Last week, the FCC Wireline Competition Bureau issued an Order denying a request for waiver and review of an E-rate program decision made by USAC, which determined that a Texas school district violated the FCC’s competitive bidding rules by failing to use price as the primary factor in its vendor selection process.

FCC rules require that applicants must "carefully consider" all competitive bids for E-rate funded services prior to entering into a contract and that the price of the services must be the "primary factor" in selecting the winning bid. See 47 C.F.R. §§ 54.503, 54.511. Applicants may consider other relevant non-cost factors such as prior experience and management capability, but applicants must have a separate cost category that is given more weight than any other single factor. In the Order, the Bureau found that USAC correctly determined that the school district violated FCC rules by assigning "price/charges" and "understanding of needs" identical evaluation factors of 25% each.

The school district had asked for a waiver of the cost rules, arguing that the same vendor would have been selected if it had re-assigned the point value of its evaluation criteria to 40% for price and 20% for "understanding of needs." The Bureau denied this request, however, reasoning that post-hoc reassignment of evaluation criteria does not demonstrate compliance with the rules, particularly where, as here, it was unclear if the school district selected the lowest cost bidder.

The Order concluded with a strong statement by the Bureau that the FCC (and presumably USAC) will carefully evaluate compliance with the letter and spirit of the E-rate competitive bidding rules. The Bureau stated: "we are deeply concerned about practices that undermine the framework of the competitive bidding process. When an applicant constructs a bid evaluation process that circumvents the Commission’s competitive bidding requirements, the applicant suppresses fair and open competitive bidding and ultimately damages the integrity of the program."

Given that the demand for E-rate funding far outstrips availabledollars, and that the Commission has been charged by the Obama administration with the ambitious goal of extending broadband connectivity to 99% of all school districts within four years under the ConnectEd initiative, we expect USAC and the FCC to carefully scrutinize situations in which higher cost carriers are selected by applicants for E-rate funds.