Part two of the conversation between Phillips Lytle Special Counsel Barlow Keener and Alvarez & Marsal Managing Director Marc Powell explores how the Build America, Buy America congressional mandate of BEAD funding affects how fiber, wireless and satellite firms will procure the equipment they need to effectively deploy networks in the areas they’re targeting.
Barlow Keener: Build America, Buy America is an important aspect of this process that can affect a lot of the pieces of equipment a firm will be buying. How can firms track what they’re purchasing to ensure they adhere to Build America, Buy America? Do they need to bring in new inventory systems they have not used before?
Marc Powell: So, the federal government under BEAD 2.0 has kind of simplified that a little bit, and while I’m not an expert on Build America, Buy America, Alvarez & Marsal has experts on Build America, Buy America.
Firms can apply for a waiver or certification on the basis that there are certain types of equipment that come under that categorization and there are certain types of equipment that do not come under that categorization. But it’s certainly an issue that may require firms to go to different providers than the ones that they have had before. I think of it as a relatively simple thing they have to deal with, but it’s one that they have to manage.
BK: An audit can come in and find a piece of equipment, and if it’s not Build America, Buy America, there is the potential they could lose their funding because of the violation. Thus, they need to have inventory systems that are very accurate. What about cash flow issues? How does the cash flow work in terms of receiving federal funding and how firms have to use their 25% and maybe even extra money?
MP: There are three major risks if you’re not compliant. There is the risk of an Inspector General audit. These audits tend to happen like two or three years down the road. What that means is that the Office of the Inspector General will come to the state and say, “Hey state, I’m going to audit you.” It’s a little bit like getting audited on one’s taxes. When this happens, the auditor wants to see everything. They want to make sure that, if it is in New York State, that the money that previously reimbursed the awardees is compliant with the rules. There are several rules CFR Part 200, federal accounting rules, Environmental Preservation Act rules, Historical Preservation Act rules, rules regarding prevailing wages, the Davis Bacon Act, Build America, Buy America compliance. These can be high-level, broad rules, or compliance rules that can slip through the cracks.
All of the states are putting in their BEAD contracts that if they are audited, they get the right to claw back funds previously delivered to the subgrantee awardees. If the state was awarded $2 billion, the federal government requires that the broadband provider deliver $20 million back, the state has the right to claw that back from the provider that was awarded the money. So obviously, it is not something that you want to do if you’re one of the providers, having spent the money, no longer having it, and then having to give it back when you don’t have it. So it is very important that you are compliant against that big audit risk.
There’s also kind of the in-year audit risk, because the NTIA or the funding agencies may do an audit during the year, and they require six-month progress reviews to be made. But they may decide to do an audit, which, if it happens at the state level, it might throw a loop into the reimbursements at that point in time. Then, finally, the state itself can audit on a month-by-month basis or otherwise. Each state is now in the process of defining its own reporting requirements.
I talked to the state broadband director in Louisiana like a month ago or so, who is telling me for them, it’s going to be monthly. Arkansas is also going to be monthly. The states are all defining those rules as we speak and they may, if they find that someone is not compliant with the state rules, or they have a fear that they’re also not compliant with the federal rules, the states may say I am going to reimburse you right now for your costs of deployment until you demonstrate your compliance. And that’s really not something that you want to do if you’re a provider because then you need the money. You have subcontractors lined up and working who risk not being paid.
BK: So, the gun goes off, and then they’re off to the races, and they have four years to complete the project. But then in front of them, they have NEPA rules, they’ve got permitting rules, permitting issues, local municipal Issues, pole attachment issues. How do you help them stay on track to make sure that you know they’re sequencing correctly? Can you explain sequencing?
MP: What we do a lot is project oversight for large projects. We have professional engineers who have actually spent their lives in project deployment. A typical role that we play is kind of the owner’s rep. It goes a little bit beyond that, but if you’re a broadband internet service provider, you’re going to have multiple subcontractors providing construction services. The providers will be in each state that the ISP is being awarded in, and possibly multiple vendors in each state that the ISP is awarded in. Most of those ISPs could be small, or large. If they’re a four-person company, they have a CEO, they have a CFO, they have a chief counsel, and they have a chief operating officer. They may have a head of procurement. Everyone else works in billing, the call center, or outside plant. It’s a pretty simple business, in a sense, even though they are technology businesses. So, suddenly, you’re dealing with having to oversee large construction projects in multiple locations, multiple states, multiple counties, multiple cities, and different rules. You alluded to pole ownership, different pole utility owners. Pole attachment agreement issues can be all over the place, with different roles around attachment. So we played a role of essentially, and we often work with law firms such as Phillips Lytle in overseeing on their behalf, those subcontractors putting in place tracking systems from a technology perspective, but also from a manual perspective. We verify that the pole owners were doing what they say they were supposed to be doing. We create a compliance matrix and make sure local regulations are being followed and that everything is compliant so our clients can have confidence that our ISP clients’ pole owners are doing what they’re supposed to do. We help ensure that they are documenting each step, each pole attachment, each mile of fiber completed properly so that they can pass the documentation on to the state and be paid.
Part three of our series on BEAD 2.0 deployment will appear in this space and focus on subcontractors in addition to the rush to identify adequate energy supply sources and deployment sites for data centers that can leverage access to internet connectivity that was delivered by BEAD programs. The entire podcast conversation between Marc and Barlow can be found here.
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