By Karen Gutierrez
The Cincinnati Enquirer

The federal government is demanding the return of $5.7 million in grant money that Kentucky school districts already have spent on computer equipment.

The reason: Competitive bids were not properly sought for the items, officials claim.

Kentucky educators dispute that. On behalf of all school districts in the state, the Department of Education is fighting the demand.

"We don't think it's fair," says Lisa Gross, spokeswoman for the department. "We were told what we were doing was fine, and all of a sudden, it's not fine."

For Northern Kentucky schools, the amount in question totals $179,610. It's unlikely, however, that individual schools would be required to pay back those funds, because the state has assumed responsibility for the situation.

The battle involves a $2 billion federal program known as E-rate, created in 1998 with a fee tacked onto every phone bill in the country.

E-rate was set up to ensure that all schools - and especially the nation's poorest - got hooked up to the Internet.

Schools bought modems, networks and other equipment from vendors whose prices were steeply discounted thanks to E-rate vouchers. In many cases, schools received as much as 80 percent off, with E-rate paying the rest of the bill.

Today, 92 percent of the nation's public school classrooms are wired to the Internet, compared with about 50 percent before E-rate began.

"There are a lot of things the Covington Independent School District could not have done without E-rate," says John Snow, director of technology for the district.

In recent months, however, E-rate has grappled with accusations of waste and fraud. In some states, equipment vendors have been charged with manipulating prices. In others, schools have used the vouchers to buy equipment they ultimately couldn't use.

Kentucky's situation is different. Unlike many states, where schools were on their own in seeking bids for equipment, Kentucky centralized its process.

Around 1993, state officials spent months crafting lengthy requests for bids to wire schools. Four companies won contracts, and from then on, all schools bought equipment from them.

The problem occurred when the one- and two-year contracts expired. Instead of rebidding to ensure the lowest possible prices, Kentucky simply extended the existing contracts, as state law allows.

Doing otherwise - switching vendors every couple of years - might have made older devices incompatible with newer ones, Kentucky officials argue. They are certain they got low prices even though the contracts were extended, they say.

In addition, they made sure to get approval for those extensions from the Universal Services Administrative Co., they say. USAC is a nonprofit agency that oversees E-rate on behalf of the Federal Communications Commission.

Now USAC says E-rate rules expressly forbid such extensions.

Anytime a contract expires, schools, districts or states must post an application for new bids on USAC's Web site for 28 days, says Mel Blackwell, a spokesman for the agency. Every year, about 35,000 such notices have been posted there, he says.

Technically, Blackwell's agency has demanded a return of the E-rate funds from the four computer vendors that received them. But those vendors will simply pass the cost on to their customers, the schools. That's why the Kentucky Department of Education is handling the appeal. The department expects a response from the FCC within four months.

E-mail kgutierrez@enquirer.com