Contract Guidance for E-rate Eligible Services/Equipment
February 1, 2023
Often, the path of least resistance is to sign the vendor’s standard contract without seeking modifications. But mid-year or later in the contract, applicants realize that had they included a few key provisions in their contract, they could have avoided costly pitfalls. The following guidance provides items that you may wish to consider including in your vendor contract, broken down into General, Category 1, and Category 2 (be sure to review the items in all three sections).
GENERAL:
- Specify Discounts or Reimbursements
Applicants are permitted the final choice whether to receive discounts on bills or whether to pay their bills in full and submit the Form 472 BEAR to USAC for reimbursement. Wherever possible, this choice should be established in your Form 470/RFP and contract to avoid any confusion.
- Do Not Sign Contract Until Allowable Contract Date (which is at least 29 days after Form 470 posting)
Be sure not to sign a contract or select a service provider before the end of the 28-day 470 waiting period. The contract must be signed and the 471 application must be submitted on or after the Allowable Contract Date which is basically the 29th day after the corresponding 470 is posted on the SLD’s Web site. The EPC system will automatically send you an e-mail on the 29th day after the 470 was posted but keep in mind that your personal bid due date may be after this date. Note: If you are using the PEPPM mini-bid process, you must simply wait until after the due date you established for receipt of PEPPM mini-bids before you conduct your bid evaluation and sign a contract.
- Payment Schedule
If you have terms and conditions under which you will make scheduled payments, such arrangements should be included in your contract (for example, if your vendor wishes to be paid on a quarterly basis or if your vendor would like to receive upfront payments for work such as installation of a new network). USAC will reimburse for advanced payments if the terms are included in the contract.
- Legally Binding Agreements – Minimum Requirements
- All contracts must be signed/dated by the applicant before submitting the Form 471. Under E-rate rules, only the applicant must sign the contract prior to submitting the Form 471.
- A verbal contract is not considered a legally binding agreement (contract) under E-rate rules.
- Month-to-Month (MTM) services, where no contract exists, are eligible, but must be rebid each year. Category 2 purchases must have a contract.
CATEGORY 1 CONTRACTS
- Contract Term Dates
Be certain to include both the service start date and the contract expiration date in all contracts. For recurring services, every attempt should be made to have contracts begin July 1 and expire June 30 of whatever year (not expire in the middle of a funding year). Even with multi-year contracts, be certain they end on June 30.
- Contract Extensions
Applicants are permitted (and strongly encouraged by me) to include optional contract extensions in their contracts. The extensions must be finite, meaning they are for a set number of years. Open-ended automatic renewals do not meet E-rate requirements for voluntary extensions. Unless the options for extension are set forth in the original contract, no extension may be entered into after the expiration of the contract term. If an applicant wishes to utilize an optional renewal, they do not have to post a Form 470 for that service, assuming the terms remain the same. There is no limit to the total number of extensions that can be included in the original contract.
For example, an Internet contract that has a 2-year initial term with a one-year extension option is OK while a 2-year contract that automatically renews unless one of the parties cancels the contract is not OK and a new Form 470 would have to be posted at the end of 2 years.
- Prices During Contract Extension
If possible, avoid language in contract extensions that include price increases or language such as “current market rates” or adjusted for “CPI.”
- Remember to Cancel Expiring Contracts When Changing Vendors
Many vendor contracts include language that requires the applicant to notify the vendor X number of days prior to the contract automatically renewing or prior to termination of service. If you have signed a contract with a new vendor, be certain to provide your previous vendor with the required notice so you don’t continue receiving invoices after the other vendor’s service has started.
- Future-Proof Contract Services
Specify in your contract the option to increase bandwidth during the contract period, AND include the exact prices for the expanded service options (these expanded options should have also been included on your establishing Form 470). By doing this, should you wish to increase your bandwidth mid-contract, you may amend the agreement without having to rebid the contract. If the contract does not contain the expanded bandwidth options and prices, applicants can’t adjust their bandwidth levels mid-contract and a new Form 470 would be required. For example, if the initial contract provides for service at 1 Gbps, and also specifies that the customer has the option to amend the agreement to increase service to 10 Gbps at X price, the customer may opt to amend the original contract and purchase the increased bandwidth without rebidding. If, however, the contract was open ended and stated that the customer may choose to purchase additional service and the price will be negotiated, this language would not be E-rate compliant and the additional bandwidth would need to be rebid on a new Form 470.
Note: If you increase bandwidth and the associated prices during the middle of the E-rate funding year, you cannot receive discounts on the increased costs until the next E-rate application cycle. For example, if you opt to increase bandwidth and incur additional costs on February 1, 2023, you would not be eligible to received E-rate discounts on the new bandwidth and price until July 1, 2023 (assuming it was included on your FY 2023 Form 471).
- Taxes/Fees
Most contracts don’t specify what exact taxes and fees will be included on the invoices. Those charges can be steep but luckily, most such charges are E-rate eligible if they’re included on the Form 471 as a separate FRN Line Item (in addition to the MRC on the same FRN). For new contracts, it’s important to have the vendor spell out – in writing (e-mail is fine) – exactly what taxes, fees and at what rates, will be included on the monthly invoices. PIA will ask for proof of these taxes/fees, so you must get it in writing before submitting the 471 – don’t guess. For existing contracts, the current invoices will specify the costs of the taxes/fees so you know how much to include on the FRN line item.
- School Closures
Unfortunately, when a school closes, many vendors will not allow the district to discontinue paying for service to that school and will continue to bill the monthly charges, or will charge a lump-sum early termination fee for that building (equal to the remaining months on the contract). To avoid this predicament, it’s a good idea to include language in the contract that states that there will be no early termination charges assessed if any school building is closed by the school board.
CATEGORY 2 CONTRACTS
- Contract Term Dates
Category 2 contracts for equipment and installation often do not have “terms” but I recommend including them before signing. The term should be April 1 through September 30 of the following year (a full 18 months) to align with the expanded funding year that’s provided for applicants to purchase equipment three months before and three months after the actual E-rate funding year. For example, for FY 2023, the term would be listed as 4/1/2023 – 9/30/2024.
Category 2 contracts for maintenance are considered recurring services, and the term of those contracts must fall within the exact funding year: July 1 – June 30.
- Single-Priced Structured Cabling Contracts
When bidding and contracting for projects involving structured cabling contracts, try to have vendors bid a single price by school building instead listing a breakdown of costs for every single jhook, connector, splice tray, etc. This way, the contract can be a single priced contract by building, and will enable you to file a single cabling FRN Line Item for each building. Of course, if the project involves the purchase of other E-rate eligible equipment, such as wireless access points or switches, those costs will have to be broken out into separate wireless or switching FRN Line Items.
- E-rate Contingency Clauses
If you don’t want to purchase the equipment without E-rate funding, you may wish to include language in your vendor contract that states, “This contract is contingent upon successful receipt of E-rate funding commitment letter and board budget approval.” Remember, if you purchase the equipment prior to receiving your E-rate FCDL, you are assuming 100% of the risk that funding won’t be approved.
If you have any questions about creating/signing E-rate eligible contracts, please e-mail me at jtschell@comcast.net. What’s next? Creating Contract Records in EPC and Form 471 Filing Guides!
— Julie
Julie Tritt Schell
Pennsylvania E-rate Coordinator
717-730-7133 – o
jtschell@comcast.net
www.e-ratepa.org
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