[Federal Register Volume 69, Number 15 (Friday, January 23, 2004)]
[Notices]
[Pages 3349-3361]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-1366]


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FEDERAL COMMUNICATIONS COMMISSION

[CC Docket Numbers 96-45 and 97-21; FCC 03-313]


Request for Review of the Decision of the Universal Service 
Administrator by Ysleta Independent School District, et al.

AGENCY: Federal Communications Commission.

ACTION: Notice.

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SUMMARY: In this document, the Commission affirmed the Schools and 
Libraries Division's decisions and denied the Requests for Review filed 
by Ysleta Independent School District, El Paso, Texas, et al. However, 
the Commission waived the filing window for Funding Year 2002 to permit 
the above-captioned schools to resubmit requests for eligible products 
and services for Funding Year 2002.

DATES: The Commission's decisions on the Requests for Review addressed 
in this order were effective December 8, 2003.

FOR FURTHER INFORMATION CONTACT: Andy Firth, Attorney, 
Telecommunications Access Policy Division, Wireline Competition Bureau, 
(202) 418-7400, TTY (202) 418-0484.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Order 
in CC Docket Nos. 96-45 and 97-21 released on December 8, 2003. The 
full text of this document is available for public inspection during 
regular business hours in the FCC Reference Center, Room CY-A257, 445 
Twelfth Street, SW., Washington, DC 20554.

I. Introduction

    1. In this Order, before the Commission is a Request for Review by 
the Ysleta Independent School District (Ysleta), El Paso, Texas, and 
similar Requests for Review filed by seven other schools. International 
Business Machines, Inc. (IBM) also files a Request for Review in most 
of the appeals. The schools and IBM seek review of decisions of the 
Schools and Libraries Division (SLD) of the Universal Service 
Administrative Company (Administrator), denying $250,977,707.08 in 
schools and libraries universal service support mechanism discounts to 
the schools for Funding Year 2002. Because each appeal raises very 
similar issues, we consolidate our review here. We affirm SLD's 
decisions and deny the Requests for Review. Under the terms, however, 
we waive the filing window for Funding Year 2002 to permit the above-
captioned schools to resubmit requests for eligible products and 
services for Funding Year 2002 under the terms.
    2. The Commission is deeply concerned about a number of practices 
that undermine the framework of the competitive bidding process 
established by the Commission's Universal Service Order, 62 FR 32862 
(June 17, 1997). If allowed to persist, the practices that we address 
in this Order could suppress fair and open competitive bidding, and 
ultimately thwart the goal of effective, efficient, and equitable 
distribution of universal service support to eligible schools and 
libraries. The Commission has directed program applicants to take full 
advantage of the competitive market to obtain cost-effective services 
and to minimize waste, fraud, and abuse. Reliance on competitive 
markets also assures that program funds can be distributed as widely 
and as equitably as possible among the applicants. To enhance 
competitive-market processes, the Commission has developed a process in 
which applicants first develop detailed technology plans that describe 
their technology needs and goals in a manner consistent with their 
educational or informational objectives. Having determined the services 
for which they would seek E-rate discounts, applicants would then 
submit for posting on the Administrator's website an FCC Form 470, 
listing the desired services, consistent with the technology plan, with 
sufficient specificity to enable potential bidders to submit bids for 
E-rate eligible services. Applicants could indicate on the FCC Form 470 
if they also had a Request for Proposal (RFP) providing additional 
detail on the services sought. Once an applicant received bids with 
specific prices quoted for eligible services, it would select the most 
cost-effective services, with price as the primary factor. Where 
consistent with these practices, applicants would rely on state and 
local procurement processes. This is the foundation upon which the 
Commission's rules and orders are based.
    3. The procurement processes presented in the instant Requests for 
Review thwart the Commission's competitive bidding policies. The 
factual scenarios of the different applicants vary to some degree, but 
all present troubling conduct or outcomes that are inconsistent with 
the competitive bidding procedures required by our rules and orders. 
Most of the above-captioned applicants selected a Systems Integrator to 
provide

[[Page 3350]]

millions of dollars worth of services, but chose the Systems Integrator 
without seeking bids on any of the prices of the specific E-rate-funded 
services sought. Most of the applicants also submitted FCC Forms 470 
expressing interest in purchasing a catalogue of virtually every 
eligible service, 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. Some applicants also stated on their FCC Forms 470 that they 
did not have an RFP relating to the E-rate eligible services, and then 
subsequently released such an RFP just a few days later.
    4. These practices are contrary to our rules and policies and 
create conditions for considerable waste of funds intended to promote 
access to telecommunications and information services. Such waste harms 
individual applicants that do not receive the most cost-effective 
services. If allowed to continue, the practices identified here would 
harm other applicants who may be under-funded because funds needlessly 
have been diverted to these excessive program expenditures. Further, it 
would damage the integrity of the program, which to date has 
successfully provided discounts enabling millions of school children 
and library patrons, including those in many of the nation's poorest 
and most isolated communities, to obtain access to modern 
telecommunications and information services for educational purposes, 
consistent with the statute.

II. Discussion

    5. We have reviewed the records in the above-captioned Requests for 
Review. Upon careful review, and for the reasons discussed below, we 
conclude that Ysleta and the similarly situated applicants set forth in 
the caption violated our rules regarding competitive bidding, our 
requirements governing the weighting of price in selecting bidders, and 
the requirement that applicants submit bona fide requests for services. 
In light of the circumstances presented, however, we conclude that 
waiving our filing deadlines in order to permit Ysleta and similarly 
situated applicants that have appealed SLD's denial of funding to re-
bid for services for Funding Year 2002 is in the public interest.
    6. Competitive Bidding Violations. Ysleta and IBM argue that Ysleta 
did not violate any Commission competitive bidding rules. They argue 
that Ysleta did competitively bid for services, by filing an FCC Form 
470 in accordance with program rules that listed eligible services 
sought, and which indicated that Ysleta was seeking a partnership with 
a Systems Integrator. They also note that Ysleta thereafter published 
an RFP seeking the services of a Systems Integrator, and received five 
competing bids for those services. We are not persuaded by these 
arguments, however, because the competitive bidding in which Ysleta 
engaged was carried out without regard to the products and services 
eligible for discounts, such that the prices of actual services were 
never compared.
    7. We conclude that the type of procurement practiced by each 
school in these cases violates our competitive bidding rules, because 
it effectively eliminates competitive bidding for the products and 
services eligible for discounts under the support mechanism. Section 
54.504(a) of the Commission's rules specifically states that ``an 
eligible school or library shall seek competitive bids * * * for all 
services eligible for support * * *'' As the Commission has previously 
observed:

Competitive bidding is the most efficient means for ensuring that 
eligible schools and libraries are informed about all of the choices 
available to them. Absent 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.

Competitive bidding for services eligible for discount is a cornerstone 
of the E-rate program, vital to limiting waste, ensuring program 
integrity, and assisting schools and libraries in receiving the best 
value for their limited funds.
    8. Ysleta engaged in a two-step procurement process, but only the 
first step, at which it selected the service provider, involved 
competitive bidding, and only in a limited fashion. First, Ysleta 
sought competitive bids for a Systems Integrator without regard to 
costs for specific projects funded by the schools and libraries support 
mechanism. Second, Ysleta negotiated with the Systems Integrator it had 
selected regarding the scope and prices of E-rate eligible products and 
services, but it never sought competing bids for those products and 
services, as required by our rules. Thus, Ysleta never received a 
single competing bid for the $2,090,400 in Cabling Services, $965,500 
in Network Electronics, $3,945,320 in Network File and Web Servers, 
$968,600 in Basic Unbundled Internet Access, or $12,409,811 it 
requested in Technical Support Services. Instead, the only dollar 
figures that Ysleta compared in its determination of cost effectiveness 
were the hourly rates of IBM employees (e.g., $394 per hour for a 
Project Executive, with no estimate of the number of hours projected to 
complete specific projects) versus the hourly rates of competitors' 
employees. These hourly rates are so unrepresentative of and unrelated 
to the large amounts of E-rate funding requested by Ysleta as to render 
the application of competitive bidding under the program virtually 
meaningless.
    9. The Commission's rules and orders require competitive bidding on 
the actual products and services supported by the program, rather than 
merely on the basis of a vendor's hourly rates, reputation and 
experience. The Commission's orders state that ``an eligible school 
[or] library * * * shall seek competitive bids * * * for all services 
eligible for support * * *'' Ysleta did not seek competitive bids for 
such services. Furthermore, in the Universal Service Order, the 
Commission directed that applicants must ``submit a complete 
description of services they seek so that it may be posted for 
competing providers to evaluate.'' Our rules therefore contemplate that 
applicants will compare different providers' prices for actual services 
eligible for support. Only by doing so can applicants ensure that, in 
accordance with our rules, they are receiving the most cost-effective 
services. As the Commission stated in its 1999 Tennessee Order, 14 FCC 
Rcd 25, 13734, ``We certainly expect that schools will evaluate the 
actual dollar cost proposed by a bidder * * *'' The context of that 
statement makes clear that the Commission expected schools to evaluate 
the actual dollar amount of eligible services during the bidding 
process. From the evidence before us, we find that Ysleta did not 
comply with this requirement.
    10. Because Ysleta failed to seek competitive bids for specific 
eligible services, it violated Sec.  54.504(a) of our rules. Moreover, 
we cannot find Ysleta satisfied this requirement through the posting of 
its FCC Form 470. Although the posting of a FCC Form 470 will generally 
satisfy Sec.  54.504(a), Ysleta's does not here because Ysleta made 
clear through its RFP, which was released almost simultaneously with 
its FCC Form 470, that Ysleta was actually seeking bids for a vendor to 
serve as the Systems Integrator in a two-step procurement process and 
was not seeking bids for all of the services outlined on its FCC Form 
470.
    11. Although we do not hold that the FCC Form 470 presented here 
violated

[[Page 3351]]

our competitive bidding rules, in light of the actions of Ysleta and 
the other similarly situated applicants, we reiterate the importance of 
the FCC Form 470 to the competitive bidding process. The applicant's 
FCC Form 470, based on the applicant's technology plan, puts potential 
bidders on notice of the applicant's specific needs to encourage 
competitive bids, so that the applicant may avail itself of the growing 
competitive marketplaces for telecommunications and information 
services. The fact that these certifications on the FCC Form 470, all 
of which relate to the actual products and services for which the 
applicant will seek discounts, are required on the FCC Form 470, 
indicates that the Commission's rules and procedures contemplate that 
providers will bid on the cost of the specific products and services 
eligible for discounts, based on the applicant's technology plan. Our 
rules and procedures do not contemplate that potential providers will 
bid solely on Systems Integration services, with the expectation that 
the applicant will decide on specific products and services after the 
applicant has selected a provider.
    12. We are troubled that Ysleta submitted an FCC Form 470 listing 
virtually every possible product and service for which it could 
conceivably seek discounts. Rather than representing the outgrowth of a 
carefully designed technology plan as required under our rules, 
offering potential bidders specific information on which to submit 
bids, Ysleta's FCC Form 470 failed to ``describe the services that the 
schools and libraries seek to purchase in sufficient detail to enable 
potential providers to formulate bids * * *''
    13. An applicant's FCC Form 470 must be based upon its carefully 
thought-out technology plan and must detail specific services sought in 
a manner that would allow bidders to understand the specific 
technologies that the applicant is seeking. Thus, a Form 470 that sets 
out virtually all elements that are on the eligible services list would 
not allow a bidder to determine what specific services the applicant 
was seeking. The Form 470 should not serve as a planning device for 
applicants trying to determine what is available or what possible 
solutions might meet the applicant's specified curriculum goals. A Form 
470 should not be a general, open-ended solicitation for all services 
available on the eligible services list, with the hope that bidders 
will present more concrete proposals. The research and planning for 
technology needs should take place when the applicant drafts its 
technology plan, with the applicant taking the initiative and 
responsibility for determining its needs. The applicant should not post 
a broad Form 470 and expect bidders to do the ``planning'' for its 
technological needs.
    14. Some applicants have simple, straightforward requests, such as 
discounts on telephone lines to each of their classrooms or dial-up 
Internet access for several computers in a library. Other applicants 
seek discounts on highly complex and substantial systems that span 
multiple sites and utilize highly advanced equipment and services. The 
FCC Forms 470 developed from an applicant's technology plans should 
mirror the level of complexity of the services and products for which 
discounts are being sought.
    15. The Commission has recognized that the applicant is the best 
entity to determine what technologies are most suited to meet the 
applicant's specific educational goals. The applicant's specific goals 
and technology plans are therefore unique to the applicant. While we 
recognize that some states may, for valid reasons, want all applicants 
to have some level of uniformity in technological development, in cases 
where the Administrator finds ``carbon copy'' technology plans and 
Forms 470 across a series of applications, especially where the 
services and products requested are complex or substantial, and when 
the same service provider is involved, it is appropriate for the 
administrator to subject such applications to more searching scrutiny 
to ensure there has been no improper service provider involvement in 
the competitive bidding process.
    16. On appeal, IBM raises several arguments concerning the 
Administrator's findings about the Ysleta FCC Form 470. As we have 
explained above, our decision here does not rely on Ysleta's FCC Form 
470. Instead we are clarifying on a going forward basis how an 
applicant's FCC Form 470 must be based upon its technology plan and 
must detail specific services sought in a manner that allows bidders to 
understand the specific technologies that the applicant is seeking. 
Thus, for purposes of this appeal, IBM's arguments concerning the Form 
470 are inapposite. In the interest of clarity, however, we respond to 
its arguments so that applicants will understand more completely the 
Commission's requirements as they relate to the FCC Form 470.
    17. IBM argues that the fact that five providers bid on Systems 
Integration services demonstrates that there was sufficient information 
to enable service providers to prepare bids for the provision of 
products and services eligible for discounts. Just as an FCC Form 470 
may fail to provide sufficient information to potential bidders by not 
listing all the services for which the applicant may seek discounts, an 
applicant's FCC Form 470 may fail to provide sufficient information by 
virtue of its overbreadth, with so many services listed that it fails 
to indicate which services the applicant is likely to pursue. Potential 
vendors of specific services are less likely to respond to an all-
inclusive FCC Form 470, concluding that the applicant does not 
realistically intend to order all services listed, and being unable to 
determine which services are actually being sought.
    18. Similarly, IBM argues that interested providers may contact an 
applicant with a comprehensive FCC Form 470 to obtain additional 
information that would explain what the applicant seeks. But the 
purpose of the FCC Form 470 is not to allow an applicant to indicate 
its interest in E-rate services generally, with the burden being on 
potential bidders to find out whether the services they offer might be 
among those sought by an applicant. Otherwise, the FCC Form 470 would 
merely need to include a single box that an applicant could check if it 
anticipated receiving E-rate services, and there would be no need to 
list or describe those services. Rather, the FCC Form 470 is intended 
``to allow providers to reasonably evaluate the requests and submit 
bids.'' Ysleta's FCC Form 470, even if considered in conjunction with 
its RFP for Systems Integration, fails to provide the specificity 
necessary to place potential bidders on notice of the services actually 
sought by Ysleta.
    19. IBM argues that Ysleta's FCC Form 470 contained sufficient 
information for potential service providers to identify potential 
customers. But in this instance, Ysleta's FCC Form 470 is simply too 
broad to provide useful guidance to any potential service provider. The 
fact that there may have been ``nothing in the Form 470 that 
discouraged or prevented any potential services provider from using the 
contact information in the Form 470 to contact Ysleta regarding the 
subset of E-rate services Ysleta sought to procure'' is irrelevant. 
Applicants must submit a ``complete'' description of services sought 
``for competing providers to evaluate.'' Service providers thus must 
have sufficient information to evaluate the services sought in order to 
formulate bids. Similarly, if an applicant on its FCC Form 470 refers 
potential bidders to an RFP it has released or will release, the 
applicant's RFP must provide

[[Page 3352]]

sufficiently detailed and specific information that potential bidders 
may evaluate the E-rate eligible services sought in order to formulate 
bids.
    20. We recognize that some past practices arguably could be 
construed as permitting broad FCC Forms 470. Although we acknowledge 
that SLD has approved other funding requests in the past that utilized 
all-inclusive FCC Forms 470 similar to that submitted by Ysleta, we are 
concerned about the use of such broad listings of services. We also 
recognize that SLD cautioned applicants in the past to be expansive in 
listing services on an FCC Form 470, to provide applicants with greater 
flexibility to make service substitutions post-commitment. But our 
consideration of the facts of this case lead us to conclude such 
practices should not be permitted on a going-forward basis.
    21. We therefore clarify prospectively that the requirement for a 
bona fide request means that applicants must submit a list of specified 
services for which they anticipate they are likely to seek discounts 
consistent with their technology plans, in order to provide potential 
bidders with sufficient information on the FCC Form 470, or on an RFP 
cited in the FCC Form 470, to enable bidders to reasonably determine 
the needs of the applicant. An applicant may, in certain circumstances, 
list multiple services on its FCC Form 470, knowing that it intends to 
choose one over another. However, all products and services listed on 
the FCC Form 470 must be linked in a reasonable way to the applicant's 
technology plan and not request duplicative services. The Commission 
has previously stated that we expect applicants to ``do their 
homework'' in determining which products and services they require, 
consistent with their approved technology plan. We clarify 
prospectively that requests for service on the FCC Form 470 that list 
all services eligible for funding under the E-rate program do not 
comply with the statutory mandate that applicants submit ``bona fide 
requests for services.''
    22. We do not expect that this prospective clarification will 
affect the manner in which the vast majority of applicants complete 
their FCC Forms 470. For some applicants, however, it will require more 
careful consideration of their actual technology needs. We expect that 
this clarification will ensure that the integrity of the program and 
the purposes of our competitive bidding rules are met, while limiting 
waste, fraud, and abuse. Furthermore, we stress that our prospective 
clarification that ``encyclopedic'' FCC Forms 470 will not meet the 
requirements for a bona fide request for services does not alter our 
finding that Ysleta violated our competitive bidding requirement, 
because Yselta's all-inclusive FCC Form 470 was accompanied by a RFP 
that sought bids for a systems integrator, which, based on the facts 
before us, functionally supplanted the FCC Form 470.
    23. We also take this opportunity to clarify the wording on the FCC 
Form 470 regarding RFPs that provide more detailed solicitations for 
bidders than the FCC Form 470. Blocks 8, 9, and 10 of the form ask the 
applicant, ``Do you have a Request for Proposal (RFP) that specifies 
the services you are seeking?'' If so, the applicant checks a box 
marked ``Yes, I have an RFP'' and indicates the Web site on which the 
RFP can be found, or the contact person from whom an applicant may 
obtain the RFP. If an applicant does not have an RFP, it selects the 
box identified as, ``No, I do not have an RFP for these services.''
    24. Ysleta checked the boxes indicating it did ``not have'' an RFP. 
Five days later, it released a detailed RFP for Systems Integrator 
services. SLD found that Ysleta's statement that it did not ``have'' an 
RFP was misleading, because the fact that it released one less than a 
week later suggested that it did ``have'' an RFP at the time it 
submitted its FCC Form 470. Ysleta contends that it did not ``have'' 
the completed RFP until it was ready for release five days later. We 
recognize that due to the wording of that question, some applicants may 
have been unsure how to portray the fact that they had not yet released 
an RFP but intended to do so. On the other hand, the intent of the FCC 
Form 470 is to provide potential bidders with as much information as 
possible in order to maximize competition for applicant's contracts. We 
direct the Wireline Competition Bureau (WCB) to clarify on a revised 
FCC Form 470, before the start of Funding Year 2004, that an applicant 
shall certify either, ``Yes, I have released or intend to release an 
RFP for these services'' or ``No, I have not released and do not intend 
to release an RFP for these services.'' We anticipate that applicants 
will know at the time that they submit their FCC Form 470 whether they 
intend to release an RFP relating to the services listed on the FCC 
Form 470. To the extent that the applicant also relies on an RFP as the 
basis of its vendor selection, that RFP must also be available to 
bidders for 28 days. This clarification will help to fulfill the 
purposes of the FCC Form 470 by informing potential bidders if there 
is, or is likely to be, an RFP relating to particular services 
indicated on the form.
    25. State and Local Procurement Rules and Competitive Bidding. 
Ysleta and IBM argue that because Ysleta complied with state and local 
procurement processes, the Commission must approve its selection of 
IBM. Ysleta states that the Commission has four competitive bidding 
requirements: the applicant must post an FCC Form 470, comply with 
state and local procurement laws, wait at least 28 days after posting 
the FCC Form 470 before signing a contract, and ``possibly'' consider 
price as the primary consideration. Ysleta argues that the requirement 
that applicants comply with state and local procurement laws ``is the 
most important element.'' IBM contends that in the Fourth Order on 
Reconsideration, 67 FR 70702 (November 26, 2002), the Commission 
``confirmed the supremacy of state and local procurement rules'' when 
it stated that it would look to state or local procurement laws to 
determine whether a contract modification was ``minor,'' and that only 
where state procurement law was silent would the Commission apply a 
federal standard. Ysleta and IBM argue that our rules forbid us from 
preempting state and local procurement laws, and that because Ysleta's 
selection of IBM was consistent with Texas law, we must approve that 
selection. In addition, they argue that the fact that none of the other 
bidders filed complaints indicates that the bidding process was fair 
and open.
    26. Although compliance with any applicable state and local 
procurement laws is one of the minimum requirements for selecting 
services under the E-rate program, there are also certain specific FCC 
requirements with which all E-rate applicants must comply, regardless 
of state and local law. Section 54.504(a) of the Commission's rules 
specifically states that the Commission's ``competitive bid 
requirements apply in addition to state and local competitive bidding 
requirements * * *.'' For example, program rules require the posting of 
an FCC Form 470 and Form 471 in order to obtain funding under the 
program, and these constitute federal requirements that apply in all 
circumstances, regardless of state and local law. Similarly, even 
though a state or local procurement law may permit an applicant to 
forego competitive bidding for products and services under a certain 
dollar threshold, the Commission's rules require that applicants for E-
rate services seek competitive bids on all such services, to the extent 
that the services covered by

[[Page 3353]]

the state law are eligible for discounts from the federal universal 
service fund.
    27. Even if we assume that Ysleta's selection of IBM did not 
violate applicable state and local procurement law, such compliance 
would not automatically ensure compliance with our rules governing the 
selection of bidders in the E-rate program. The Commission has never 
recognized ``the supremacy'' of state and local laws over our 
competitive bidding requirements. The Commission's examination of state 
and local procurement laws to determine whether a proposed contract 
modification was minor has no bearing on our competitive bidding 
requirements. Such determinations regarding contractual interpretations 
are well within the purview of state and local procurement laws, where 
applicable. But we cannot rely solely upon state and local laws to 
effectuate our goals of ensuring support is provided without waste, 
fraud and abuse. The fact that there were four other bidders in this 
case and that none of them registered protests does not demonstrate 
that Ysleta's selection process met the requirements of our rules. Nor 
did the other bidders, all of whom were bidding for Systems Integration 
services, have any incentive to assert that this procurement process 
did not comply with our rules, because all stood to gain from being 
awarded the Systems Integration contract, either by Ysleta or in 
another case. Similarly, other bidders would appear unlikely to 
challenge the Systems Integration approach because in doing so they 
would run the risk of losing both the Systems Integration contract with 
a school, and also the likelihood of being picked by the successfully 
bidding Systems Integrator to serve as a subcontractor.
    28. Nor has the Commission ever held that compliance with state and 
local laws is ``the most important element'' in our competitive bidding 
rules. The four steps cited by Ysleta, and other Commission-imposed 
requirements such as the approval of a technology plan, are designed to 
work in concert to promote competitive bidding and assist schools and 
libraries in procuring the most cost-effective and appropriate services 
under the program. Compliance with state and local procurement rules is 
necessary, but not to the exclusion of compliance with other Commission 
requirements.
    29. Ysleta and IBM also misread the Commission's rules and orders 
to assume that any state or local procurement process complies with the 
Commission's rules. In the Tennessee Order, the Commission stated that 
it would ``generally rely on local and/or state procurement processes 
that include a competitive bid requirement as a means to ensure 
compliance with our competitive bid requirements.'' The two-step 
approach Ysleta utilized in procuring services fails to include a 
competitive bidding requirement for selecting specific E-rate eligible 
services. Therefore, it does not constitute a ``state or local 
competitive bidding requirement'' under our rules, even if such an 
approach may be a valid means of procurement under Texas law. 
Furthermore, as discussed below, while Texas law may permit competitive 
bidding, Texas law does not impose a competitive bidding requirement on 
eligible schools and libraries as was the case in the Tennessee Order. 
Our rules state that ``an eligible school * * * shall seek competitive 
bids * * * for all services'' and such services must be noticed with 
specificity. Although Ysleta sought competitive bids for the service of 
Systems Integration, its procurement process did not include an 
effective competitive bidding requirement with respect to the actual 
services eligible for funding, and therefore, under both Sec.  54.504 
and the Tennessee Order, Ysleta's procurement policies, even if 
consistent with state and/or local law, were not adequate to meet our 
requirements.
    30. We find unconvincing IBM's argument that because our rules 
state that our competitive bidding requirements ``apply in addition to 
state and local competitive bid requirements and are not intended to 
preempt such state or local requirements,'' if Texas law permits this 
two-step bidder selection and negotiation approach, then requiring 
competitive bidding of services under our program would constitute a 
federal preemption of state and local requirements in contravention of 
our rules. Texas law does not forbid E-rate applicants from complying 
with our minimal competitive bidding requirements. Section 44.031 of 
the Texas Code, which governs school district purchasing contracts, 
explicitly permits school districts to make contracts subject to 
competitive bidding. Texas law therefore does not preclude compliance 
with our threshold federal requirements.
    31. Although we do not believe that preemption of state or local 
rules is necessary here, we note that the Commission has previously 
recognized that there may be circumstances where our requirements could 
preempt state or local competitive bidding requirements if schools or 
libraries wish to receive E-rate discounts. In the Tennessee Order, the 
Commission provided guidance regarding Sec.  54.504(a) by stating that 
it would only ``generally'' rely on state and/or local procurement 
processes, giving notice that there may be circumstances where the 
Commission will not rely on such processes. The Commission stated that 
it did not need ``in this instance'' to make a separate finding of 
compliance with its competitive bidding requirements, because state and 
local ``rules and practices will generally consider price to be a 
primary factor * * * and select the most cost-effective bid.'' But 
where the Commission determines from the specific circumstances that 
Commission rules were not met, e.g., specific services were not subject 
to proper competitive bidding, the Commission need not and should not 
rely solely on state and/or local procurement processes to ensure 
compliance with our established regulatory framework. The Commission's 
responsibility to combat potential waste, fraud, and abuse in the 
Commission's program, while promoting goals such as having schools and 
libraries obtain the most cost-effective services, commands that the 
limited rules we impose regarding competitive bidding constitute a 
floor or minimum set of requirements. We will generally rely on state 
and/or local procurement processes, but there may be circumstances such 
as those presented here that require us to look beyond those processes 
to ensure that our threshold requirements are met.
    32. Violations of Requirements of Cost-effectiveness and Price as 
the Primary Factor. The procurement process used by Ysleta also 
violates Commission requirements regarding the role of price in an 
applicant's determination of cost-effectiveness when evaluating bids. 
Applicants must select the most cost-effective offerings, and price 
must be the primary factor in determining whether a particular vendor 
is the most cost-effective. Price need not be the exclusive factor in 
determining cost-effectiveness, however, so that schools and libraries 
selecting a provider of eligible services ``shall carefully consider 
all bids submitted and may consider relevant factors other than the 
pre-discount prices submitted by providers.''
    33. In the Universal Service Order, the Commission stated that 
``price should be the primary factor in selecting a bid,'' adding that 
other factors, particularly ``prior experience, including past 
performance; personnel qualifications, including technical excellence; 
management capability, including schedule compliance; and environmental 
objective'' could ``form a reasonable basis on which to evaluate

[[Page 3354]]

whether an offering is cost-effective.'' In Tennessee Order, the 
Commission provided additional ``useful guidance with regard to our 
competitive bid requirements and factors that may be considered in 
evaluating competitive bids.'' The Commission specifically emphasized 
the significance of price of services as a factor in selecting bids. 
The Commission stated:
    * * * [A] school should have the flexibility to select different 
levels of services, to the extent such flexibility is consistent with 
that school's technology plan and ability to pay for such services, but 
when selecting among comparable services, however, this does not mean 
that the lowest bid must be selected. Price, however, should be 
carefully considered at this point to ensure that any considerations 
between price and technical excellence (or other factors) are 
reasonable.
    34. In discussing the role of state and local procurement 
processes, however, the Commission stated that price would be ``a 
primary factor'' rather than ``the primary factor.'' However, in 
discussing the Fourth Reconsideration Order, the Commission stated that 
price would be ``the primary factor'' rather than ``a primary factor.''
    35. We acknowledge that the Commission's use of varying phraseology 
in the same decision created some ambiguity on this issue. To 
strengthen the consideration of price as ``the primary factor'' in the 
competitive bidding process, we hereby depart from past Commission 
decisions to the contrary and clarify that the proper reading of our 
rule, in light of the Commission's longstanding policy to ensure the 
provision of discounts on cost-effective services, is that price must 
be the primary factor in considering bids. Applicants may also take 
other factors into consideration, but in selecting the winning bid, 
price must be given more weight than any other single factor. When 
balancing the need for applicants to have flexibility to select the 
most cost-effective services and the limited resources of the program, 
we conclude that requiring price to be the single most important factor 
is a rational, reasonable, and justified requirement that will maximize 
the benefits of the E-rate discount mechanism, while limiting waste, 
fraud, and abuse.
    36. Ysleta and IBM offer a number of arguments supporting their 
position that, consistent with our rules, Ysleta selected the most 
cost-effective services with price as the primary factor with its 
``two-step'' selection process. They argue that the bid responses by 
the five bidders for Systems Integration services ``included 
substantial information regarding the bidders' experience and track 
record for efficient, successful performance of similar services.''
    They further aver that the prices of eligible services were 
determined through careful negotiations with IBM during the second step 
of the selection process, after IBM had been ``recommended'' by the 
Ysleta Board of Trustees over the other four bids, but before Ysleta 
``selected'' IBM by signing the contract. During this negotiating 
phase, IBM argues, price was the ``sole and exclusive factor that 
determined whether IBM would ultimately be selected as the service 
provider.'' Furthermore, IBM states, the RFP provided that if Ysleta 
could not negotiate ``a fair and reasonable price with the offeror 
judged most highly qualified, negotiations will be made with the offer 
or judged next most highly qualified until a contract is entered 
into.'' Thus, before signing the contract, Ysleta could cease 
negotiations with IBM and start over with another provider. 
Additionally, under the contract Ysleta retained the right to review 
pricing on an on-going basis, to obtain IBM's own pricing information, 
to direct IBM to particular product vendors and require that products 
be acquired in accordance with Texas procurement law, and to modify or 
delete projects after funding was awarded. Ysleta and IBM argue that 
the emphasis on price in these provisions cumulatively reflect that 
Ysleta complied with the Commission's requirements in selecting the 
most cost-effective offering with price as the primary factor, in 
accordance with Texas ``best value'' practices. They contend that 
because Ysleta must contribute significant costs in order to receive E-
rate discounts, it had a strong incentive to select the most cost-
effective services.
    37. We first address IBM's argument that the November 15, 2001 bid 
responses for Systems Integration services ``included substantial 
information regarding the bidders' experience and track record for 
efficient, successful performance of similar services.'' Despite 
listing other E-rate projects it had completed, IBM's bid offered no 
specific pricing information regarding those projects to demonstrate to 
Ysleta that it had provided cost-effective services.
    IBM's bid offered only general assurances relating to pricing, such 
as an explanation that IBM's profit margins ``are consistent with our 
competitors,'' and the statement, ``You are assured that IBM prices 
will always be market driven, competitive with other consulting firms 
of similar profile and skill levels, and within normal and customary 
charges for the type of services provided.'' But the prices relevant 
for our competitive bidding requirements are those of eligible 
services, rather than the hourly rate for Systems Integration services. 
While non-price-specific information that goes to a bidder's experience 
and reputation can be important for determining cost-effectiveness, our 
past decisions require that actual price be considered in conjunction 
with these non-price factors to ensure that any considerations between 
price and technical excellence or other factors are reasonable. As 
noted above, the Commission stated in the Tennessee Order that it 
``certainly expect[s] that schools will evaluate the actual dollar 
amount proposed by a bidder * * *'' for eligible services during the 
bidding process. Yet the only specific pricing information proposed by 
IBM or the other bidders was an hourly rate schedule for various 
individuals' services. Ysleta fails to demonstrate that both price and 
non-price factors were reasonably considered at this point.
    38. Ysleta and IBM argue that Ysleta did not ``select'' IBM until 
it signed the contract, following extensive negotiations where Ysleta 
asserts it relied on its extensive expertise and its knowledge of 
information technology and contracting to ensure that pricing would be 
fair and reasonable. They argue that Ysleta could obtain cost-effective 
services both by negotiating price before signing the contract, and by 
exerting pricing pressure thereafter through its contractual right to 
review IBM's prices and direct IBM to select particular vendors, and 
modify or delete particular projects. They assert that Ysleta could 
abandon negotiations with IBM before signing the contract, and even 
after signing the contract would continue to exert pressure thereafter 
to keep prices reasonable, which helped result in cost-effective 
services. However, the Commission has determined that seeking 
competitive bids for eligible services is the most efficient means for 
ensuring that eligible schools and libraries are fully informed of 
their choices and are most likely to receive cost-effective services. 
In a situation where several entities in fact are potentially 
interested in providing eligible services, we expect the applicant to 
make some effort to ascertain the proposed prices for the eligible 
services for each bidder. We do not think our goals of limiting waste 
are well served when an applicant merely compares the prices of one 
bidder

[[Page 3355]]

against its internal assessment of what a ``reasonable'' price would 
be.
    39. Even if an applicant receives only one bid in response to an 
FCC Form 470 and/or RFP, it is not exempt from our requirement that 
applicants select cost-effective services. The Commission has not, to 
date, enunciated bright-line standards for determining when particular 
services are priced so high as to be considered not cost-effective 
under our rules. There may be situations, however, where the price of 
services is so exorbitant that it cannot, on its face, be cost-
effective. For instance, a proposal to sell routers at prices two or 
three times greater than the prices available from commercial vendors 
would not be cost effective, absent extenuating circumstances. We 
caution applicants and service providers that we will enforce our rules 
governing cost-effectiveness in order to limit waste in the program.
    40. As for Ysleta and IBM's argument that E-rate applicants have 
sufficient incentive to select the most cost-effective services because 
they must contribute a portion of the costs, the Commission stated 
previously in the Tennessee Order that because an applicant must 
contribute its share, the Administrator ``generally'' need not make a 
separate finding that a school has selected the most cost-effective 
bid, even where schools do not have established competitive bidding 
processes. It anticipated that a particular case may present evidence 
that even though an applicant followed state and local rules, the 
applicant did not select the most cost-effective services. Our de novo 
review standard provides an ample basis for examining the facts more 
closely when, as here, there are indications that the applicants did 
not contract for the most cost-effective services.
    41. Violation of Bona Fide Requirement. Section 254(h)(1)(B) of the 
Telecommunications Act of 1934, as amended, states that E-rate 
applicants must submit a ``bona fide request'' for services. The 
Commission has stated that the bona fide requirement means that 
applicants must conduct internal assessments of the components 
necessary to use effectively the discounted services they order, submit 
a complete description of services they seek so that it may be posted 
for competing providers to evaluate, and certify to certain criteria 
under perjury. Further, applicants may violate the statutory bona fide 
requirement through conduct that undermines the fair and open 
competitive bidding process. In the Mastermind Order, 16 FCC Rcd 6, 
4028, the Commission found that a violation of its competitive bidding 
rules had occurred where a service provider listed as the contact 
person on the Form 470 also participated in the competitive bidding 
process as a bidder. The Commission concluded that, even in the absence 
of a rule explicitly prohibiting such conduct, under such 
circumstances, a fair and open competitive bidding process had not 
occurred, and thus the requirement that an applicant make a bona fide 
request for services had been violated.
    42. We conclude that Ysleta violated the statutory requirement that 
applicants submit a ``bona fide request'' for services under the E-rate 
program by using a two-step Systems Integration approach and by failing 
to use price of the actual services being sought as the primary factor 
in selecting IBM. Ysleta released an RFP in conjunction with its FCC 
Form 470, making it clear that it was seeking bids for a systems 
integrator, and not bids for the specific services listed in the FCC 
Form 470. As discussed above, the two-step Systems Integration approach 
is inconsistent with our competitive bidding requirements. Moreover, as 
discussed above, this procurement process violated Commission 
requirements regarding the role of price in determining the most cost-
effective bid. Because Ysleta violated our competitive bidding 
requirements and failed to demonstrate that it selected IBM with price 
as the primary factor, we conclude that it also violated section 254's 
mandate that applicants submit a bona fide request for services.
    43. Retroactive Application of New Rules. We reject the contention 
that the denial of discounts for the procurement practices utilized in 
these cases represents a retroactive application of new rules and 
procedures. Our rules cannot, and need not, address with specificity 
every conceivable factual scenario. As stated above, our rules require 
applicants to seek competitive bids on eligible services, and to 
consider price as the primary factor. These rules are not new. Rather, 
we are applying them to the facts at hand, as is appropriate in an 
adjudicatory context. The fact that in prior years, USAC did not 
disapprove applications that utilized the procurement processes at 
issue in no way limits our discretion to apply our existing rules.
    44. Other Rule Violations. Because we conclude that Ysleta violated 
our rules regarding competitive bidding, the requirement that price be 
the primary factor in selecting bidders, and the requirement that it 
make a bona fide request for services, we need not address SLD's 
conclusions that Ysleta and/or IBM violated other rules. However, 
because we are remanding the instant appeals to SLD and permitting 
similarly situated applicants that have appealed to re-bid, we take 
this opportunity to provide specific guidance regarding practices that 
are inconsistent with our rules to provide greater clarity to those 
applicants re-bidding services and future applicants. We emphasize that 
we will remain vigilant to prevent waste, fraud, and abuse in this 
program to ensure that the statutory goals of section 254 are met.
    45. We emphasize that applicants and service providers are 
prohibited from using the schools and libraries support mechanism to 
subsidize the procurement of ineligible or unrequested products and 
services, or from participating in arrangements that have the effect of 
providing a discount level to applicants greater than that to which 
applicants are entitled. The Administrator has implemented this 
Commission requirement by requiring that: (1) The value of all price 
reductions, promotional offers, and ``free'' products or services be 
deducted from the pre-discount cost of services indicated in funding 
requests; (2) costs, trade-in allowances, and discounts be fairly and 
appropriately derived, so that, for example, the cost for eligible 
components is not inflated in order to compensate for discounts of 
other components not included in funding requests; and (3) contract 
prices be allocated proportionately between eligible and ineligible 
components. We also stress that direct involvement in an application 
process by a service provider would thwart the competitive bidding 
process. These requirements are necessary to ensure that program funds 
are allocated properly, consistent with section 254.
    46. We also emphasize that applicants may not contract for 
ineligible services to be funded through discounts under the E-rate 
program. In its response to Ysleta's RFP, IBM offered to provide as 
Ysleta's ``Technology Partner'' many apparently ineligible services, 
such as teacher and administrative personnel training, consulting 
services, and assistance in filling out forms. IBM and Ysleta assert 
that to the extent such services were proposed in IBM's bid, they were 
merely ``generic descriptions of the global set of services the company 
is capable of providing'' and were not included in the final contract. 
When Ysleta rebids for services, we direct SLD to carefully scrutinize 
the requests to ensure no funding is committed for ineligible services.
    47. An analysis of Ysleta's application suggests that it sought 
support for ``Help

[[Page 3356]]

Desk'' services, as part of the Technical Support Statement of Work. A 
computer Help Desk accepts support calls from end users, and initiates 
action to resolve the problem. This action might involve initial 
diagnostics, creation of a Trouble Ticket, logging the support call, 
and alerting other personnel that a problem exists.
    48. As a result of the complex and evolving nature of the E-rate 
program and the technologies it supports, our rules do not codify a 
precise list of products and services that are eligible. Instead, SLD 
has developed a generalized list of eligible services in an effort to 
provide clarity to applicants of which services are eligible under 
governing rules. Among other things, the Funding Year 2002 Eligible 
Services list defined as eligible: ``Technical Support is the 
assistance of a vendor-provided technician. This support may include 
the installation, maintenance and changes to various services and 
equipment under contract. Technical support is only eligible if it is a 
component of a maintenance agreement or contract for an eligible 
service or product, and it must specifically identify the eligible 
services or products covered by the contract.'' The Eligible Services 
List thus implemented the Commission's holding in the Universal Service 
Order that support may be provided for ``basic maintenance services'' 
that are ``necessary to the operation of the internal connections 
network.''
    49. When confronted with products or services that contain both 
eligible and ineligible functions, SLD in the past has utilized cost 
allocation to determine what portion of the product price may receive 
discounts. We generally endorse this practice as a reasonable means of 
addressing mixed use products and services. When SLD reviews the 
applications that are submitted after the rebidding occurs, it should 
ensure that discounts are provided only for ``basic maintenance'' and 
not for technical support that falls outside the scope of that deemed 
eligible in the Universal Service Order. For instance, calls from end-
users may involve problems with end-user workstation operating systems 
and hardware, and Help Desks typically field questions about the 
operation and configuration of end-user software. Such end-user support 
is not eligible for E-rate funding. Even if the actual correction of a 
problem involves non-contractor personnel, and is therefore not 
reimbursed with E-rate funds, the routing and logging function of the 
comprehensive Help Desk activities would effectively support ineligible 
services, and therefore is ineligible for discounts.
    50. We expect that following the re-bidding of contracts described 
below, SLD will carefully scrutinize applications to ensure that 
discounts are provided only for eligible services. For example, SLD 
will examine applications to ensure that if they include project 
management costs for Systems Integrators or others, such costs do not 
include the cost of ineligible consulting services. Our mandate is to 
ensure that the statutory goals of section 254 are met without waste, 
fraud, and abuse. We emphasize that competitive bidding is a key 
component of our effort to ensure that applicants receive the most 
cost-effective services based on their specific needs, while minimizing 
waste in the program. The various procurement practices described above 
(and described in the attached appendix) represent a significant 
departure from the competitive bidding practices envisioned by the 
Commission, which were designed to best fulfill the goals of section 
254. Although aspects of particular approaches utilized by individual 
applicants may, taken out of context, appear not to constitute a 
significant violation of our rules, the practices in each of the above-
captioned Requests for Review weaken, undercut, or even subvert the 
Commission's competitive bidding requirements. We clarify our rules 
concerning these competitive bidding requirements where such 
clarification is appropriate, and, as detailed below, allow for re-
bidding of services because some applicants may have relied on past 
approval by the Administrator of some of these practices. 
Fundamentally, however, this Order confirms the competitive bidding 
framework the Commission established in the Universal Service Order and 
which has been clarified and upheld in subsequent Orders.

III. Re-Bidding of Services for Funding Year 2002

    51. Although we conclude that the practices followed in these cases 
are not consistent with our rules, we find that there is good cause for 
a waiver of our rules regarding the filing window for Funding Year 
2002. Under the unique circumstances presented here, we find that good 
cause exists to direct SLD to re-open the filing window for Funding 
Year 2002 in order to permit Ysleta, and similarly situated applicants 
listed in the caption who appealed SLD's denial of their funding 
requests, to re-bid for services, to the extent such services have not 
already been provided.
    52. A rule may be waived where the particular facts make strict 
compliance inconsistent with the public interest. In addition, the 
Commission may take into account considerations of hardship, equity, or 
effective implementation of overall policy on an individual basis. In 
sum, a waiver is appropriate if special circumstances warrant a 
deviation from the general rule, and such deviation would better serve 
the public interest than strict adherence to the general rule.
    53. Although we affirm SLD's denial for the reasons set out above, 
we find that these applicants should be allowed to re-bid services in 
accordance with the terms set forth below. We exercise our discretion 
in this matter for the following reasons.
    54. 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 the previous year, 
Funding Year 2001. Although the record is unclear, there are 
indications that other applicants may have engaged in similar 
procurement practices even prior to El Paso's Funding Year 2001 
application. IBM marketed its success with the El Paso contract, as one 
approved by SLD. In its bid for Systems Integration services for 
Ysleta, IBM explained that the El Paso school district had received 
less than $2 million in E-rate funding in Funding Year 2000, but that 
after El Paso selected IBM as a Systems Integrator for Funding Year 
2001, El Paso received over $70 million in funding under the program.
    55. Ysleta maintains that it was strongly influenced by SLD's prior 
approval of the two-step Systems Integration approach used by El Paso 
to select IBM. As Ysleta states, [Ysleta] was well aware of the large 
program funding award to [El Paso] for [Funding Year 2001], through the 
local media and conversations with [El Paso] officials. Consequently, 
[Ysleta] was under the impression that [El Paso's] model of selection 
of a service provider was a more effective method in light of the large 
award, and that [Ysleta] has been unduly restrictive on its requests. 
[Ysleta] had no reason to believe that there was any actual or alleged 
problem with [El Paso's] methodology, since the SLD had approved the 
[El Paso] model for large [Funding Year 2001] funding. [Ysleta] 
requested the form of the request proposal directly from [El Paso], and 
made appropriate changes thereon, culminating in the Request for 
Proposal.
    56. Similarly, a number of applicants point to SLD's past approval 
of funding requests that utilized all-inclusive FCC Forms 470. These 
applicants observe that the approved funding requests are

[[Page 3357]]

similar or identical to that submitted by Ysleta.
    57. We recognize that in certain instances, our rules and past 
decisions did not expressly address the circumstances presented here. 
That, however, does not preclude a finding that there has been a 
violation of our competitive bidding rules. In considering how to 
remedy this violation, we seek to enforce our rules to prevent waste, 
fraud and abuse, while also considering factors of hardship, fairness, 
and equity. For the reasons described below, we find that waiver of our 
rules to permit applicants to rebid services in accordance with the 
terms below is in the public interest in light of the uncertain 
application of our rules to the novel situation presented, and the 
substantial and widespread reliance on prior SLD approval.
    58. The Commission has previously granted a waiver of its rules 
where one factor that it took into account was confusion caused by the 
application of a new rule. We anticipate that we will rarely find good 
cause to grant a waiver of our rules based on confusion among 
applicants in applying them. We think that it is appropriate to 
consider this factor with regard to the instant appeals, however, as 
they involve the application of our rules to a unique situation, namely 
the two-step System Integration approach and related practices. The 
exercise of our discretion to grant such a waiver in this instance is 
also informed by the extent to which applicants relied upon the fact 
that other applicants that utilized this approach previously were 
approved for funding. We have previously considered an applicant's good 
faith reliance in deciding whether to grant a waiver of our rules. 
Here, we think that such consideration is appropriate because 
enforcement of these rules in these circumstances would impose an 
unfair hardship on these applicants. Accordingly, in light of all these 
factors, we find that it is in the public interest to grant a waiver of 
our rules in the novel situation posed by the instant case.
    59. We therefore direct the Administrator to re-open the Funding 
Year 2002 filing window for all of the applicants set forth in the 
caption. Applicants will have sixty days from the date of release of 
this Order to resubmit their FCC Forms 470. In order to receive full 
consideration as in-window applicants for Funding Year 2002, the 
affected applicants must comply with all stages of the original 
application process. Specifically, applicants must seek competitive 
bids for all services eligible for discounts, and submit to the 
Administrator completed FCC Forms 470 on or before February 6, 2004. 
The Administrator will post the FCC Forms 470 to its web site, and once 
the FCC Forms 470 have been posted for 28 days and the applicant has 
signed a contract for eligible services with a service provider, the 
applicants must then submit their FCC Forms 471. In all cases, the 
applicants must file their completed FCC Forms 471 on or before April 
23, 2004.
    60. In accordance with this Order, applicants will be required to 
submit FCC Forms 470 that set forth in sufficient detail the services 
requested, or that reference RFPs that do so. Applicants must seek 
competitive bids for eligible services, requiring potential bidders to 
submit proposed prices for specified services. Applicants may select a 
Systems Integrator for project management, but not without seeking bids 
from potential Systems Integrators that specify prices to be charged by 
the Systems Integrator for eligible services. Nothing in this Order 
prevents IBM from submitting new bids for services.
    61. Re-submitted applications shall be capped at the amount of pre-
discount funding that applicants originally sought. We direct the 
Administrator to ensure that no applicant receives funding in excess of 
the amount for which the applicant originally applied for each 
individual funding request. However, because many of the contracts at 
issue in the instant appeals may not have been the most cost-effective 
offerings for obtaining eligible services, we fully anticipate that 
applicants will obtain substantial savings over their original 
applications once they have re-bid for actual E-rate eligible services. 
As noted above, we direct the Administrator not to approve requests for 
discounts on maintenance costs that are not cost-effective.
    62. To the extent an applicant proceeded to take service, 
particularly telecommunications services or Internet access, 
notwithstanding SLD's denial of discounts, we do not and will not 
provide funding to pay for such services. We therefore do not grant a 
waiver of the filing window with respect to any requests for services 
that have already been provided as of the date of this Order. We do not 
believe that such a conclusion is overly harsh, since applicants 
proceeded at their own risk to take service, and we would be remiss to 
permit discounts in a situation where parties assumed the risk of 
proceeding in the face of SLD's denial. The loss of discounts for such 
services is a fair and appropriate consequence of the actions of these 
applicants.
    63. Applicants that sought funding in Funding Year 2003 for 
internal connections products or services for which SLD denied 
discounts in Funding Year 2002 for competitive bidding violations may 
not receive discounts for the identical products or services in both 
Funding Year 2002 and Funding Year 2003. After rebidding, if applicants 
receive funding commitments in both 2002 and 2003 for identical 
products and services, they must cancel the funding requests for one of 
the two years.
    64. Although each application under the E-rate program is unique to 
some degree, we conclude that all of the appellants listed in the 
attached appendix demonstrate factual circumstances sufficiently 
similar to those in the instant appeal as to merit a denial and right 
to re-bid in accordance with the terms of this Order. Applicants who 
were denied by SLD under similar factual circumstances, but who elected 
not to file appeals with SLD or the Commission, may not re-bid, because 
they failed to preserve their rights on appeal.
    65. The Commission remains staunchly committed to limiting waste, 
fraud, and abuse in the program. The Administrator's diligence in 
finding and addressing the problems cited in the instant Order for 
Funding Year 2002 are a reflection of that commitment. We direct the 
Administrator to carefully scrutinize the applications submitted 
following the re-bidding process, to ensure full compliance with all of 
our rules.

IV. Ordering Clauses

    66. Pursuant to Sec.  54.722(a) of the Commission's rules, that the 
following Requests for Review are denied: Request for Review filed by 
Ysleta Independent School District, El Paso, Texas, on January 30, 
2003; Request for Review filed by International Business Machines, 
Inc., on behalf of Ysleta Independent School District, El Paso, Texas, 
filed on January 30, 2003; Request for Review of Donna Independent 
School District, Donna, Texas, filed on May 6, 2003; Request for Review 
of International Business Machines, Inc., on behalf of Donna 
Independent School District, Donna, Texas, filed May 9, 2003; Request 
for Review of Galena Park Independent School District, Houston, Texas, 
filed April 28, 2003; Request for Review of International Business 
Machines, Inc., on behalf of Galena Park Independent School District, 
Houston, Texas, filed May 9, 2003; Request for Review of Oklahoma City 
School District I-89, Oklahoma City, Oklahoma, filed May 8,

[[Page 3358]]

2003; Request for Review of International Business Machines, Inc., on 
behalf of Oklahoma City School District I-89, Oklahoma City, Oklahoma, 
filed May 9, 2003; Request for Review of El Paso Independent School 
District, El Paso, Texas, filed May 8, 2003; Request for Review of 
International Business Machines, Inc., on behalf of El Paso Independent 
School District, El Paso, Texas, filed May 9, 2003; Request for Review 
of Navajo Education Technology Consortium, Gallup, New Mexico, filed 
April 22, 2003; Request for Review of Memphis City School District, 
Memphis, Tennessee, filed May 27, 2003; Request for Review of 
International Business Machines, Inc., on behalf of Memphis City School 
District, Memphis, Tennessee, filed May 23, 2003; Request for Review of 
Albuquerque School District, Albuquerque, New Mexico, filed May 23, 
2003; and Request for Review of International Business Machines, Inc., 
on behalf of Albuquerque School District, Albuquerque, New Mexico, 
filed May 23, 2003.
    67. Pursuant to sections 1-4, and 254 of the Communications Act of 
1934, as amended, 47 U.S.C. 151-54 and 254, and Sec.  1.3 of the 
Commission's rules, that the Funding Year 2002 filing window deadline 
established by the Schools and Libraries Division of the Universal 
Service Administrative Company pursuant to Sec.  54.507(c) of the 
Commission's rules is waived for the affected applicants listed in the 
Appendix of this Order, and the Schools and Libraries Division shall 
take the steps outlined to effectuate this Order.

    Federal Communications Commission.
Marlene H. Dortch,
Secretary.

Appendix A

                                                 Requests Denied
                                               [Amount in dollars]
----------------------------------------------------------------------------------------------------------------
                                                      Telecommunications                            Internal
                   Entity name                             services          Internet access      connections
----------------------------------------------------------------------------------------------------------------
Ysleta Independent School District...............  .......................         871,740.04      17,469,927.90
Donna Independent School District................  .......................  .................      28,641,208.95
Galena Park Independent School District..........  .......................           9,006.00      23,893,555.50
Oklahoma City School District I-89...............               561,480.39       3,216,360.00      40,770,145.80
El Paso Independent School District..............                46,800.00       3,088,074.03      41,639,602.13
Navajo Education Technology Consortium...........  .......................  .................      41,305,747.50
Memphis City School District.....................             5,891,241.25          25,377.96      19,902,043.07
Albuquerque School District......................  .......................  .................      37,355,476.23
                                                  --------------------------------------------------------------
    Totals.......................................             6,499,521.64       7,210,558.03     250,977,707.08
----------------------------------------------------------------------------------------------------------------

Appendix B

    1. Although the specific circumstances of each of the following 
applicants vary, the record reflects that the following applicants 
engaged in competitive bidding practices substantially similar to 
those practiced by Ysleta in Funding Year 2002. We describe below 
the factual circumstances of each applicant, and incorporate by 
reference our discussion in this Order regarding Ysleta's practices. 
As with Ysleta, the procurement process of each of the following 
applicants violates our competitive bidding rules and undermines the 
goals of the program. For the reasons discussed in the Order, 
however, we find that good cause exists to waive our rules governing 
the filing window for Funding Year 2002, and permit these applicants 
to re-bid for services for Funding Year 2002 in accordance with our 
rules.

Donna Independent School District (DISD)

    2. On October 1, 2001, DISD's Funding Year 2002 FCC Form 470 was 
posted on SLD's website. DISD indicated on its FCC Form 470 that it 
was seeking services for virtually every product and service 
eligible for discounts under the support mechanism. Moreover, in 
Blocks 8, 9, and 10 of FCC Form 470, DISD checked the box for, 
respectively, telecommunications services, Internet access, and 
internal connections. In each instance, DISD checked the box 
stating, ``No, I do not have an RFP [Request for Proposal] for these 
services.''
    3. Twenty-five days after the posting of the FCC Form 470, DISD 
released a Request for Information (RFI) on October 21, 2001, which 
generally sought a strategic technology partner to assist it with 
the E-rate program. DISD's RFI did not specify projects for which it 
sought funding, and did not seek pricing information from bidders 
concerning products and services for which discounts under the 
support mechanism would be sought.
    4. DISD subsequently received bids. In its bid submitted to 
DISD, IBM did not list any prices except for a listing of hourly 
rates for its employees. After negotiations were conducted, on 
January 15, 2002, DISD signed an agreement with IBM to provide its 
requested services. On January 16, 2002, DISD filed its FCC Form 471 
application. On March 10, 2003, SLD issued a decision denying DISD's 
discounts. Similar to SLD's denial for Ysleta, SLD denied discounts 
finding: (1) The price of services was not a factor in vendor 
selection; (2) the price of services was set after vendor selection; 
(3) the vendor was selected by RFP instead of an FCC Form 470; (4) 
the FCC Form 470 did not reference an RFP; and (5) the services for 
which funding was sought were not defined when the vendor was 
selected.
    5. As with Ysleta's appeal, we conclude that DISD's two-step 
procurement process violated program rules. First, DISD's 
competitive bidding for a Systems Integrator without regard to costs 
for specific projects funded by the schools and libraries support 
mechanism violated section 54.504(a) of the Commission's rules 
requiring that ``an eligible school or library shall seek 
competitive bids * * * for all services eligible for support.'' 
Further, as with the bidding process employed by Ysleta, DISD failed 
to seek actual pricing information from bidders, and selected IBM 
without consideration of specific pricing information relating to 
the actual E-rate eligible services to be provided. We therefore 
find that DISD did not consider price as the primary factor in 
selecting IBM. DISD neither sought to ascertain the proposed prices 
for the eligible services for each bidder, nor compared different 
providers' prices for actual services eligible for support. As a 
final matter, we also find that because DISD violated our 
competitive bidding rules and failed to demonstrate that it selected 
IBM with price as the primary factor, DISD violated section 254's 
mandate that applicants submit a bona fide request for services.

Galena Park Independent School District (Galena Park)

    6. Galena Park's initial Funding Year 2002 FCC Form 470 was 
posted on September 10, 2001. In its FCC Form 470, Galena Park 
indicated it did not have an RFP for the services for which it was 
seeking discounts. On October 4, 2001, Galena Park released an RFP. 
Galena Park's RFP did not seek bids for specific services eligible 
for support. Its RFP stated that Galena Park was seeking an ``E-rate 
Program Architect'' to serve as a Systems Integrator. Galena Park's 
RFP did not seek pricing information from bidders concerning 
products and services for which discounts under the support 
mechanism would be sought.
    7. IBM submitted a bid response on October 19, 2001. IBM did not 
list any prices except for a listing of hourly rates for its 
employees. On November 9, 2001, Galena

[[Page 3359]]

Park filed another FCC Form 470 which added E-mail to services for 
which it sought discounts. In its second FCC Form 470, Galena Park 
indicated that it was seeking services for virtually every product 
and service eligible for discounts under the support mechanism. 
Despite the fact that Galena Park had released its RFP a month 
earlier, in Blocks 8, 9, and 10 of FCC Form 470, Galena Park checked 
the box for, respectively, telecommunications services, Internet 
access, and internal connections, indicating in each instance ``No, 
I do not have an RFP [Request for Proposal] for these services.''
    8. Galena Park did not receive any bid other than IBM's. After 
conducting negotiations with IBM, on January 16, 2002, Galena Park 
signed a contract with IBM and filed an FCC Form 471. On March 10, 
2003, SLD issued a decision denying DISD's discounts. SLD denied 
discounts finding: (1) The price of services was not a factor in 
vendor selection; (2) the price of services was set after vendor 
selection; (3) the vendor was selected by RFP instead of an FCC Form 
470; (4) the FCC Form 470 did not reference an RFP; and (5) the 
services for which funding was sought were not defined when the 
vendor was selected.
    9. We conclude, similar to our findings concerning Ysleta's 
appeal, that Galena Park's two-step procurement process violated 
program rules. By checking the box on its second FCC Form 470 to 
indicate that it did not have an RFP, even though it had previously 
released an RFP, Galena Park provided incorrect and misleading 
information on its FCC Form 470. Further, Galena Park's competitive 
bidding for a systems integrator without regard to costs for 
specific projects funded by the schools and libraries support 
mechanism violated section 54.504(a) of the Commission rules 
requiring that ``an eligible school or library shall seek 
competitive bids * * * for all services eligible for support,'' and 
violated section 254's mandate that applicants submit a bona fide 
request for services.

Oklahoma City Public Schools (OCPS)

    10. OCPS's Funding Year 2002 FCC Form 470 was posted on SLD's 
website on October 16, 2001. In its FCC Form 470, OCPS indicated 
that it was seeking services for virtually every product and service 
eligible for discounts under the support mechanism. Moreover, in 
Blocks 8, 9, and 10 of the form, OCPS checked the box for, 
respectively, telecommunications services, Internet access, and 
internal connections, indicating in each instance ``No, I do not 
have an RFP [Request for Proposal] for these services.''
    11. Some time in mid to late October, 2001, OCPS released an 
RFP. The RFP stated that OCPS was seeking a ``Strategic Technology 
Solution Provider'' for a four-year term to, among other things, 
``assist the District with all aspects of the E-rate process.'' The 
Solution Provider would ``assist [OCPS] in effectively infusing 
technology throughout the District.'' The specified technology 
requirements were not identified in the RFP.
    12. OCPS's RFP did not seek pricing information from bidders 
concerning products and services for which discounts under the 
support mechanism would be sought. The RFP stated, ``Prospective 
bidders should note that this RFP does not require a firm fixed 
price, a cost plus proposal, or any other specific cost information 
with the exceptions of: a cost schedule for services and costs for 
Specialized Services for funding assistance.''
    13. Eight vendors submitted bids in response to the OCPS 
proposal. On December 17, 2001, the Oklahoma City Board of Education 
unanimously approved IBM as the District's Solution Provider. Only 
after OCPS chose IBM as the awardee, and prior to submitting its FCC 
Form 471, did OCPS begin specifically identifying the scope of work 
and cost of the actual products and services for Funding Year 2002 
that would be eligible for discounts under the support mechanism. On 
January 17, 2002, the final day of the filing window for Funding 
Year 2002 applications for discounts, OCPS filed its FCC Form 471 
application.
    14. On March 10, 2003, SLD issued a decision denying OCPS's 
discounts. SLD denied discounts finding: (1) The price of services 
was not a factor in vendor selection; (2) the price of services was 
set after vendor selection; (3) the vendor was selected by RFP 
instead of an FCC Form 470; (4) the FCC Form 470 did not reference 
an RFP; and (5) the services for which funding was sought were not 
defined when the vendor was selected.
    15. We conclude, consistent with our findings concerning 
Ysleta's appeal, that OCPS's two-step procurement process violated 
program rules. First, OCPS's competitive bidding for a Systems 
Integrator without regard to costs for specific projects funded by 
the schools and libraries support mechanism violated section 
54.504(a) of the Commission rules requiring that ``an eligible 
school or library shall seek competitive bids * * * for all services 
eligible for support.'' As with the bidding process employed by 
Ysleta, OCPS failed to seek actual pricing information from bidders, 
and selected IBM over other bidders without consideration of 
specific pricing information relating to the actual E-rate eligible 
services to be provided. We therefore find that OCPS did not 
consider price as the primary factor in selecting IBM. OCPS neither 
sought to ascertain the proposed prices for the eligible services 
for each bidder, nor compared different providers' prices for actual 
services eligible for support. As a final matter, we also find that 
because OCPS violated our competitive bidding rules and failed to 
demonstrate that it selected IBM with price as the primary factor, 
it violated section 254's mandate that applicants submit a bona fide 
request for services.

El Paso Independent School District (EPISD)

    16. EPISD's Funding Year 2002 FCC Form 470 was posted on SLD's 
website on November 26, 2001. In its FCC Form 470, EPISD indicated 
that it was seeking services for virtually every product and service 
eligible for discounts under the support mechanism. Like Ysleta, in 
Blocks 8, 9, and 10 of the form, EPISD checked the box for, 
respectively, telecommunications services, Internet access, and 
internal connections, indicating in each instance ``No, I do not 
have an RFP [Request for Proposal] for these services.''
    17. In the previous Funding Year (Funding Year 2001), IBM had 
been selected by EPISD as its service provider pursuant to a 
contract entered into by IBM and EPISD on January 18, 2001. This 
contract was based upon an RFP dated December 1, 2000. El Paso 
selected IBM over seven other bidders, in a two-step process similar 
to Ysleta's that did not compare proposed prices for specified E-
rate eligible services during the bidding process. Prices and 
service terms were negotiated with IBM post-selection in the second 
step of this two-step process. The 2000 RFP and the subsequent 
contract, similar to Ysleta's Funding Year 2002 arrangements, formed 
a ``Strategic Technology Solution Provider'' relationship between 
IBM and EPISD for a four-year term to, among other things, ``assist 
the District with all aspects of the E-rate process.'' Similar to 
Ysleta, the exact technology requirements were not identified in the 
December 2000 RFP. The RFP also did not seek pricing information 
from bidders concerning products and services for which discounts 
under the support mechanism would be sought.
    18. EPISD states that it ``did not issue a[n RFP] for Funding 
Year 2002 * * * but instead ``renewed its pre-existing contract with 
IBM as a service provider.'' EPISD states that even though it was 
not required to post a Form 470 in Funding Year 2002, it did so 
because it wanted to ``inquire as to interest from other possible 
vendors, in an effort to determine whether or not renewal was cost-
effective and should take place.'' EPISD states that no inquiries 
were received from vendors other than IBM in response to the Funding 
Year 2002 Form 470 ``sufficient to convince EPISD not to renew its 
existing contract with IBM.''
    19. On March 10, 2003, SLD issued a decision denying EPISD's 
discounts for internal connections and Internet access from IBM. 
Similar to SLD's denial for Ysleta, SLD denied discounts finding: 
(1) The price of services was not a factor in vendor selection; (2) 
the price of services was set after vendor selection; (3) the vendor 
was selected by RFP instead of an FCC Form 470; (4) the FCC Form 470 
did not reference an RFP; and (5) the services for which funding was 
sought were not defined when the vendor was selected.
    20. We find that EPISD's Funding Year 2001 procurement process 
for internal connections and Internet access, which was the 
foundation for its renewal of its contract with IBM, contains 
significant similarities to Ysleta's procurement process and 
violates program rules. EPISD argues that its decision to select IBM 
for Funding Year 2002 was based not on its Funding Year 2002 FCC 
Form 470, but rather on its Funding Year 2001 RFP. EPISD maintains 
that the Commission may not address the propriety of EPISD's Funding 
Year 2001 RFP, because doing so ``is an improper collateral 
attack.'' That position is without merit, as nothing precludes the 
Commission from examining the circumstances of a previous funding 
decision. EPISD's competitive bidding in

[[Page 3360]]

Funding Year 2001 for a Systems Integrator without regard to costs 
for specific projects funded by the schools and libraries support 
mechanism violated section 54.504(a) of the Commission rules 
requiring that ``an eligible school or library shall seek 
competitive bids * * * for all services eligible for support.''
    21. As with the bidding process employed by Ysleta, EPISD did 
not seek actual pricing information from bidders for its Internet 
access and internal connections services, and selected IBM over 
other bidders without consideration of specific pricing information 
relating to the actual E-rate eligible services to be provided. We 
therefore find that EPISD did not consider price as the primary 
factor in selecting IBM. EPISD neither sought to ascertain the 
proposed prices for the eligible services for each bidder, nor 
compared different providers' prices for actual services eligible 
for support. As a final matter, we also find that because EPISD 
violated our competitive bidding rules and failed to demonstrate 
that it selected IBM with price as the primary factor, it violated 
section 254's mandate that applicants submit a bona fide request for 
services.
    22. We note that SLD also denied a Funding Year 2002 funding 
request from EPISD for telecommunications services, to be provided 
by AT&T. This funding request was denied for the same reasons that 
the funding requests for Internet access and internal connections 
from IBM were denied. Although EPISD also challenges SLD's denial of 
funding for this funding request in its Request for Review, we do 
not make a decision on that funding request in this Order. Rather, 
since this funding request was part of a separate Form 471 and 
Funding Commitment Decision Letter and thus requires a separate 
factual assessment, we will defer a ruling on this portion of 
EPISD's Request for Review to a later decision.

Navajo Education Technology Consortium (NETC)

    23. NETC's Funding Year 2002 FCC Form 470 was posted on SLD's 
website on October 31, 2001. NETC indicated in its FCC Form 470 that 
it was seeking services for virtually every product and service 
eligible for discounts under the support mechanism. Moreover, like 
Ysleta, in Blocks 8, 9, and 10 of FCC Form 470, NETC checked the box 
for, respectively, telecommunications services, Internet access, and 
internal connections, indicating in each instance ``No, I do not 
have an RFP [Request for Proposal] for theses services.'' Unlike in 
Ysleta, however, in its FCC Form 470, NETC did not indicate that it 
was seeking a technology implementation and Systems Integration 
partner.
    24. Unlike Ysleta, NETC did not release a subsequent RFP. 
Rather, NETC states that it determined the size of its project 
through an ``E-Rate 5 Planning'' process in which the scope of 
funding and services needed by NETC was developed and the schools 
and buildings for which funding was required were identified. NETC 
also states that it relied on a state-approved Educational 
Technology Plan as a model to determine the parameters of its 
project. NETC subsequently received 12 bids, and states that it 
contacted each vendor by phone and explained the scope and size of 
the proposed project. NETC points to certain ``quotes'' by vendors 
as evidence that price was considered prior to the selection of IBM. 
These ``quotes,'' however, do not by any means match the scope of 
the services outlined in NETC's FCC Form 470, nor do they compare in 
any way to the IBM ``Statement of Work'' dated January 11, 2002, 
which apparently formed the basis for the approximately $41 million 
in services from IBM that NETC sought in its FCC Form 471.
    25. On January 17, 2002, NETC filed its FCC Form 471 
application. On March 10, 2003, SLD issued a decision denying NETC's 
discounts. Similar to SLD's denial for Ysleta, SLD denied discounts 
finding: (1) The price of services was not a factor in vendor 
selection; (2) the price of services was set after vendor selection; 
and (3) the services for which funding was sought were not defined 
when the vendor was selected.
    26. We find that NETC's Funding Year 2002 procurement process 
contains significant similarities to Ysleta's procurement process 
and violates program rules. Its competitive bidding without regard 
to costs for specific projects funded by the schools and libraries 
support mechanism violated section 54.504(a) of the Commission rules 
requiring that ``an eligible school or library shall seek 
competitive bids * * * for all services eligible for support.'' As 
with the bidding process employed by Ysleta, NETC failed to seek 
actual pricing information from bidders for comparable service 
packages, and selected IBM over other bidders without consideration 
of specific pricing information relating to the actual E-rate 
eligible services to be provided. Furthermore, according to the 
record, the price of IBM's services was far in excess of any other 
quote received by NETC. We therefore find that NETC did not consider 
price as the primary factor in selecting IBM. NETC neither sought to 
ascertain the proposed prices for the eligible services for each 
bidder, nor compared different providers' prices for actual services 
eligible for support. As a final matter, we also find that because 
NETC violated our competitive bidding rules and failed to 
demonstrate that it selected IBM with price as the primary factor, 
it violated section 254's mandate that applicants submit a bona fide 
request for services.

Memphis City School District

    27. The FCC Form 470 for Memphis City Schools (Memphis) was 
posted on August 10, 2001. Unlike the other entities discussed in 
this Order, Memphis indicated in Blocks 8, 9, and 10 on its FCC Form 
470 that it had a Request for Qualifications (RFQ) for, 
respectively, telecommunications services, Internet access, and 
internal connections, and that the RFQ was available on its website. 
Because it indicated that it had an RFQ, Memphis was not required 
under SLD's procedures to list the eligible services it sought on 
the FCC Form 470. On the same day as the posting of Memphis's FCC 
Form 470, Memphis released the related RFQ. In its RFQ, Memphis 
indicated it was seeking a ``Technology Business Partnership'' with 
a ``Qualified Provider'' with whom to enter into a multi-year master 
contract for ``a comprehensive program.'' This program included 
management services, telecommunications services, Internet access, 
hardware/software, infrastructure services, other technology-related 
services, application and systems support services, and customer 
support services. Bids were due one month later on September 10, 
2001.
    28. Memphis's RFQ outlined a two-step procurement process. In 
the first step, bidders would submit bids that would be evaluated on 
the basis of (1) Experience and background; (2) total capabilities; 
(3) project implementation; (4) minority/women business enterprise 
participation; (5) legal agreement; and (6) on-going support 
program. After selecting the most qualified bidder based on these 
criteria, Memphis would then engage in contract negotiations. The 
chosen firm would have fifteen days to submit a proposed contract, 
and if, within thirty days of the date of selection, Memphis and the 
provider had not concluded successful negotiations (including the 
price of services), the next highest-ranked bidder would be 
contacted.
    29. Memphis received only one bid, however, from IBM. 
Consequently, it immediately entered into contract negotiations with 
IBM. Memphis and IBM signed a contract on December 19, 2002. As with 
Ysleta, the contract included language that offered Memphis certain 
price protections. On March 24, 2003, SLD denied Memphis's request 
for discounts, stating, ``Services for which funding [were] sought 
[were] not defined when vendors selected; price of services [was] 
not a factor in vendor selection; [and] price of services [was] set 
after vendor selection.''
    30. We conclude, consistent with our findings concerning 
Ysleta's appeal, that Memphis's use of a two-step procurement 
process violated program rules. In particular, Memphis's competitive 
bidding for a Systems Integrator without regard to costs for 
specific projects funded by the schools and libraries support 
mechanism violated section 54.504(a) of the Commission's rules 
requiring that ``an eligible school or library shall seek 
competitive bids * * * for all services eligible for support.'' As 
with the bidding process employed by Ysleta, Memphis failed to seek 
actual pricing information from bidders for E-rate eligible 
services. Moreover, we find that because Memphis violated our 
competitive bidding rules through the use of a two-step procurement 
process, it also violated section 254's mandate that applicants 
submit a bona fide request for services.
    31. That only one bidder responded to the RFQ does not alter our 
conclusion that Memphis's two-step procurement process failed to 
comply with program rules. Indeed, this case illustrates how an 
imperfect competitive bidding process may well stifle competition 
among service providers. We find it unusual that only one entity 
would bid on the opportunity to provide services and products 
eligible for discounts under the schools and libraries support 
mechanism, given the size of the Memphis School District and the 
scope of its proposed project. In a major city like Memphis, we 
would expect to see more robust competition.

[[Page 3361]]

Albuquerque School District (Albuquerque)

    32. Unlike Ysleta, Albuquerque states that it relied on a 
purchasing alliance as equivalent to an RFP when it selected IBM. In 
1999, the Western States Contracting Alliance (WCSA) set out an RFP 
to select computer vendors for several Western states. After a 
competitive bidding process, the WCSA selected five computer 
companies with whom to enter into price agreements, effective from 
September 3, 1999 through September 2, 2004: Compaq, CompUSA, Dell, 
Gateway, and IBM. Price was factored into the selection of the five 
companies in a limited manner, as each vendor submitted bids with 
prices for three computer configurations: a server, a desktop 
computer, and a laptop computer. The resulting price agreements 
included various pricing protections for Albuquerque and the other 
members of WCSA, such as predetermined discount percentages that 
would apply to purchases after certain volume ``trigger points'' 
were reached.
    33. Albuquerque's FCC Form 470 was posted on December 10, 2001. 
Similar to Ysleta's FCC Form 470, Albuquerque indicated in its FCC 
Form 470 that it was seeking services for virtually every product 
and service eligible for discounts under the support mechanism. 
Subsequently, Albuquerque began negotiating Statements of Work 
(SOWs) with IBM. IBM proposed five SOWs: maintenance, servers, 
network electronics, video systems, and web-based community 
interaction. Albuquerque contracted with IBM to provide services 
based on three SOWs--maintenance, servers, and network electronics 
(without cabling).
    34. On March 24, 2003, SLD denied Albuquerque's request on the 
grounds that Albuquerque ``did not identify the specific services 
sought--either clearly on the 470 or in the RFP--to encourage full 
competition on major initiatives.'' Albuquerque maintains that it 
competitively bid for eligible services, because the 1999 WSCA RFP 
served as the RFP for its Funding Year 2002 selection of IBM. 
Albuquerque also suggests that its agreement with IBM that stemmed 
from the WSCA RFP constituted a master contract, which is 
permissible under our rules.
    35. Although Albuquerque maintains that it relied on a master 
contract, and therefore did not need to submit an FCC Form 470, the 
WSCA contract with IBM does not meet our requirements for a master 
contract, negotiated by third parties, that has been competitively 
bid. Master contracts subject to competitive bidding must bear a 
reasonable connection to the products or services for which 
discounts are sought. We conclude that in this instance, the WSCA 
contract did not have such a connection. The record does not reflect 
that IBM's bid on the cost of a server, a laptop, and a desktop in 
its 1999 bid was reasonably related to the extensive costs for 
maintenance and network electronics for which Albuquerque sought 
discounts in Funding Year 2002. Although Albuquerque argues that the 
1999 master contract includes ``maintenance and support services,'' 
we are not persuaded that the type of maintenance and support 
services sought in 2002 in the 1999 RFP are sufficiently similar to 
the extensive maintenance and support services to relieve 
Albuquerque of its obligation to competitively bid those services in 
Funding Year 2002. We therefore conclude that Albuquerque's reliance 
on the WSCA contract in lieu of an FCC Form 470 was misplaced.
    36. Albuquerque's competitive bidding without regard to costs 
for specific projects funded by the schools and libraries support 
mechanism violated section 54.504(a) of the Commission rules 
requiring that ``an eligible school or library shall seek 
competitive bids * * * for all services eligible for support.'' We 
also find that because Albuquerque violated our competitive bidding 
rules, it violated section 254's mandate that applicants submit a 
bona fide request for services.

[FR Doc. 04-1366 Filed 1-22-04; 8:45 am]
BILLING CODE 6712-01-P