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WHITE MOUNTAINS – If federal funding is denied for a proposal to bring broadband internet service to schools and libraries in Gila and Navajo counties, Navajo County officials say the loss may be the result of false allegations from a consultant and the Arizona Department of Education’s possible misinterpretation of communications about the funding application’s status.

The project, proposed by the Navajo-Gila County Information Technology Education Consortium, involves stringing 1,000 miles of fiber optic cable to 51 sites — schools (with over 18,000 students) and libraries — at an estimated cost of $61 million, with some $5 million coming from the state and rest coming from the E-Rate program funded by the Federal Communications Commission. The federal E-Rate program is administered for the FCC by the United Service Administrative Company (USAC).

Without both funding sources, the project will likely fail to get off the ground.

Deputy County Attorney Jason Moore and Navajo County School Superintendent Jalyn Gerlich say that the application for federal funds is still pending, and that the consortium is continuing to work with USAC on the application.

Jumping the gun?

On July 10, at 1:06 p.m., the consortium received an email from the USAC. In the email, a USAC reviewer wrote that the review team had determined that a “Program Rule Violation had occurred” and gave the consortium 10 days to “provide additional information or explanation” to explain why the funding request should not be denied.

On that same day, four and a half hours after the USAC’s email was received, Arizona Department of Education’s E-Rate Director, Milan Eaton, sent an email to the local consortium, saying the USAC “denial is official” and informed the consortium that it was no longer in line for any state funding.

Two days later, Navajo County School Superintendent Jalyn Gerlich (the fiscal agent for the project) wrote to Eaton: “It is my understanding that we were given notice by (the USAC) to provide additional information or explanation within 10 days. This appears to be preliminary in nature and not the final letter.”

On Sunday, July 15, at 4:35 p.m., Eaton wrote again to Navajo County School Superintendent Gerlich, saying that the consortium’s application was in the “committed” phase — meaning that the decision to deny it was final.

The USAC has three phases in reviewing applications:

• Pending – Awaiting review

• Outreach – Questions about the submission/awaiting customer input

• Committed – Decision has either been made to commit funding or deny.

On July 17, following the notice that the USAC identified what it believed was a rule violation, Eaton formally pulled the offer of state funding claiming that the application had been denied by the federal government.

In an email sent to School Superintendent Gerlich, Eaton listed what he viewed as four problems with the local consortium’s federal application and concluded his note with a “cryptic remark,” attorney Moore said, that seemed to question the group’s veracity. “Honesty and integrity are very important,” Eaton wrote.

Eaton and a consultant hired by the consortium, Frank Vander Horst, insisted separately that the application was formally denied on July 10, but on Wednesday last week, at 11:34 a.m., 108 days after Eaton first said the application was denied, the USAC, on its website, listed the application as “pending.” Meaning, Navajo County School Superintendent Gerlich said, no decision has been made and the local group’s application is still under review — still in the “Outreach” phase.

Eaton “prematurely pulled these funds before we had a chance to respond to USAC,” Attorney Moore said. “I’m going to presume he doesn’t understand the process.”

“If our project goes down in flames because of a misunderstanding at the state, it’s the kids who lose,” he added.

But the state’s E-Rate director is adamant in his view that the local consortium’s proposal has been dead since July.

“I see these every day,” Eaton said in a telephone interview on Wednesday this week. “That was an official denial.” When asked if the USAC might reconsider, Eaton said “It’s possible but not very likely.”

The highest price

is the best price?

The USAC threatened on July 10 to reject the consortium’s application asking why the most “cost effective” bid proposal had not been selected.

The consortium had chosen Red Rock Telecommunications’ bid of $61 million. Other bidders and their bid amounts were much lower, including CableOne at $31 million and FiberStream at $26 million.

“The bid chosen is over two times more costly than the bid offerings from FiberStream and CableOne,” wrote a reviewer with the USAC. “This violates the FCC requirement that applicants select the most cost-effective offering from the bids received absent extenuating circumstances. During the review you did not present extenuating circumstances which mitigates your choice of a bid over two or three times greater than the price available from another commercial vendor.”

In its response to USAC, the local consortium explained its scoring system used to evaluate the bids and wrote that the Red Rock bid “was the most cost effective over the intended 10-year contract period ... USAC has explained that it is appropriate to consider cost recovery ... over as many as 20 years” and the consortium “used 10 years to calculate the comprehensive total cost of the bids received, including construction cost and monthly recurring costs for services delivered for the 10-year term of the contract.”

In its response to the USAC, the local consortium presented the total cost (construction and ongoing expenses) of all the bidders over a 20-year period:

• Red Rock Telecommunications: $75 million.

• CableOne: $112 million

• Cellular One/Cable One: $144 million

One bid, according to the local consortium, had particular problems: “Fiber Stream’s proposal was so deficient in so many areas it could not meet the criteria to be evaluated in the cost structure.”

The back-and-forth, question-and-answer process, between the consortium and the USAC continues, according to school superintendent Gerlich. The consortium provided two additional responses last week, she said.

Investigating the process

After receiving the initial round of bids that were collected in early February, the local consortium decided to send out a request to the bidders for their “Best and Final Offer.”

The due date for the “Best and Final Offers” was March 12.

Red Rock Telecommunications, the company that was ultimately awarded the contract, had bid $91 million in its first proposal and in its final bid the price had gone down to $61 million — a $30 million price plunge.

Red Rock, in an email to Vander Horst, the local consortium’s consultant, explained the price drop as follows:

• Improved fiber installation costs

• Lower cost of fiber (33 percent less than original bid)

• Reduced profit margin

• Improved trust land pole availability

• Reduction of special construction contingency line item

• Elimination of tax which was included errantly

• Improved design as a result of additional pole availability by incumbent power utility

Consultant, Vander Horst, had signed off on an FCC form on March 20, endorsing the contract award to Red Rock. “I certify that all bids were carefully considered and the most cost-effective service was selected, with price being the primary factor considered, and is the most cost-effective means of meeting educational needs,” is the generic, small print statement Vanderhorst attested to.

But, in late September, Vander Horst, in his resignation letter, accused the consortium of bid rigging, saying they had “predetermined” which bidder would get the contract. Vander Horst also claimed that Navajo County’s IT director, Ken Dewitt, had acted in collusion with Red Rock to help them win the contract. Vander Horst, “believed Ken (Dewitt) communicated the bottom-line price that Red Rock would need to hit to win the contract,” Deputy County Attorney Moore said. “I don’t believe that the allegations are true but it’s such a serious allegation we have to take it seriously.”

After Vander Horst’s allegations were leveled, the Navajo County Attorney’s office contracted with an outside investigator to conduct a complete review of the bidding process. That investigation is ongoing.

“If there is something inappropriate going on with one of our employees we need to know that,” Moore said.

The state’s E-Rate director, Eaton, insists that the local consortium’s process was tainted and said the state funding “ … has been denied, period. They still seem to think somehow or other they will get the state funds — 20 percent of the $60 million budget — but they’re not going to get that, that’s not going to happen.

“Their state funding has been denied and the federal funding has been denied. The best thing they can do is reapply this year so we can get them funding for all the schools and libraries,” Eaton continued. “Gila County has already broken away from the Navajo/Gila consortium. They’re doing their own RFP (bidding process) this year, breaking away from the dirty laundry, so to speak.”

Eaton explained that the process used by the local consortium is a hamper full of “dirty laundry,” he said. “Do you see anything good about the project so far?”

“We have people accusing some consortium members of collusion — that’s dirty laundry. It was a very poor bid evaluation. They gave maximum points for references and the company they selected had zero references. That’s very bad, dirty laundry.”

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