Priority 2 Funding: An Applicant’s Guide

Presented by:Julie Tritt Schell

PA E-rate CoordinatorJanuary 2012

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Agenda

• What is Priority 2 Funding? • Eligible/Ineligible Locations• What Equipment/Services are Eligible/Not Eligible• Basic Maintenance• Cost Allocation• Technology Plan Requirement• 2/5 Rule• State Master Contracts and Guidelines• Service Substitutions• Equipment Transfer and Disposal Rules• Deadlines and Invoicing• Maximizing Discounts• Most Common Mistakes

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What is Priority 2 Funding?

• Applicant demand for E-rate funding exceeds available resources ($2.25 billion, + inflation adjustment)

• FCC created two priorities to determine which requests would receive funding– Priority 1 – Telecommunications Services and Internet Access

• Provided to all eligible entities, at all discount levels– Priority 2 – Internal Connections/Basic Maintenance of Eligible

Internal Connections• If funding remains after Priority 1 requests are awarded, then Priority 2

requests are funded, beginning with the 90% discount requests, then 89%, 88%, etc. until all funding is exhausted for that year

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Eligible/Ineligible Locations

• School and library buildings are eligible for Priority 2 funding• Support is NOT available for P2 funding in non-instructional school

buildings or in separate administrative buildings of a library, unless those internal connections are essential for the effective transport of information to an instructional building of a school or to a non-administrative building of a library– This means... Non-Instructional Facilities (NIFs) that house the network hub

are eligible for Priority 2 services and equipment– Administrative buildings that are NOT the network hub are not eligible for P2

funding

Should I Apply for P2 Funding? FY 1998 -- funded to 70% FY 1999 – all funded FY 2000 – down to 82% FY 2001 – down to 87% FY 2002 – down to 81% FY 2003 – down to 70% - $500M rollover FY 2004 – down to 81% FY 2005 – down to 80% FY 2006 – down to 86% FY 2007 – down to 81% - $650M rollover FY 2008 – down to 87% - $600M rollover FY 2009 – down to 77% - $900M rollover FY 2010 -- all funded - $1.15B rollover + inflation FY 2011 – down to 90% so far - $850M rollover + inflation FY 2012 -- ?

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Eligible Equipment & ServicesConsult Eligible Services List for comprehensive information. In summary:

• Network and Phone Cabling• Routers• Hubs• Switches• Wireless Access Points/WLAN Controllers• PBXs (Private Branch Exchanges)• Firewalls• GBICs and modulating electronics to light fiber• Voice/Video Over IP Equipment• Certain Network Servers• UPSs connected to eligible equipment• Equipment racks housing eligible equipment• Installation of eligible equipment and cabling

– Only by outside vendor; school/library staff salaries not eligible

• Training for equipment use

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Ineligible Equipment

• Any end-user equipment (phones, fax machines, computers, cameras)• Security equipment/cabling• Remote access components

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Eligible ServersAn eligible server must serve as a conduit for information rather than as a source

for content. If servers are used for both eligible and ineligible purposes, the ineligible portion must be cost allocated.

• One monitor per eligible server or other eligible component requiring a visual display is eligible for discount.

• Eligible Servers:– Dynamic Host Configuration Protocol (DHCP) Server– Domain Name Service (DNS) Server– E-mail Server– Firewall, or Proxy Server– Terminal Server, but not eligible as a source for ineligible software applications or other

ineligible uses.– Web Server, but only eligible if used to display content to users of the Internet. Not

eligible as a source for software applications, database functions, or storage of end-user files

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Ineligible Servers

• Storage servers• Application servers• Cashing servers• Print servers• Any server that is used for storage of application software, databases

accessed by end users, or end-user files other than e-mail files• End-user computers/laptops even if they also provide server functionality

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Eligible Software

• Virtualization software that is a server based, shared product is eligible if used for an eligible server function. Voice mail software

• Operating system software• Client Access Licenses for eligible equipment• VOIP licenses

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Ineligible Software

• Security/Utility software, such as anti-virus and anti-spam software• Application software• Network management software• End-user software such as curriculum & productivity software• Filtering software• If such a software product is used for or provides substantial ineligible

functionality, such as archiving, applications, network management, a cost allocation to remove the ineligible functionalities is required.

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Limited Training

• On-site training is eligible as a part of installation services but only if it is basic instruction on the use of eligible equipment, directly associated with equipment installation, and a part of the contract or agreement for the equipment

• Training must occur coincidently or within a reasonable time after installation

• End-user training, such as training of teachers, is not eligible

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Installation/Configuration

• Eligible: – Installation, activation, and initial configuration of eligible components are

eligible if they are part of a contract or bid for those eligible components– Such eligible services may include basic design and engineering costs and basic

project management costs, if these services are provided as an integral component part coincident with installation

• Ineligible: – Initial planning to determine the technology and/or components to be

deployed– Network architecture design– Development of technology plans– Construction costs, other than incidental charges to restore a facility to pre-

installation conditions

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Distance Learning Equip - Eligible

• Centralized video equipment necessary to transport information to the individual classrooms or public areas of a library is eligible, including:– CODEC– Master Control Unit– Multipoint Control Unit– PVBX– Video Amplifier– Video Channel Modulator– Enhanced Multimedia Interface– Equipment that is used to control the programming, distribution, and selection

of video content may be eligible, if used in the transport of information to individual classrooms or public areas of a library

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Distance Learning Equip - Ineligible

• End-user video equipment and equipment for the creation of video content is NOT eligible for discount, including: – Video monitors– Televisions– Video cameras– Video recorders and playback devices– Broadcast and cable television equipment used for the display or distribution

of broadcast and cable television signals

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Basic Maintenance

• Considered a recurring service and must be delivered July 1 – June 30– Does not align with the equipment purchase, but with the funding year– If you don’t use the funding by June 30 of that funding year, the funding is lost– 2/5 rule does not apply to basic maintenance requests

• Beginning with FY 2011, maintenance severely curtained• Eligible:

– Bundled manufacturer warranties up to 3 years• Cannot have separate price

– Software patches, online tech support• 100% of cost paid

– Break-fix and labor costs• Only actual labor and replacement costs will be paid

• Ineligible:– Unbundled warranties– Insurance-type warranties, including Smartnet

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Basic MaintenanceService Contract Calculating Request USAC Will Pay...

Bundled Warranties Must be included with cost of service

No separate funding request

N/A

Break/Fix and Associated Labor Costs

Contracts must state the eligible components covered, make, model and location. Eligible and ineligible equipment must be listed separately

Must be based on an estimated number of maintenance hours per year and/or cost of replacements for eligible equipment, based on current life of equipment and history of needed repairs

USAC will only pay for cost of actual work performed (which includes labor, equipment fix, or if it is beyond repair, equipment replacement). Actual vendor invoices must be submitted with BEAR or SPI to prove costs incurred

Software Upgrades and Patches, Security Upgrades and Patches, and Online and Phone-based Tech Support

Contracts must state the eligible components covered, make, model and location. Eligible and ineligible equipment must be listed separately

Should be based on actual amount of contracted service

100% of costs will be paid without demonstration that work was performed

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Cost Allocation

• Cost allocation required when:– Equipment contains an eligible and ineligible component

• Example: VOIP equipment contains remote access functionality– Equipment performs an eligible and ineligible service

• Example: Server performs e-mail and e-mail archiving functions– Equipment is shared between eligible and ineligible entities

• Example: Diocese VOIP equipment used by Diocese offices and schools• Cost allocation methodology must be based on tangible criteria that

provide a realistic result– Many different ways to perform cost allocation

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Technology Plan Requirement

• Technology plan required if applying for P2 funding• Must include four SLD technology plan criteria

– Goals and Strategies for using technology– Needs Assessment– Professional Development– Evaluation

• Must align with funding requests and bidding documents• Must be “written” before 470 is filed

– Or, if purchasing from PEPPM, must be written before 471 is submitted• Must cover full 12 months of NEXT funding year and must include dates• Cannot be for longer than 3 years

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Technology Plan Approvals

• Must be approved by USAC ‘certified’ approver• Public schools – PDE approves

– PDE requires submission by Sept. 30 for plans expiring June 30, 2012• Submissions still being accepted

• Nonpublic schools – Various entities approve– List on SLD website– CAIU 15 will approve if no organization on the SLD list represents your entity

• Libraries – Commonwealth Libraries approves

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When Posting a Form 470...

• Be sure to be specific about the equipment and services you want• Beginning with FY 2013, applicants will be required to be vendor neutral

or request equivalent product bids– For example, Cisco 4500 switch or equivalent

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2/5 Rule

• A school or library entity may only receive discounts 2 out of every 5 years (on a rolling basis) for internal connections– Doesn’t include basic maintenance– 2 years also known as ‘strikes’

• Applies at the building level, not district level• If central equipment is purchased for network hub, each building receiving

benefit of that equipment receives a strike– Example: If server is placed in data center and serves entire district, then all

schools would receive a strike that year– Plan accordingly to maximize discounts

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2/5 Rule

• A ‘strike’ is incurred when funding is committed, not when a 471 application or invoice is submitted– An applicant may cancel an FRN to get a strike (year) back, but not after

funding has been disbursed– An applicant also can cancel funding at the building level to get a strike back

• Refer to http://www.usac.org/sl/tools/news-briefs/preview.aspx?id=79&WT.mc_id=sl-newsbrief-20070420 for instructions

• Hint: Don’t use a strike for a $300 piece of equipment• USAC’s 2/5 Tool can help keep track of schools’ strikes:http://www.usac.org/sl/tools/search-tools/two-in-five-tool.aspx

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Using State Master Contracts

• Applicants may use a State Master Contract (SMC) without posting their own Form 470 to purchase E-rate eligible equipment, as long as that SMC was competitively bid using an E-rate Form 470 and otherwise complied with all E-rate competitive bidding rules

• The DGS Co-Stars Contract does not award contracts to vendors based on price as the most heavily weighted factor and therefore is not E-rate eligible– Schools and libraries may post their own Form 470s and use the Co-Stars Contract as a

bid response– In this situation, a signed contract would be required before the 471 is submitted

• The State PEPPM Contract, administered by IU 16, has complied with the Form 470 and E-rate bidding requirements– Therefore, schools and libraries may skip local 470 posting and purchase directly from

PEPPM for P2 equipment and services– No separate contract is required because the PEPPM contract is considered the

contract (but vendor price quote is required)

Using PEPPM for P2 Purchases

• Instructions:– Obtain written quote from PEPPM vendor(s) for products/services needed

• Quote must be dated before Form 471 is submitted• Quote must be on vendor letterhead• Quote must identify equipment/services by building

– Use vendor quote as basis for funding request and Item 21 attachment on Form 471• E-mail with details of which Form 470 number/contract signing dates should be used is

sent to PA E-rate listserve each January

– If purchase IS contingent upon E-rate:• After FCDL is issued, school should issue a purchase order to the vendor• P.O. may be for full price or non-discounted price

– If purchase is NOT contingent upon E-rate:• School may issue P.O. to vendor anytime on or after July 1, 2012 to purchase equipment• P.O. should be for full price if E-rate funding has not yet been awarded

– School will then submit a Form 472 BEAR to collect E-rate funding after FCDL arrives25

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Service Substitutions• Service substitutions required when a change is made to any piece of equipment

that was listed on your Item 21 attachments and approved• Substitutions can only be requested after FCDL issued• Must meet these conditions:

– Services or products have the same functionality as the services or products contained in the original proposal. For example, these service substitution requests meet the requirement for same functionality:• A network switch for a network router (Function: "data distribution")• A UPS for a tape backup (Function: "data protection")• A telephone key system for a telephone PBX (Function: "telephony")

– Does not violate any contract provisions or state or local procurement laws. – Does not result in an increase in the percentage of ineligible services or functions. – The requested change is within the scope of the controlling FCC Form 470, including any Requests for Proposal, for

the original service.

• Good idea to seek approval PRIOR to doing substitution in case it’s not approved by SLD

• Can’t request more funding• Can change quantities, model numbers, equipment as long as it meets the above

criteria

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Transfer/Disposal of Equipment

• E-rate-funded equipment must remain at approved site for 3 full years from date of installation

• After 3 years, equipment may be moved to another eligible location– Documentation must be retained describing transfer

• If school or library closes, equipment may be moved to another entity, regardless of discount– Must send letter to USAC outlining closing of school and transfer of equipment– Must keep documentation regarding transfer for 5 years

• After 5 years, equipment may be disposed of or sold– Disposal does not need to be reported to USAC– Proceeds from sale do not need to be returned to USAC

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Deadline to Use Non-Recurring Funds

Depends on when you get funded...– IF your FCDL is dated before March 1:

• Deadline to have equipment delivered (or vendor installed if installation is included) is September 30

• For example, for FY 2012, a 12/1/2012 FCDL date would have a deadline of 9/30/2013

– IF your FCDL is dated on or after March 1:• Deadline to have equipment delivered (or vendor installed if installation is

included) is September 30 of the FOLLOWING year• For example, for FY 2012, a 4/1/2013 FCDL date would have a deadline of

9/30/2014

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Deadline to Use Recurring Funds

• Priority 2 Basic Maintenance is considered a ‘recurring charge’• All recurring charges must be used during the July 1 – June 30 funding

year• It doesn’t matter if you requested funding for maintenance on equipment

that was funded after June 30...• Maintenance doesn’t follow the equipment deadlines... It must be used

during the actual E-rate funding year

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Deadline to Invoice

Depends on when you get funded...– IF your FCDL is dated before March 1:

• Deadline to submit invoice to USAC is January 28 (120 days after last day to receive equipment/service)

• For example, for FY 2012, a 12/1/2012 FCDL date would have an installation deadline of 9/30/2013, and an invoice deadline of 1/28/2014

– IF your FCDL is dated on or after March 1:• Deadline to submit invoice to USAC is January 28 of the FOLLOWING year

(120 days after last day to receive equipment/service)• For example, for FY 2012, a 4/1/2013 FCDL date would have an installation

deadline of 9/30/2014, and an invoice deadline of 1/28/2015

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Leasing of Priority 2 Equipment

• Leasing of Priority 2 equipment from a vendor is not permitted• If the school or library takes out a loan and pays the vendor in full, and

then repays the loan over several years, this is permitted as long as it can be shown that the school or library paid the vendor in full at time of equipment purchase– (Priority 1 VOIP Leasing Note: Leasing of ineligible equipment as part of a

hosted VOIP service does not make that ineligible equipment eligible)

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How to Maximize Discounts

• Applicants permitted to ‘bundle certain schools’ on an FRN to obtain a high blended discount rate– This is risky

• Apply for 90% schools, 80% schools, etc. to ensure the funding of at least the 90% schools

• If your district’s blended discount rate is 68%, but you have one 90% school and one 80% school, don’t apply for all schools together using the 68% discount rate– Disaggregate and apply for the highest discount schools individually

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Contract Suggestions

• Specify make, model and school location of equipment• Specify whether warranty is included• Specify whether training is included• Specify whether installation is included• Be sure to have it expire September 30, 20XX to align with E-rate

installation deadline for non-recurring services• Specify that applicant may extend contract to align with E-rate installation

dates should FCDL be issued late

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Step-by-Step – Local 470

• Develop technology plan• Determine 2/5 approach• Decide whether to post 470 or purchase from PEPPM• If posting own 470 (by February 21):

– Be specific in equipment/service requests– Obtain vendor proposals– Do bid evaluation– Sign contract (which can be signed vendor quote)– Submit 471 by March 20– After FCDL received, submit service substitution if needed– Issue PO to vendor– Submit Form 486 listing PO or shipping date as service start date– Receive, label and install equipment– Submit BEAR if paid in full. Vendor submits SPI if school only paid non-

discounted portion

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Step-by-Step – Using PEPPM

• Develop technology plan• Determine 2/5 approach• Decide whether to post 470 or purchase from PEPPM• If using PEPPM 470:

– Review PEPPM website to identify awarded vendor– Contact PEPPM vendor to request written quote by building– Obtain correct PEPPM 470 information from January e-mail– Be sure technology plan is ‘written’– Submit 471 by March 20– After FCDL received, submit service substitution if needed– Issue PO to vendor– Submit Form 486 listing PO or shipping date as service start date– Receive, label and install equipment– Submit BEAR if paid in full. Vendor submits SPI if school only paid non-discounted

portion

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Most Common P2 Mistakes

• Putting P2 requests on P1 Form 471 application– This becomes a polluted application and delays all funding

• Putting different discount P2 requests on the same 471 application• Not using “or equivalent” language on 470• Missing installation or delivery deadlines• Not getting vendor quote from PEPPM before submitting the 471• Not signing a contract before the 471 is filed if NOT purchasing from

PEPPM• Believing Co-Stars is an E-rate eligible contract• Not notifying USAC of equipment transfer from closed school• Not labeling equipment with Funding Year and FRN• Not submitting a service substitution request when different equipment is

being purchased

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Resources

• Cisco E-rate Eligibility - http://www.ciscoerate.com/• E-rate Eligible Services List -

http://www.universalservice.org/sl/tools/eligible-services-list.aspx• PEPPM PA - http://www.peppm.org/pa/default.htm• PA E-rate Website: http://e-ratepa.org/state_contracts.htm

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Questions?