattle. I will let
you get that in front of you, sir.
Mr. McDonald. Yes, sir.
Mr. Walden. In about the third paragraph down, it says
Mitchell, and that is John Mitchell. Who is John Mitchell?
Mr. McDonald. He is a consultant to Seattle Public Schools
for overseas--their E-Rate.
Mr. Walden. It says, ``Mitchell stated that he called
George McDonald after the December 3, 2002 Website noticed was
posted because he was concerned that SPS would be targeted for
scrutiny because they had used the Form 470 boilerplate
template that IBM had provided to them during their preliminary
discussions with IBM when they posted their FCC Form 470.
Mitchell forwarded me the E-mail that he received from IBM with
the FCC Form 470 boilerplate template attached.''
This, by the way, is from Kristy Carroll to file, and then
the next graph says, ``Mitchell stated the discussions with IBM
began in October and that he was on a conference call with
Steve Mueller and Charles Gentry. He stated that one of IBM's
selling points was that they represented to him that former SLD
attorneys work for IBM, and as a consequence IBM knows all of
the loopholes in the program. Mitchell said that because SPS
had started the E-Rate process a little late this year, that
the plan with IBM was that SPS would use the Western States
consulting contract agreement rather than go through local
procurement regulations.''
And it later says Mitchell said that he saw it as a way for
IBM to get around State procurement cycle and says Mitchell
stated that another one of IBM's selling points was that IBM
could get SPS a lot more funding than they had gotten in the
past.
The next page it says Mitchell stated that he was told by
Alpha or Gentry that they could increase the number of 90
percent sites at the SPS from 13 to 40, and then says Mitchell
stated that he started feeling unpleasant about the discussions
with IBM in November.
Can you address this for us?
Mr. McDonald. Kristy Carroll is our Associate General
Counsel. She is here with us today.
And when we posted the notice in December 2002, we posted a
prominent notice on our Website about the procurement pattern
that IBM had engaged in, and I contacted Mr. Bohuchot at that
point, and a lot of the applicants who had 2002 applications
with IBM to tell them I was not making any judgment about the
2002 applications, except this letter was the only one that we
had completed, but that to alert them that our conclusion that
this procurement pattern was not consistent with the rules. So
as they approached, we were in the filing window for 2003. They
would have a heads up not to continue down this road or at
least to do so at risk since our conclusion was that it was not
consistent.
So that Website notice prompted Mr. Mitchell to call me and
said we did not go through this process, but we did use the
encyclopedic 470.
The allegation of that SLD attorney is working for IBM, I
know nothing about that. Certainly USAC attorney, I know all of
the attorneys that have worked for USAC, and I am not aware
that any of them work for IBM.
And then he did provide the template 470.
Mr. Walden. All right.
Mr. McDonald. If I could go back to the question that
Congresswoman DeGette asked.
Mr. Walden. Yes.
Mr. McDonald. Giving IBM a heads up about the ineligible
services, in our December 2002 denial letter for this letter
which we copied IBM on, there is an entire discussion in there
about ineligible services that we believe were not the basis of
our denial. It was the procurement pattern, but that we gave
them a heads up that we thought they were asking for ineligible
in the initial planning.
Ms. DeGette. Thank you for clarifying your testimony, Mr.
McDonald, because that is what I was just saying. The staff has
before it sounded like there was no notice at all, and in fact,
your testimony right now shows there was notice several years
ago.
Mr. McDonald. December 2002.
Ms. DeGette. Thank you.
Mr. Walden. Mr. Caine, do you want to comment?
Mr. Caine. I was just going to say that that was relative
to the Ysleta denial, and therefore prompted the appeals to the
Commission both by the Ysleta School District and other school
districts, about those denials of funding. So in that context,
yes, Mr. McDonald is correct.
But the Commission ruled five-nothing on an opinion that we
think was very fair and balanced and pointed out a number of
things where there was inconsistency and ambiguity all the way
around.
Mr. Walden. Did they rule on this issue of the boilerplate
proposals?
Mr. Caine. No, I don't believe that was part of the
decision.
Mr. Walden. All right. Let's go to Tab 33. Perhaps you can
help us clarify this one as well, Mr. Caine. This is an E-mail
to Tracy Diaz/Austin/IBM at IBM U.S. from Jack McKinney, Kansas
City IBM at IBM U.S., and it talks about E-Rate lessons
learned, year 5 strategic partnership agreement, Oklahoma City
schools, $49 million.
And if you drop down to the second from the bottom point,
it talks about communication and time lines are areas that need
improvement, and then the second from the bottom point says,
``The customer knows that the pricing for the SOWs are
significantly inflated but has not''--I assume that should be
``had.'' It is just the letter A--``but has not a conversation
on how this will be remedied. Our pricing methodology would be
undefendable in public forum.''
Do you have any idea what this document that is supplied by
IBM would----
Mr. Caine. No, I do not, but I will tell you that relative
to Statements of Work----
Mr. Walden. I'm sorry. Relevant to?
Mr. Caine. SOWs.
Mr. Walden. Okay.
Mr. Caine. Statements of Work.
Mr. Walden. Yes.
Mr. Caine. They were frequently expansive by many
applicants in the program. As a matter of fact, there was
guidance given that expansive Statements of Work enabled
substitutions and revisions later on to be made.
Mr. Walden. Sure.
Mr. Caine. So that the 470 process also were made to be
expansive because they were basically public notices, and that
there were school districts that we had nothing to do with that
were funded using expansive 470's and Statements of Work.
So I cannot refer to this specific E-mail as you have asked
me to do, Mr. Chairman, but on the topic of expansive
Statements of Work and the 470 process, we do have experience
that says, yes, vague, expansive Statements of Work are not the
preferable approach, but they were the reality at the time.
Mr. Walden. Are they still the reality, Mr. McDonald?
Mr. McDonald. I hope since the Ysleta order that they are
not, and we are looking at those then.
Mr. Walden. Wouldn't this be like hiring a contractor to do
a remodel on your house and the contractor basically comes back
and says, ``Here, Mr. Homeowner or Mrs. Homeowner. You know,
everything at Home Depot. I am not sure what I am going to use,
but here is your Statement of Work''? Isn't that pretty close
to what was happening in some instances?
Mr. McDonald. The 470 was like that. The Statements of Work
were tied to specific functions, the E-mail, the servers, and
that kind of thing.
Mr. Walden. Because it looks to me like the missing piece
here is the homeowner, and that tends, I guess to be sort of
us. I guess you, if you have your auditors, but we wonder
whether enough of that, but who is saying, ``Wait a minute. I
do not need everything in Home Depot. I just want to fix my
kitchen''?
Mr. Caine. Mr. Chairman.
Mr. Walden. Yes.
Mr. Caine. Could I just make a reference to the FCC's
Ysleta order?
Mr. Walden. Sure.
Mr. Caine. On this point?
Mr. Walden. Yes.
Mr. Caine. The order was quoted as saying the SLD cautioned
applicants in the past to be expansive in listing services on
FCC Form 470 to provide applicants with greater flexibility to
make service substitutions post commitment.
So that is what the FCC rule determined in their order on
the Ysleta appeals.
Mr. Walden. Tell me the difference between the Statement of
Work and the 470.
Mr. Hawthorne. The 470 is a document, an FCC Form 470.
Mr. Walden. Right.
Mr. Hawthorne. Which the applicant is supposed to use to
list his required services or the services that he is looking
for, and it has to stay posted for 28 days and hopefully during
that period of time vendors will call and try and get more
information. There is a place on the 470 to indicate what the--
--
Mr. Walden. So how is the Statement of Work?
Mr. Hawthorne. The Statement of Work is the actual work,
that if the successful vendor gets and defines that it is
supposed to provide.
Mr. Walden. Okay. So going back to this earlier E-mail----
Mr. Hawthorne. It is a contract.
Mr. Walden. Okay. Going back to this earlier E-mail I had,
the one from Mr.--here it is right here--the one from Mr.
Whitmer then, Mr. Hawthorne, where he says, ``We will be
meeting with them,'' being Dallas, ``again this Thursday and
will encourage them to move ahead with the SOWs as submitted
totaling $216 million.''
So this is not the wish list anymore, if I understand you
right.
Mr. Hawthorne. No.
Mr. Walden. This is actual statements of work?
Mr. Hawthorne. That is correct. Those are contracts, which
I would assume were submitted to----
Mr. Walden. And they should have been the whittled down
version of I am only doing my bathroom and my kitchen, not the
whole house. I do not need everything in Home Depot.
Mr. Hawthorne. If Dallas was dissatisfied with the
Statement of Work before it was executed, I would think they
would have an opportunity to say, ``I do not want this. I want
that,'' and you know, because it is a negotiated document.
Mr. Walden. Right, but it is an IBM person who is saying,
``We are going to try and convince Dallas to stay with the 216,
the Statements of Work as submitted.''
Mr. Hawthorne. Well, again, I get to the point that I
raised earlier. In my opinion, you have to go back and
reevaluate what you have asked for from bottom up. You just
cannot start lopping off goods and services just based on the
Statement of Work. What did you ask for? I mean, I do not think
that can be done.
Mr. Caine. Mr. Chairman, this is one area that needs
improvement. We would clearly acknowledge that in the program.
Okay? There is no process actually to coming backwards, and
there should be probably. Okay? In this particular context that
you were just referring to.
Mr. Walden. But didn't Dallas hire you at IBM to come help
give them guidance as to what they need to wire their schools?
Wasn't that your role?
Mr. Caine. Yes, to be their strategic partner.
Mr. Walden. So at what point in that partnership do you say
to Dallas, ``We do not think you need all of this stuff''?
Mr. Pratt, were you involved in that part of it?
Mr. Pratt. Not with the Dallas.
Mr. Walden. All right. Mr. Caine, you were not involved in
that.
Mr. Caine. I was not, but as I said in my statement, we
believe we said that at the front end. Our initial proposals
were significantly----
Mr. Walden. Yes, but later in this E-mail, your own people
are saying we are going to try and get them to hold to 216, and
Mr. Pratt said reducing it might call into question the
integrity of the overall proposal, right?
I mean, all right. Ms. Glogovac----
Mr. Hawthorne. May I comment on the 470 before you move on?
Mr. Walden. Sure.
Mr. Hawthorne. I agree with the statements that E-Rate is
very important in the process of wiring schools. It is crucial.
Mr. Walden. Nobody is disputing that.
Mr. Hawthorne. And I disagree with the statement that 94
percent of the schools have been wired. I mean, there are
schools that have not even been touched by E-Rate.
However, it appears that E-Rate has now become a game.
School districts want to get money, and people at the
government level will say to them, ``Well, you know, gosh. You
didn't put this on your 470. We're not going to allow it.'' You
might have made some vague reference to it, but you know, it is
not there. So we are going to deny you.
There is that Catch-22. Do you put a lot of stuff on the
470 or do you put what you think you might need and that
evolves over time?
Mr. Walden. But couldn't you come back the next year and
get that which you----
Mr. Hawthorne. Time moves on.
Mr. Walden. Well, yes, but that is true in any project,
right? I mean, if I go get a loan in a bank----
Mr. Hawthorne. I thought the objective here was to put
technology in place to educate kids.
Mr. Walden. Of course it is. Of course it is, but if I go
get a loan from a bank to do my home remodeling and I get a
certain amount of money, that is what I have got to operate
under, right?
I do not know. Let me go on to Ms. Glogovac. Did Sun do
work for EPISD prior to funding year 4?
Ms. Glogovac. That I do not know. What I do know is that
Sun was selected the year prior to that to provide servers, and
for some unknown reason that I was not privy to, El Paso did
not follow through on that funding commitment and never made
the purchase.
Mr. Walden. My understanding was that Sun did provide an E-
mail system of some sort.
Ms. Glogovac. That I do not know.
Mr. Walden. All right. Do you recall what the budget was
for EPISD's E-mail system?
Ms. Glogovac. I do not know what that was.
Mr. Walden. Okay. Mr. Caine has testified that the budget
they were provided with was to be used in the best interest of
the district. How many E-mail addresses did the system Sun was
going to provide? What was the capability?
Ms. Glogovac. I believe Sun had an unlimited license,
software, E-mail software package.
Mr. Walden. What does that mean?
Ms. Glogovac. Meaning it would scale with however many
users they need to use.
Mr. Walden. So they could have an unlimited number of E-
mail addresses?
Ms. Glogovac. Correct.
Mr. Walden. And then what is the capacity of what EPISD and
IBM put in?
Ms. Glogovac. I believe their Statement of Work said 3,000,
but on conversations on conference calls, I was told 5,000.
Mr. Walden. So is that correct, Mr. Caine or Mr. Pratt? Do
you know? Is the system in El Paso 5,000 E-mail addresses?
Mr. Caine. I cannot confirm the number for you, Mr.
Chairman, but I do know that the proposal from Sun included E-
mail addresses for ineligible activities in schools. So there
was always a distinction between eligible schools in the
district and ineligible schools in the district, and that was a
factor.
Mr. Walden. So you advised them of that?
Mr. Caine. That was part of the consideration that we
brought to the attention of the school district.
Mr. Walden. Paula, is that correct?
Ms. Glogovac. I would have to say that El Paso was
completely open to selecting how many E-mail licenses they
wanted to deploy and where they wanted to deploy them. That was
not dictated by Sun.
Mr. Walden. But were they ineligible places?
Ms. Glogovac. I have no idea. I do not know what school was
ineligible in El Paso, and that was not brought up to our
attention on any conference call that I know of.
Mr. Walden. Even by IBM?
Ms. Glogovac. No, or El paso.
Mr. Walden. And who is the area coordinator? Are you, Ms.
Foster? No. You were the area----
Ms. Glogovac. I was a contractor that was brought in to
assist the Sun sales team.
Mr. Walden. So, Mr. Caine, you were involved in that
discussion then. Where is your information coming from?
Mr. Caine. No, I was not involved in the conversation, but
I do think that it is probably a question about eligible
schools versus ineligible schools within the El Paso School
District that the district could answer. But I do know that not
all schools in the El Paso School District were eligible, and
so there has to be this distinction.
Mr. Walden. I wonder if our superintendent on video--can
you address this issue, sir? Thanks for keeping your mic off,
too, so that we do not get the feedback. But this issue of
ineligible E-mail addresses in our schools.
Mr. Tafoya. Yes, sir. I do recall there was conversation
that took place at that time, that we had to be careful that we
did not cross the line of the eligibility using E-Rate money,
and so I do know that just like I said, the piece of the
conversation that I can recall was that there was concern that
the scope of work would not exceed what we were eligible to
receive in E-Rate funding.
Mr. Tafoya. And are you satisfied with the notion of like
5,000 E-mails versus unlimited?
Mr. Tafoya. We were satisfied with what we received because
it was what we could afford within that E-Rate funding.
Mr. Walden. Thank you, sir.
Ms. DeGette. Just very quickly, Mr. Chairman, Mr. Caine, if
you could take a look at Tab 65 of your notebook. This is the
agreement. We got this from NABSE. I do not know if you have
seen this, Mr. Caine.
Mr. Caine. No, I have not.
Ms. DeGette. Okay. This is the agreement with NABSE, the
one that Mr. McDonald was testifying about earlier, and part of
the agreement talks about on page 3 the offset to the cost that
NABSE will incur in support of this partnership. NABSE shall
receive an annual payment of 1.5 percent of the cumulative
business. This is the kickback we have been talking about all
day. Do you see that on page 3?
Mr. Caine. I do.
Ms. DeGette. Now, this agreement was signed by Donald J.
Parker, the customer service executive for IBM Global Services
on behalf of IBM. Do you see that on the last page there?
Mr. Caine. I do.
Ms. DeGette. Did Mr. Parker as far as you know have the
authority to enter into this type of agreement?
Mr. Caine. Actually the video was quite a surprise to us.
We were not aware of it. We had actually asked the staff when
we were told that it existed to see it. We were not given an
opportunity to see it.
But he was not sanctioned to do this. This was not an
official IBM activity. Our company----
Ms. DeGette. Is he still with the company? Do you know?
Mr. Caine. No, he is not.
Our company does have relationships, Ms. DeGette, with a
number of educational organizations, but none specifically for
E-Rate performance. We have not done that. So it was not
sanctioned by the IBM company, and I think if I could just--I
do not mean to propose where you are going, but if I could just
point to the next tab, which is also a document that talks
about a memorandum of understanding on this point. It is
conspicuously not signed by IBM.
Ms. DeGette. Okay. Well, but you would not dispute the fact
that by Mr. Parker's signature on this document on behalf of
IBM he bound the company contractually to that, correct?
Mr. Caine. Well, we would dispute that.
Ms. DeGette. You would?
Mr. Caine. Yes, we would.
Ms. DeGette. Well----
Mr. Caine. Yes, we would. He was not sanctioned to do this
for the company, and it is actually a proposal, not a contract.
Ms. DeGette. I will yield to the chairman.
Mr. Walden. I just wanted to note the committee staff had
tried repeatedly to interview Mr. Parker, and apparently IBM
does not know where he is anymore.
Mr. Caine. He is no longer an employee of the IBM company.
Mr. Walden. So otherwise we would have shared that at that
time.
Ms. DeGette. I am studying this, and in fact, it is an
agreement. It is a letter agreement, and on page 2, it says the
team, well, fully committed to supporting NABSE, and NABSE's
membership believes that any contractual agreement could be
construed inappropriately by third parties. The team is not
going to request an exclusive or formal endorsement by NABSE.
The individual members are content that NABSE will recommend
the team and each team members with the same confidence and
vigor.
So, in fact, what this is, it is a letter agreement that
everybody is agreeing to. Disagree?
Mr. Caine. Ms. DeGette, yes, in this sense: that he was not
sanctioned to do this. We are as surprised about this as you
seem to be disturbed by it, and we are as well, and we are
referring it to our attorneys as soon as we get a copy of this.
Ms. DeGette. Well, take it with you.
Mr. Caine. I would be happy to.
Ms. DeGette. Are your customer service executives
authorized to sign letter agreements of this nature?
Mr. Caine. No.
Ms. DeGette. And are they informed of that in some
personnel guideline or handbook?
Mr. Caine. Each IBM employee is asked each year to sign a
business conduct guideline, which is a code of conduct. All
right? And they know that contracts have to go through or
proposals have to go through a rigorous process.
Ms. DeGette. Is there a written guideline for that, that
talks about that in the code of conduct?
Mr. Caine. I would have to go back and look at the----
Ms. DeGette. I would appreciate it if you would supplement
your response on this, and I will tell you, frankly, my
concern, and it is a concern for all of the companies that are
doing these E-Rate contracts. I mean, I always tell people in
this committee, and the chairman has heard me say it, in my law
practice I am on inactive status in Colorado, but I practiced
for a number of years, and I will tell you this looks like a
letter agreement to me.
And the thing I was always worried about when I represented
corporations in my law practice was exactly this type of thing
where you have got sales representatives signing what end up to
be binding contracts.
And I will tell you probably your lawyers will tell you
that even though Donald J. Parker may not have had the legal
authority to sign this, if he is doing it and putting it out
there to the world, you would have been bound by this. So that
is a concern.
Mr. Caine. Well, we appreciate your comments, and we are
going to look into this very, very quickly and very forcefully.
Ms. DeGette. Good, and the other concern I have, first of
all, to your knowledge, I would assume, you are unaware of any
other contracts that IBM or any of its representatives have
entered into for kickback agreements to organizations, correct?
Mr. Caine. Correct.
Ms. DeGette. And that would not be your policy, I would
assume.
Mr. Caine. Never.
Ms. DeGette. So, Mr. Hawthorne, as a consultant, did your
company ever enter into agreements that involved kickbacks to
the organization?
Mr. Hawthorne. Absolutely not.
Ms. DeGette. Okay. But here was my concern, Mr. Caine.
Earlier when you were testifying, and I am glad you have put
this little group together of E-Rate experts, but when you put
so much authority on sales reps. out in the field, sometimes
this kind of thing in an aggressive market can result, and so I
would hope IBM would take this very seriously and adopt some
clear rules.
Mr. Caine. We do Ms. DeGette. Thank you very much.
Thank you, Mr. Chairman. I yield back.
Mr. Walden. I appreciate the gentle woman's comments and
her participation for this full day.
Mr. Tafoya, if I could just ask you a question, sir,
because one of the other issues that we are looking at, and we
did certainly in the North Carolina situation, are districts
now in a position where they have, frankly, bitten off more
than they can chew? And is that the case in your district, sir?
Because this is an enormous amount of equipment. It is not
a new technology. Do you have the information, staff up to
speed to really be able to run a system like this? Is this
something other districts need to take note of?
Mr. Tafoya. Well, I would like to bring the answer two
ways. I do believe that an award of this magnitude really needs
to be scrutinized very, very carefully simply because all of
the residual expense and support that is required once the
installation takes place is very overwhelming. We feel
fortunate that we do have the capacity with the structure now
to manage the network that we have in place. We are not exactly
where we want to be, but we have made great strides, and we
will continue to devote because we have, in fact, a commitment
from our board to continue to devote resources to make sure
that this network does, in fact, work.
But I would say overall an award of this magnitude needs
much longer scrutiny than I think we took in El Paso.
Mr. Walden. So a good lesson learned for other districts
that may be going down this path?
Mr. Tafoya. I believe so, yes sir.
Mr. Walden. I was reading through the PowerPoint
presentation that, Mr. Johnston, Jack Johnston, the Executive
Director of Technology Information, had done, I think, for the
board in which he said, ``We are no longer in the driver's
seat.''
This was in 2002 as the whole system was rolling out, and
he said with the introduction of the first class technology
came the need for skill upgrade for many of the TIS staff. What
IBM could provide within the SLD guidelines for skill transfer,
they did so. Unfortunately my staff has a long way to go before
we could ever be expected to provide the same level of service
as IBM in many areas.
And so it looks to me like as this handoff occurs for other
districts that may be observing this whole process, they need
to learn the lesson your district learned the hard way it
sounds like.
Mr. Tafoya. Mr. Chair, I believe one of the things that we
always have to keep in mind in public education is that
sometimes it is hard to embrace a business model where you have
recurring revenue and an opportunity to grow that resource to
support that in a public setting where you have limited
resources that are going to be pressed a number of different
directions.
Mr. Walden. I appreciate your comments.
I have no other questions for our panel. I know we have
been rejoined by the distinguished Chairman of the full
committee who has put a lot of energy into oversight over the
years and continues to as our Chairman.
Mr. Chairman, I would yield.
Chairman Barton. Well, Mr. Chairman, and Ranking Member
DeGette, I do not want to delay this. This is another of our
all day hearings.
I do want to thank our witnesses for being here and
participating, and I have actually been watching a lot of this
on TV in my office as I have had a series of meetings. So it is
six o'clock. I am not going to ask any direct questions.
I guess I do want to ask the gentleman that represents IBM.
Which one is that?
Mr. Walden. That is Mr. Caine and Mr. Pratt.
Chairman Barton. How can a company as credible as IBM is
participate in the way that apparently you all have where we
have gone into these districts and just the amount of money
that has been requested, it has increased by orders of
magnitude?
I mean, I cannot tell you how disappointed I am to find
that out. I mean, what is the real justification for that?
Mr. Caine. Mr. Chairman, we believed we were responding to
the technology plans the school districts were putting
together, that we were complying with the rules as we
understood them at the time. There are a number of decisions
that had been made throughout the program that allowed these
kinds of approaches to be sanctioned in the Ysleta decision and
denials. That question was called, and we submitted our
comments.
Quite honestly, we were happy that it was called, and the
FCC looked at a number of issues here, and they decided 5-0, in
that order, and we have learned from that, and we have actually
made adjustments since that time, since the FCC came out with
its decision, but these are----
Chairman Barton. But, you know, in the panel before you we
had some rural school districts or at least low income school
districts where I do not believe your company was one of the
vendors, but you know, it is fairly credible to some extent if
the school district says, well, we do not really know a whole
lot about the program, but if a company like IBM says it is
okay, it is okay.
And when you look at the amounts of money that are
requested, I think ultimately the accountability is at the
local level, the school board and the school superintendent. If
it is a library, the city council, the county or whatever, but
companies like IBM have a lot of credibility, and to use that
in a way that just has the appearance of abusing the public
trust is just extremely disappointing, you know.
I have not really read the hearing record directly on point
in detail on what IBM's relationship was and direct
participation is, but IBM is one of the icons of corporate
America, I have to say I am very disappointed, and I certainly
hope that you will take back to your management and to the
board that we expect companies of your stature to honor the
public trust and not try to push these things, you know, right
to the extreme letter of the law or your interpretation of it.
Mr. Caine. Mr. Chairman, I appreciate your comments, and I
can tell you that I do not think you were here when I had my
opening statement. This program is very important to us, and we
do not want to ever jeopardize it, and we have been willing to
work with you and your staff and the Commission and the SLD to
make changes to the program so that it is successful.
So relative to the purpose and the mission of this program,
the IBM company takes it very seriously, and that is why we are
here, and that is why we are here voluntarily.
Mr. Bohuchot. Well, I want to end on this note. We have a
document from USAC, and has this been put into the record?
Mr. Walden. Yes, it is in the record, Mr. Chairman.
Mr. Bohuchot. But the paragraph that has been highlighted
said, ``Mr. Mitchell stated discussions with IBM begin in
October and that he was on a conference call with Steve Mueller
and Charles Gentry. He stated that one of IBM's selling points
was that they had represented to him that former SLD attorneys
worked for IBM and as a consequence IBM knows all of the
loopholes in the program.''
You know, we are going to do our very best to close those
loopholes, and we are going to hope that the IBMs of the world
do their very best to honor the spirit as well as the exact
technicalities of the new program.
And with that, Mr. Walden, I would yield back.
Mr. Walden. Thank you, Mr. Chairman.
And I will tell you after three of these hearings, it makes
me wonder what is going on elsewhere around the country that we
need to continue to look at as this program evolves. We are
seeing some progress in some areas, but it is troubling.
I think the one thing we probably would all agree on is our
kids need access to the Internet in their schools, and it is
our responsibility to make sure that happens, but in a way that
we can have a straight face, look at the taxpayers and rate
payers and say we are good guardians and stewards of your
money.
And what we have seen in some instances around the country,
Mr. Chairman, we cannot tell them that, and we have got to make
sure and get on top of it, and that is what this committee's
job is and we will continue to do it.
So I want to thank our witnesses who have spent the day
with us by video an din person, and the record will remain pen
for an additional 30 days for additional questions and
comments.
And with that, the Subcommittee on Oversight and
Investigations stands adjourned.
[Whereupon, at 6:16 p.m., the hearing was adjourned.]
[Additional material submitted for the record follows:]
[GRAPHIC] [TIFF OMITTED] T6098.147
[GRAPHIC] [TIFF OMITTED] T6098.148
[GRAPHIC] [TIFF OMITTED] T6098.149
[GRAPHIC] [TIFF OMITTED] T6098.150
[GRAPHIC] [TIFF OMITTED] T6098.151
[GRAPHIC] [TIFF OMITTED] T6098.152
[GRAPHIC] [TIFF OMITTED] T6098.153
[GRAPHIC] [TIFF OMITTED] T6098.154
[GRAPHIC] [TIFF OMITTED] T6098.155
[GRAPHIC] [TIFF OMITTED] T6098.156
[GRAPHIC] [TIFF OMITTED] T6098.157
[GRAPHIC] [TIFF OMITTED] T6098.158
[GRAPHIC] [TIFF OMITTED] T6098.159
[GRAPHIC] [TIFF OMITTED] T6098.160
[GRAPHIC] [TIFF OMITTED] T6098.161
[GRAPHIC] [TIFF OMITTED] T6098.162
[GRAPHIC] [TIFF OMITTED] T6098.163
[GRAPHIC] [TIFF OMITTED] T6098.164
[GRAPHIC] [TIFF OMITTED] T6098.165
[GRAPHIC] [TIFF OMITTED] T6098.166
[GRAPHIC] [TIFF OMITTED] T6098.167
[GRAPHIC] [TIFF OMITTED] T6098.168
[GRAPHIC] [TIFF OMITTED] T6098.169
[GRAPHIC] [TIFF OMITTED] T6098.170
[GRAPHIC] [TIFF OMITTED] T6098.171
[GRAPHIC] [TIFF OMITTED] T6098.172
[GRAPHIC] [TIFF OMITTED] T6098.173
[GRAPHIC] [TIFF OMITTED] T6098.174
[GRAPHIC] [TIFF OMITTED] T6098.175
[GRAPHIC] [TIFF OMITTED] T6098.176
[GRAPHIC] [TIFF OMITTED] T6098.177
[GRAPHIC] [TIFF OMITTED] T6098.178
[GRAPHIC] [TIFF OMITTED] T6098.179
[GRAPHIC] [TIFF OMITTED] T6098.180
[GRAPHIC] [TIFF OMITTED] T6098.181
[GRAPHIC] [TIFF OMITTED] T6098.182
[GRAPHIC] [TIFF OMITTED] T6098.183
[GRAPHIC] [TIFF OMITTED] T6098.184
[GRAPHIC] [TIFF OMITTED] T6098.185
[GRAPHIC] [TIFF OMITTED] T6098.186
[GRAPHIC] [TIFF OMITTED] T6098.187
[GRAPHIC] [TIFF OMITTED] T6098.188
[GRAPHIC] [TIFF OMITTED] T6098.189
[GRAPHIC] [TIFF OMITTED] T6098.190
[GRAPHIC] [TIFF OMITTED] T6098.191
[GRAPHIC] [TIFF OMITTED] T6098.192
[GRAPHIC] [TIFF OMITTED] T6098.193
[GRAPHIC] [TIFF OMITTED] T6098.194
[GRAPHIC] [TIFF OMITTED] T6098.195
[GRAPHIC] [TIFF OMITTED] T6098.196
[GRAPHIC] [TIFF OMITTED] T6098.197
[GRAPHIC] [TIFF OMITTED] T6098.198
[GRAPHIC] [TIFF OMITTED] T6098.199
[GRAPHIC] [TIFF OMITTED] T6098.200
[GRAPHIC] [TIFF OMITTED] T6098.201
[GRAPHIC] [TIFF OMITTED] T6098.202
[GRAPHIC] [TIFF OMITTED] T6098.203
[GRAPHIC] [TIFF OMITTED] T6098.204
[GRAPHIC] [TIFF OMITTED] T6098.205
[GRAPHIC] [TIFF OMITTED] T6098.206
[GRAPHIC] [TIFF OMITTED] T6098.207
[GRAPHIC] [TIFF OMITTED] T6098.208
[GRAPHIC] [TIFF OMITTED] T6098.209
[GRAPHIC] [TIFF OMITTED] T6098.210
[GRAPHIC] [TIFF OMITTED] T6098.211
[GRAPHIC] [TIFF OMITTED] T6098.212
[GRAPHIC] [TIFF OMITTED] T6098.213
[GRAPHIC] [TIFF OMITTED] T6098.214
[GRAPHIC] [TIFF OMITTED] T6098.215
[GRAPHIC] [TIFF OMITTED] T6098.216
[GRAPHIC] [TIFF OMITTED] T6098.217
[GRAPHIC] [TIFF OMITTED] T6098.218
[GRAPHIC] [TIFF OMITTED] T6098.219
[GRAPHIC] [TIFF OMITTED] T6098.220
[GRAPHIC] [TIFF OMITTED] T6098.221
[GRAPHIC] [TIFF OMITTED] T6098.222
[GRAPHIC] [TIFF OMITTED] T6098.223
[GRAPHIC] [TIFF OMITTED] T6098.224
[GRAPHIC] [TIFF OMITTED] T6098.225
[GRAPHIC] [TIFF OMITTED] T6098.226
[GRAPHIC] [TIFF OMITTED] T6098.227
[GRAPHIC] [TIFF OMITTED] T6098.228
[GRAPHIC] [TIFF OMITTED] T6098.229
[GRAPHIC] [TIFF OMITTED] T6098.230
[GRAPHIC] [TIFF OMITTED] T6098.231
[GRAPHIC] [TIFF OMITTED] T6098.232
[GRAPHIC] [TIFF OMITTED] T6098.233
[GRAPHIC] [TIFF OMITTED] T6098.234
[GRAPHIC] [TIFF OMITTED] T6098.235
[GRAPHIC] [TIFF OMITTED] T6098.236
[GRAPHIC] [TIFF OMITTED] T6098.237
[GRAPHIC] [TIFF OMITTED] T6098.238
[GRAPHIC] [TIFF OMITTED] T6098.239
[GRAPHIC] [TIFF OMITTED] T6098.240
[GRAPHIC] [TIFF OMITTED] T6098.241
[GRAPHIC] [TIFF OMITTED] T6098.242
[GRAPHIC] [TIFF OMITTED] T6098.243
[GRAPHIC] [TIFF OMITTED] T6098.244
[GRAPHIC] [TIFF OMITTED] T6098.245
[GRAPHIC] [TIFF OMITTED] T6098.246
[GRAPHIC] [TIFF OMITTED] T6098.247
[GRAPHIC] [TIFF OMITTED] T6098.248
[GRAPHIC] [TIFF OMITTED] T6098.249
[GRAPHIC] [TIFF OMITTED] T6098.250
[GRAPHIC] [TIFF OMITTED] T6098.251
[GRAPHIC] [TIFF OMITTED] T6098.252
[GRAPHIC] [TIFF OMITTED] T6098.253
[GRAPHIC] [TIFF OMITTED] T6098.254
[GRAPHIC] [TIFF OMITTED] T6098.255
[GRAPHIC] [TIFF OMITTED] T6098.256
[GRAPHIC] [TIFF OMITTED] T6098.257
[GRAPHIC] [TIFF OMITTED] T6098.258
[GRAPHIC] [TIFF OMITTED] T6098.259
[GRAPHIC] [TIFF OMITTED] T6098.260
[GRAPHIC] [TIFF OMITTED] T6098.261
[GRAPHIC] [TIFF OMITTED] T6098.262
[GRAPHIC] [TIFF OMITTED] T6098.263
[GRAPHIC] [TIFF OMITTED] T6098.264
[GRAPHIC] [TIFF OMITTED] T6098.265
[GRAPHIC] [TIFF OMITTED] T6098.266
[GRAPHIC] [TIFF OMITTED] T6098.267
[GRAPHIC] [TIFF OMITTED] T6098.268
[GRAPHIC] [TIFF OMITTED] T6098.269
[GRAPHIC] [TIFF OMITTED] T6098.270
[GRAPHIC] [TIFF OMITTED] T6098.271
[GRAPHIC] [TIFF OMITTED] T6098.272
[GRAPHIC] [TIFF OMITTED] T6098.273
[GRAPHIC] [TIFF OMITTED] T6098.274
[GRAPHIC] [TIFF OMITTED] T6098.275
[GRAPHIC] [TIFF OMITTED] T6098.276
[GRAPHIC] [TIFF OMITTED] T6098.277
[GRAPHIC] [TIFF OMITTED] T6098.278
[GRAPHIC] [TIFF OMITTED] T6098.279
[GRAPHIC] [TIFF OMITTED] T6098.280
[GRAPHIC] [TIFF OMITTED] T6098.281
[GRAPHIC] [TIFF OMITTED] T6098.282
[GRAPHIC] [TIFF OMITTED] T6098.283
[GRAPHIC] [TIFF OMITTED] T6098.284
[GRAPHIC] [TIFF OMITTED] T6098.285
[GRAPHIC] [TIFF OMITTED] T6098.286
[GRAPHIC] [TIFF OMITTED] T6098.287
[GRAPHIC] [TIFF OMITTED] T6098.288
[GRAPHIC] [TIFF OMITTED] T6098.289
[GRAPHIC] [TIFF OMITTED] T6098.290
[GRAPHIC] [TIFF OMITTED] T6098.291
[GRAPHIC] [TIFF OMITTED] T6098.292
[GRAPHIC] [TIFF OMITTED] T6098.293
[GRAPHIC] [TIFF OMITTED] T6098.294
[GRAPHIC] [TIFF OMITTED] T6098.295
[GRAPHIC] [TIFF OMITTED] T6098.296
[GRAPHIC] [TIFF OMITTED] T6098.297
[GRAPHIC] [TIFF OMITTED] T6098.298
[GRAPHIC] [TIFF OMITTED] T6098.299
[GRAPHIC] [TIFF OMITTED] T6098.300
[GRAPHIC] [TIFF OMITTED] T6098.301
[GRAPHIC] [TIFF OMITTED] T6098.302
[GRAPHIC] [TIFF OMITTED] T6098.303
[GRAPHIC] [TIFF OMITTED] T6098.304
[GRAPHIC] [TIFF OMITTED] T6098.305
[GRAPHIC] [TIFF OMITTED] T6098.306
[GRAPHIC] [TIFF OMITTED] T6098.307
[GRAPHIC] [TIFF OMITTED] T6098.308
[GRAPHIC] [TIFF OMITTED] T6098.309
[GRAPHIC] [TIFF OMITTED] T6098.310
[GRAPHIC] [TIFF OMITTED] T6098.311
[GRAPHIC] [TIFF OMITTED] T6098.312
[GRAPHIC] [TIFF OMITTED] T6098.313
[GRAPHIC] [TIFF OMITTED] T6098.314
[GRAPHIC] [TIFF OMITTED] T6098.315
[GRAPHIC] [TIFF OMITTED] T6098.316
[GRAPHIC] [TIFF OMITTED] T6098.317
[GRAPHIC] [TIFF OMITTED] T6098.318
[GRAPHIC] [TIFF OMITTED] T6098.319
[GRAPHIC] [TIFF OMITTED] T6098.320
[GRAPHIC] [TIFF OMITTED] T6098.321
[GRAPHIC] [TIFF OMITTED] T6098.322
[GRAPHIC] [TIFF OMITTED] T6098.323
[GRAPHIC] [TIFF OMITTED] T6098.324
[GRAPHIC] [TIFF OMITTED] T6098.325
[GRAPHIC] [TIFF OMITTED] T6098.326
[GRAPHIC] [TIFF OMITTED] T6098.327
[GRAPHIC] [TIFF OMITTED] T6098.328
[GRAPHIC] [TIFF OMITTED] T6098.329
[GRAPHIC] [TIFF OMITTED] T6098.330
[GRAPHIC] [TIFF OMITTED] T6098.331
[GRAPHIC] [TIFF OMITTED] T6098.332
[GRAPHIC] [TIFF OMITTED] T6098.333
[GRAPHIC] [TIFF OMITTED] T6098.334
[GRAPHIC] [TIFF OMITTED] T6098.335
[GRAPHIC] [TIFF OMITTED] T6098.336
[GRAPHIC] [TIFF OMITTED] T6098.337
[GRAPHIC] [TIFF OMITTED] T6098.338
[GRAPHIC] [TIFF OMITTED] T6098.339
[GRAPHIC] [TIFF OMITTED] T6098.340
[GRAPHIC] [TIFF OMITTED] T6098.341
[GRAPHIC] [TIFF OMITTED] T6098.342
[GRAPHIC] [TIFF OMITTED] T6098.343
[GRAPHIC] [TIFF OMITTED] T6098.344
[GRAPHIC] [TIFF OMITTED] T6098.345
[GRAPHIC] [TIFF OMITTED] T6098.346
[GRAPHIC] [TIFF OMITTED] T6098.347
[GRAPHIC] [TIFF OMITTED] T6098.348
[GRAPHIC] [TIFF OMITTED] T6098.349
[GRAPHIC] [TIFF OMITTED] T6098.350
[GRAPHIC] [TIFF OMITTED] T6098.351
[GRAPHIC] [TIFF OMITTED] T6098.352
[GRAPHIC] [TIFF OMITTED] T6098.353
[GRAPHIC] [TIFF OMITTED] T6098.354
[GRAPHIC] [TIFF OMITTED] T6098.355
[GRAPHIC] [TIFF OMITTED] T6098.356
[GRAPHIC] [TIFF OMITTED] T6098.357
[GRAPHIC] [TIFF OMITTED] T6098.358
[GRAPHIC] [TIFF OMITTED] T6098.359
[GRAPHIC] [TIFF OMITTED] T6098.360
[GRAPHIC] [TIFF OMITTED] T6098.361
[GRAPHIC] [TIFF OMITTED] T6098.362
[GRAPHIC] [TIFF OMITTED] T6098.363
[GRAPHIC] [TIFF OMITTED] T6098.364
[GRAPHIC] [TIFF OMITTED] T6098.365
[GRAPHIC] [TIFF OMITTED] T6098.366
[GRAPHIC] [TIFF OMITTED] T6098.367
[GRAPHIC] [TIFF OMITTED] T6098.368
[GRAPHIC] [TIFF OMITTED] T6098.369
[GRAPHIC] [TIFF OMITTED] T6098.370
[GRAPHIC] [TIFF OMITTED] T6098.371
[GRAPHIC] [TIFF OMITTED] T6098.372
[GRAPHIC] [TIFF OMITTED] T6098.373
[GRAPHIC] [TIFF OMITTED] T6098.374
[GRAPHIC] [TIFF OMITTED] T6098.375
[GRAPHIC] [TIFF OMITTED] T6098.376
[GRAPHIC] [TIFF OMITTED] T6098.377
[GRAPHIC] [TIFF OMITTED] T6098.378
[GRAPHIC] [TIFF OMITTED] T6098.379
[GRAPHIC] [TIFF OMITTED] T6098.380
[GRAPHIC] [TIFF OMITTED] T6098.381
[GRAPHIC] [TIFF OMITTED] T6098.382
[GRAPHIC] [TIFF OMITTED] T6098.383
[GRAPHIC] [TIFF OMITTED] T6098.384
[GRAPHIC] [TIFF OMITTED] T6098.385
[GRAPHIC] [TIFF OMITTED] T6098.386
[GRAPHIC] [TIFF OMITTED] T6098.387
[GRAPHIC] [TIFF OMITTED] T6098.388
[GRAPHIC] [TIFF OMITTED] T6098.389
[GRAPHIC] [TIFF OMITTED] T6098.390
[GRAPHIC] [TIFF OMITTED] T6098.391
[GRAPHIC] [TIFF OMITTED] T6098.392
[GRAPHIC] [TIFF OMITTED] T6098.393
[GRAPHIC] [TIFF OMITTED] T6098.394
[GRAPHIC] [TIFF OMITTED] T6098.395
[GRAPHIC] [TIFF OMITTED] T6098.396
[GRAPHIC] [TIFF OMITTED] T6098.397
[GRAPHIC] [TIFF OMITTED] T6098.398
[GRAPHIC] [TIFF OMITTED] T6098.399
[GRAPHIC] [TIFF OMITTED] T6098.400
[GRAPHIC] [TIFF OMITTED] T6098.401
[GRAPHIC] [TIFF OMITTED] T6098.402
[GRAPHIC] [TIFF OMITTED] T6098.403
[GRAPHIC] [TIFF OMITTED] T6098.404
[GRAPHIC] [TIFF OMITTED] T6098.405
[GRAPHIC] [TIFF OMITTED] T6098.406
[GRAPHIC] [TIFF OMITTED] T6098.407
[GRAPHIC] [TIFF OMITTED] T6098.408
[GRAPHIC] [TIFF OMITTED] T6098.409
[GRAPHIC] [TIFF OMITTED] T6098.410
[GRAPHIC] [TIFF OMITTED] T6098.411
[GRAPHIC] [TIFF OMITTED] T6098.412
[GRAPHIC] [TIFF OMITTED] T6098.413
[GRAPHIC] [TIFF OMITTED] T6098.414
[GRAPHIC] [TIFF OMITTED] T6098.415
[GRAPHIC] [TIFF OMITTED] T6098.416
[GRAPHIC] [TIFF OMITTED] T6098.417
[GRAPHIC] [TIFF OMITTED] T6098.418
[GRAPHIC] [TIFF OMITTED] T6098.419
[GRAPHIC] [TIFF OMITTED] T6098.420
[GRAPHIC] [TIFF OMITTED] T6098.421
[GRAPHIC] [TIFF OMITTED] T6098.422
[GRAPHIC] [TIFF OMITTED] T6098.423
[GRAPHIC] [TIFF OMITTED] T6098.424
[GRAPHIC] [TIFF OMITTED] T6098.425
[GRAPHIC] [TIFF OMITTED] T6098.426
[GRAPHIC] [TIFF OMITTED] T6098.427
[GRAPHIC] [TIFF OMITTED] T6098.428
[GRAPHIC] [TIFF OMITTED] T6098.429
[GRAPHIC] [TIFF OMITTED] T6098.430
[GRAPHIC] [TIFF OMITTED] T6098.431
[GRAPHIC] [TIFF OMITTED] T6098.432
[GRAPHIC] [TIFF OMITTED] T6098.433
[GRAPHIC] [TIFF OMITTED] T6098.434
[GRAPHIC] [TIFF OMITTED] T6098.435
[GRAPHIC] [TIFF OMITTED] T6098.436
[GRAPHIC] [TIFF OMITTED] T6098.437
[GRAPHIC] [TIFF OMITTED] T6098.438
[GRAPHIC] [TIFF OMITTED] T6098.439
[GRAPHIC] [TIFF OMITTED] T6098.440
[GRAPHIC] [TIFF OMITTED] T6098.441
[GRAPHIC] [TIFF OMITTED] T6098.442
[GRAPHIC] [TIFF OMITTED] T6098.443
[GRAPHIC] [TIFF OMITTED] T6098.444
[GRAPHIC] [TIFF OMITTED] T6098.445
[GRAPHIC] [TIFF OMITTED] T6098.446
[GRAPHIC] [TIFF OMITTED] T6098.447
[GRAPHIC] [TIFF OMITTED] T6098.448
[GRAPHIC] [TIFF OMITTED] T6098.449
[GRAPHIC] [TIFF OMITTED] T6098.450
[GRAPHIC] [TIFF OMITTED] T6098.451
[GRAPHIC] [TIFF OMITTED] T6098.452
[GRAPHIC] [TIFF OMITTED] T6098.453
[GRAPHIC] [TIFF OMITTED] T6098.454
[GRAPHIC] [TIFF OMITTED] T6098.455
[GRAPHIC] [TIFF OMITTED] T6098.456
[GRAPHIC] [TIFF OMITTED] T6098.457
[GRAPHIC] [TIFF OMITTED] T6098.458
[GRAPHIC] [TIFF OMITTED] T6098.459
[GRAPHIC] [TIFF OMITTED] T6098.460
[GRAPHIC] [TIFF OMITTED] T6098.461
[GRAPHIC] [TIFF OMITTED] T6098.462
[GRAPHIC] [TIFF OMITTED] T6098.463
[GRAPHIC] [TIFF OMITTED] T6098.464
[GRAPHIC] [TIFF OMITTED] T6098.465
[GRAPHIC] [TIFF OMITTED] T6098.466
[GRAPHIC] [TIFF OMITTED] T6098.467
[GRAPHIC] [TIFF OMITTED] T6098.468
[GRAPHIC] [TIFF OMITTED] T6098.469
[GRAPHIC] [TIFF OMITTED] T6098.470
[GRAPHIC] [TIFF OMITTED] T6098.471
[GRAPHIC] [TIFF OMITTED] T6098.472
[GRAPHIC] [TIFF OMITTED] T6098.473
[GRAPHIC] [TIFF OMITTED] T6098.474
[GRAPHIC] [TIFF OMITTED] T6098.475
[GRAPHIC] [TIFF OMITTED] T6098.476
[GRAPHIC] [TIFF OMITTED] T6098.477
[GRAPHIC] [TIFF OMITTED] T6098.478
[GRAPHIC] [TIFF OMITTED] T6098.479
[GRAPHIC] [TIFF OMITTED] T6098.480
[GRAPHIC] [TIFF OMITTED] T6098.481
[GRAPHIC] [TIFF OMITTED] T6098.482
[GRAPHIC] [TIFF OMITTED] T6098.483
[GRAPHIC] [TIFF OMITTED] T6098.484
[GRAPHIC] [TIFF OMITTED] T6098.485
[GRAPHIC] [TIFF OMITTED] T6098.486
[GRAPHIC] [TIFF OMITTED] T6098.487
[GRAPHIC] [TIFF OMITTED] T6098.488
[GRAPHIC] [TIFF OMITTED] T6098.489
[GRAPHIC] [TIFF OMITTED] T6098.490
[GRAPHIC] [TIFF OMITTED] T6098.491
[GRAPHIC] [TIFF OMITTED] T6098.492
[GRAPHIC] [TIFF OMITTED] T6098.493
[GRAPHIC] [TIFF OMITTED] T6098.494
[GRAPHIC] [TIFF OMITTED] T6098.495
[GRAPHIC] [TIFF OMITTED] T6098.496
[GRAPHIC] [TIFF OMITTED] T6098.497
[GRAPHIC] [TIFF OMITTED] T6098.498
[GRAPHIC] [TIFF OMITTED] T6098.499
[GRAPHIC] [TIFF OMITTED] T6098.500
[GRAPHIC] [TIFF OMITTED] T6098.501
[GRAPHIC] [TIFF OMITTED] T6098.502
[GRAPHIC] [TIFF OMITTED] T6098.503
[GRAPHIC] [TIFF OMITTED] T6098.504
[GRAPHIC] [TIFF OMITTED] T6098.505
[GRAPHIC] [TIFF OMITTED] T6098.506
[GRAPHIC] [TIFF OMITTED] T6098.507
[GRAPHIC] [TIFF OMITTED] T6098.508
[GRAPHIC] [TIFF OMITTED] T6098.509
[GRAPHIC] [TIFF OMITTED] T6098.510
[GRAPHIC] [TIFF OMITTED] T6098.511
[GRAPHIC] [TIFF OMITTED] T6098.512
[GRAPHIC] [TIFF OMITTED] T6098.513
[GRAPHIC] [TIFF OMITTED] T6098.514
[GRAPHIC] [TIFF OMITTED] T6098.515
[GRAPHIC] [TIFF OMITTED] T6098.516
[GRAPHIC] [TIFF OMITTED] T6098.517
[GRAPHIC] [TIFF OMITTED] T6098.518
[GRAPHIC] [TIFF OMITTED] T6098.519
[GRAPHIC] [TIFF OMITTED] T6098.520
[GRAPHIC] [TIFF OMITTED] T6098.521
[GRAPHIC] [TIFF OMITTED] T6098.522
[GRAPHIC] [TIFF OMITTED] T6098.523
[GRAPHIC] [TIFF OMITTED] T6098.524
[GRAPHIC] [TIFF OMITTED] T6098.525
[GRAPHIC] [TIFF OMITTED] T6098.526
[GRAPHIC] [TIFF OMITTED] T6098.527
[GRAPHIC] [TIFF OMITTED] T6098.528
[GRAPHIC] [TIFF OMITTED] T6098.529
[GRAPHIC] [TIFF OMITTED] T6098.530
[GRAPHIC] [TIFF OMITTED] T6098.531
[GRAPHIC] [TIFF OMITTED] T6098.532
[GRAPHIC] [TIFF OMITTED] T6098.533
[GRAPHIC] [TIFF OMITTED] T6098.534
[GRAPHIC] [TIFF OMITTED] T6098.535
[GRAPHIC] [TIFF OMITTED] T6098.536
[GRAPHIC] [TIFF OMITTED] T6098.537
[GRAPHIC] [TIFF OMITTED] T6098.538
[GRAPHIC] [TIFF OMITTED] T6098.539
[GRAPHIC] [TIFF OMITTED] T6098.540
[GRAPHIC] [TIFF OMITTED] T6098.541
[GRAPHIC] [TIFF OMITTED] T6098.542
[GRAPHIC] [TIFF OMITTED] T6098.543
[GRAPHIC] [TIFF OMITTED] T6098.544
[GRAPHIC] [TIFF OMITTED] T6098.545
[GRAPHIC] [TIFF OMITTED] T6098.546
[GRAPHIC] [TIFF OMITTED] T6098.547
[GRAPHIC] [TIFF OMITTED] T6098.548
[GRAPHIC] [TIFF OMITTED] T6098.549
[GRAPHIC] [TIFF OMITTED] T6098.550
[GRAPHIC] [TIFF OMITTED] T6098.551
[GRAPHIC] [TIFF OMITTED] T6098.552
[GRAPHIC] [TIFF OMITTED] T6098.553
[GRAPHIC] [TIFF OMITTED] T6098.554
[GRAPHIC] [TIFF OMITTED] T6098.555
[GRAPHIC] [TIFF OMITTED] T6098.556
[GRAPHIC] [TIFF OMITTED] T6098.557
[GRAPHIC] [TIFF OMITTED] T6098.558
[GRAPHIC] [TIFF OMITTED] T6098.559
[GRAPHIC] [TIFF OMITTED] T6098.560
[GRAPHIC] [TIFF OMITTED] T6098.561
[GRAPHIC] [TIFF OMITTED] T6098.562
[GRAPHIC] [TIFF OMITTED] T6098.563
[GRAPHIC] [TIFF OMITTED] T6098.564
[GRAPHIC] [TIFF OMITTED] T6098.565
[GRAPHIC] [TIFF OMITTED] T6098.566
[GRAPHIC] [TIFF OMITTED] T6098.567
[GRAPHIC] [TIFF OMITTED] T6098.568
[GRAPHIC] [TIFF OMITTED] T6098.569
[GRAPHIC] [TIFF OMITTED] T6098.570
[GRAPHIC] [TIFF OMITTED] T6098.571
[GRAPHIC] [TIFF OMITTED] T6098.572
[GRAPHIC] [TIFF OMITTED] T6098.573
[GRAPHIC] [TIFF OMITTED] T6098.574
[GRAPHIC] [TIFF OMITTED] T6098.575
[GRAPHIC] [TIFF OMITTED] T6098.576
[GRAPHIC] [TIFF OMITTED] T6098.577
[GRAPHIC] [TIFF OMITTED] T6098.578
[GRAPHIC] [TIFF OMITTED] T6098.579
[GRAPHIC] [TIFF OMITTED] T6098.580
[GRAPHIC] [TIFF OMITTED] T6098.581
[GRAPHIC] [TIFF OMITTED] T6098.582
[GRAPHIC] [TIFF OMITTED] T6098.583
[GRAPHIC] [TIFF OMITTED] T6098.584
[GRAPHIC] [TIFF OMITTED] T6098.585
[GRAPHIC] [TIFF OMITTED] T6098.586
[GRAPHIC] [TIFF OMITTED] T6098.587
[GRAPHIC] [TIFF OMITTED] T6098.588
[GRAPHIC] [TIFF OMITTED] T6098.589
[GRAPHIC] [TIFF OMITTED] T6098.590
[GRAPHIC] [TIFF OMITTED] T6098.591
[GRAPHIC] [TIFF OMITTED] T6098.592
[GRAPHIC] [TIFF OMITTED] T6098.593
[GRAPHIC] [TIFF OMITTED] T6098.594
[GRAPHIC] [TIFF OMITTED] T6098.595
[GRAPHIC] [TIFF OMITTED] T6098.596
[GRAPHIC] [TIFF OMITTED] T6098.597
[GRAPHIC] [TIFF OMITTED] T6098.598
[GRAPHIC] [TIFF OMITTED] T6098.599
[GRAPHIC] [TIFF OMITTED] T6098.600
[GRAPHIC] [TIFF OMITTED] T6098.601
[GRAPHIC] [TIFF OMITTED] T6098.602
[GRAPHIC] [TIFF OMITTED] T6098.603
[GRAPHIC] [TIFF OMITTED] T6098.604
[GRAPHIC] [TIFF OMITTED] T6098.605
[GRAPHIC] [TIFF OMITTED] T6098.606
[GRAPHIC] [TIFF OMITTED] T6098.607
[GRAPHIC] [TIFF OMITTED] T6098.608
[GRAPHIC] [TIFF OMITTED] T6098.609