FCC Grants Sweetwater Appeal, Affirming Districts' Competitive Bidding Process
In one of its last actions of 2016, the FCC granted a $36 million appeal filed last May by the Sweetwater Consortium on behalf of more than 40 Tennessee school districts.
The order, issued by the Wireline Competition Bureau (WCB), affirmed the right of school districts to develop their own competitive bidding processes, as well as their right to consider all factors in selecting the winning bidder, not just the price of the bid. Broadband Legal Strategies represented Sweetwater’s service provider, Education Networks of America (ENA), in the successful appeal, along with ENA’s Tennessee counsel Bob Patterson.
In a decision issued Dec. 30, WCB found that the Sweetwater Consortium had not violated the program's competitive bidding rules and had selected the most cost-effective services from ENA. WCB also found that the Consortium had legally binding agreements in place during the three funding years at issue and waived the FCC’s rules to the extent necessary to grant the appeal. In the underlying order, the Universal Service Administrative Company (USAC) had claimed that the Consortium had not selected the most cost-effective services and that it did not have a contract in place with ENA, and accordingly denied the schools' funding requests for funding years 2013, 2014 and 2015.
There are two notable points from WCB’s order. First, USAC had found that the services offered by both bidders were “similar” – contrary to Sweetwater’s conclusion, after a rigorous analysis, that ENA’s bid was superior in ways that justified its higher price – and thus that Sweetwater’s choice of the higher-priced bid violated the FCC’s competitive bidding rules. In reversing USAC’s decision, WCB emphasized that E-rate applicants “are not required to select the lowest-priced offering, and bid evaluators may take into account factors including prior experience, including past performance; personnel qualifications, including technical excellence; management capability, including schedule compliance; and environmental objectives.” WCB’s decision is a resounding affirmation of school districts’ right to develop and apply their own criteria when selecting service providers, as long as price is the primary factor.
Second, WCB somewhat surprisingly addressed the Consortium's use of hypothetical districts to evaluate pricing in its RFP, even though the underlying USAC decision did not identify this as a concern. (Typically, the Commission only addresses the issues on appeal.) Sweetwater used hypothetical districts of three sizes – small, medium, and large – in order to obtain and evaluate pricing for services to potential Consortium members of different sizes. WCB found that Sweetwater’s hypothetical districts elicited pricing bids that were reasonably representative of the pricing for the services for which the entities listed on Sweetwater’s FCC Form 470 were likely to seek support, and therefore satisfied the competitive bidding rules.
At the same time, WCB noted that going forward, any consortium applicant that chooses to use hypothetical or sample districts in order to compare multiple bids must compare pricing that reasonably represents the pricing for the services that the entities listed on the FCC Form 470 anticipate they are likely to request in order to comply with the requirement that price is the most important factor in selecting a bid. WCB cautioned that “not every bid evaluation methodology using hypothetical districts will reasonably represent all of the entities listed on the FCC Form 470,” and that a methodology that did not reasonably represent the entities listed on the FCC Form 470 would violate the price-as–the-primary-factor rule.
This new “reasonable representation” standard for pricing evaluation methodology hypothetical districts may cause some uncertainty in the future for those E-rate consortia that use such a methodology, as WCB stated that it would “look at the totality of the circumstances in any given instance” in order to determine whether a bid evaluation methodology reasonably represents the entities listed on an FCC Form 470. WCB noted that applicants can avoid the question of whether their bid evaluation methodology reasonably represents all entities listed on the FCC Form 470 by seeking specific bids for each entity listed on the FCC Form 470, and “recommended strongly” that applicants take this approach in order to avoid uncertainty over bid evaluation methodologies. While likely that not many consortia use such an evaluation methodology, those that do will need to take into account this analysis.
-- Gina Spade
The order, issued by the Wireline Competition Bureau (WCB), affirmed the right of school districts to develop their own competitive bidding processes, as well as their right to consider all factors in selecting the winning bidder, not just the price of the bid. Broadband Legal Strategies represented Sweetwater’s service provider, Education Networks of America (ENA), in the successful appeal, along with ENA’s Tennessee counsel Bob Patterson.
In a decision issued Dec. 30, WCB found that the Sweetwater Consortium had not violated the program's competitive bidding rules and had selected the most cost-effective services from ENA. WCB also found that the Consortium had legally binding agreements in place during the three funding years at issue and waived the FCC’s rules to the extent necessary to grant the appeal. In the underlying order, the Universal Service Administrative Company (USAC) had claimed that the Consortium had not selected the most cost-effective services and that it did not have a contract in place with ENA, and accordingly denied the schools' funding requests for funding years 2013, 2014 and 2015.
There are two notable points from WCB’s order. First, USAC had found that the services offered by both bidders were “similar” – contrary to Sweetwater’s conclusion, after a rigorous analysis, that ENA’s bid was superior in ways that justified its higher price – and thus that Sweetwater’s choice of the higher-priced bid violated the FCC’s competitive bidding rules. In reversing USAC’s decision, WCB emphasized that E-rate applicants “are not required to select the lowest-priced offering, and bid evaluators may take into account factors including prior experience, including past performance; personnel qualifications, including technical excellence; management capability, including schedule compliance; and environmental objectives.” WCB’s decision is a resounding affirmation of school districts’ right to develop and apply their own criteria when selecting service providers, as long as price is the primary factor.
Second, WCB somewhat surprisingly addressed the Consortium's use of hypothetical districts to evaluate pricing in its RFP, even though the underlying USAC decision did not identify this as a concern. (Typically, the Commission only addresses the issues on appeal.) Sweetwater used hypothetical districts of three sizes – small, medium, and large – in order to obtain and evaluate pricing for services to potential Consortium members of different sizes. WCB found that Sweetwater’s hypothetical districts elicited pricing bids that were reasonably representative of the pricing for the services for which the entities listed on Sweetwater’s FCC Form 470 were likely to seek support, and therefore satisfied the competitive bidding rules.
At the same time, WCB noted that going forward, any consortium applicant that chooses to use hypothetical or sample districts in order to compare multiple bids must compare pricing that reasonably represents the pricing for the services that the entities listed on the FCC Form 470 anticipate they are likely to request in order to comply with the requirement that price is the most important factor in selecting a bid. WCB cautioned that “not every bid evaluation methodology using hypothetical districts will reasonably represent all of the entities listed on the FCC Form 470,” and that a methodology that did not reasonably represent the entities listed on the FCC Form 470 would violate the price-as–the-primary-factor rule.
This new “reasonable representation” standard for pricing evaluation methodology hypothetical districts may cause some uncertainty in the future for those E-rate consortia that use such a methodology, as WCB stated that it would “look at the totality of the circumstances in any given instance” in order to determine whether a bid evaluation methodology reasonably represents the entities listed on an FCC Form 470. WCB noted that applicants can avoid the question of whether their bid evaluation methodology reasonably represents all entities listed on the FCC Form 470 by seeking specific bids for each entity listed on the FCC Form 470, and “recommended strongly” that applicants take this approach in order to avoid uncertainty over bid evaluation methodologies. While likely that not many consortia use such an evaluation methodology, those that do will need to take into account this analysis.
-- Gina Spade
