Contractor Pleads Guilty to E-Rate Bid Rigging
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The first guilty plea has been entered in the nationwide probe of the government's troubled E-Rate program. Duane Maynard, a former employee of a Fresno, Calif., electrical contracting firm, has admitted to federal bid rigging in order to obtain multi-million contracts to install computer networking and Internet access for the West Fresno Elementary School District.
The E-Rate program is designed to help schools and libraries connect to the Internet and is financed by fees added to consumers' telephone bills. Originally designed to help rural areas obtain affordable telephone services, the Universal Service Fund's scope was expanded in 1996 to include discounted Internet connection rates for public schools and libraries.
The Federal Communications Commission (FCC) maintains oversight authority for the program but contracts out the administration of it to the Universal Service Administrative Company (USAC). Almost 90 percent of U.S. schools and libraries receive subsidies from the fund for Internet connections.
In the plea deal entered Tuesday, Maynard, 31, admitted he conspired with school district officials to eliminate all competitive bidding for the Fresno work. In turn, he agreed to make all other bidders subcontractors for the project. Court documents claim the value of the deal was between $2.5 million $6.25 million.
According to records obtained by The Fresno Bee last year, more than $6 million was paid by USAC to Howe Electric, Maynard's former employer, for networking equipment, including routers, switches, hubs and more than $500,000 of wiring.
Maynard also entered a guilty plea to lying to a federal grand jury last December about the case. He faces a maximum of three years in prison and a $350,000 fine, but prosecutors say Maynard will get less since he entered a guilty plea and has agreed to work with federal authorities.
In January, the Center for Public Integrity, a Washington-based non-profit "public service journalism" organization, issued a report claiming the E-Rate program was "honeycombed" with fraud. The center's study is based on two Federal Communications Commission (FCC)audit reports and independent interviews.
The FCC audits have discovered abuses ranging from simple paperwork and reporting errors to false billing and other fraud potentially involving hundreds of millions of dollars.
The report led to Rep. Billy Tauzin's House and Energy committee to launch an investigation into the program. In March, Tauzin (R-La.) and and Rep. James Greenwood (R-Pa.) sent letters to the FCC and USAC seeking information related to program funds, management and oversight.
While USAC submitted thousands of pages of documents following the committee's initial request, confidentiality concerns prompted USAC to omit certain information considered critical to the investigation, leading Tauzin and Greenwood to issue a subpoena to USAC CEO Cheryl L. Parrino to produce the omitted information.
The E-Rate program is based on a competitive bidding process, and the fund's top service providers include IBM, SBC, Verizon, Bellsouth and Qwest.
In December, USAC officials began denying or delaying applications by IBM, which received more than $350 million from the fund in 2001.
At the time, An IBM official said the company was surprised by the report and hoped to quickly resolve any billing or paperwork disputes.