E-rate special construction will result in more scrutiny by USAC staff. It is important to understand this as you prepare for the upcoming E-rate year. It will not make any difference whether the special construction is part of a school fiber build managed by the school (known as ‘self provisioning’ in e-rate terminology) or if the special construction is part of a service provider build to the school. Because the FCC (through USAC) will be paying a significant portion of the special construction funds in year one, USAC wants to ensure the funding being requested meets the E-rate cost effectiveness criteria.
An example would be if the school E-rate discount rate is 80%, and the special construction is for a $1M build, then USAC would contribute $800K to the build, with the school being responsible for $200K.
USAC essentially wants to have detailed scrutiny due to the level of contribution in the first year.
The type of information USAC will want to see is as follows.
- Route maps
- Whether route is aerial or buried
- The total cost of the build
- Whether there is a contingency included in the build cost
- Number of hand holes and their location
- Number of fiber strands in total deployed
- Number of fiber strands allocated to the School
All this information should be required for a construction project as part of managing the project so this information should already be available.
USAC will be checking for the following
- Route maps – does the route follow the most direct path to the school locations. Does the fiber path make any diversions?
- Whether route is aerial or buried – this provides background to the cost. For example, aerial fiber is typically cheaper to construct than buried fiber.
- Total cost of the build – USAC will be looking at the cost of the build, and comparing to similar projects. If they see the cost being much higher than other comparable projects then they will go into more details as to the cause of the high cost. There may be reasonable explanations that need to be pointed out to USAC during review. For example, for underground projects, the ground could be rock (much harder to bore) than soil. For aerial projects, a survey of the poles may have indicated a high make ready cost.
- Contingency – contingency is an allowed eligible expense if it is a standard business practice of the service provider. If the contingency allocation is not used, then the actual cost of the build, and the subsidy amount from USAC would be less
- Number of hand holes and their location – are there more hand holes necessary for the school? (More hand holes can be placed than are necessary for the school – however, if this is done, it is important to cost allocate out these extra hand holes)
- Number of fiber strands in total deployed and number of fiber strands allocated to the school – first, a reasonable number of fiber strands should be allocated to the school – and not an excessive number. For example, 4 strands would be a reasonable number to allocate to the school. If a higher amount is allocated there should be a reason as to why. For the strands that are not allocated to the school, USAC will allow to cost allocate out these extra strands. Note that USAC will be ok with assuming the cost of a full buffer tube of 12 strands is associated with the school build. This is because, you cannot buy fiber in bundles of less than 12 strands (or most fiber bundles of 24+ strands, come in buffer tubes of 12 strands).
During the construction project, if you have built extra capacity, by using additional fiber strands, and additional hand holes then you should use your cost allocation formula to cost allocate these strands and hand holes out. (See the next post for details on the cost allocation formula, and implications if the build is done by a school versus a service provider). If you have taken a more diverse route for the fiber build, you should pay 100% for the path not needed. In other words, USAC will only pay for the path to the school, and not any extra.