Frontier Communications won’t give back any of the $4.7 million in stimulus funds that the federal government says West Virginia overpaid the company as part of a statewide project to expand high-speed internet, Frontier told state government officials this week.
A federal agency recently ordered the state to return the misspent funds paid to Frontier. The U.S. Commerce Department’s payment demand followed an inspector general’s report that found Frontier padded hundreds of invoices with extra charges and the state improperly reimbursed Frontier for those “unreasonable and unallowable” fees. Federal grant rules barred the state from using stimulus funds to pay such project costs.
In a letter to West Virginia Chief Technology Officer John Dunlap this week, Frontier asserted that any funds the state might return to the federal government “are, of course, not recoverable from Frontier.”
Frontier cited a “memorandum of understanding,” signed by the company and state officials, in which West Virginia agreed to use federal funds to pay Frontier for overhead costs — the same expenses the feds now say were prohibited under the grant rules. Frontier said it only signed on to the broadband project after state officials agreed to reimburse the company for all costs — “both indirect and direct,” the letter stated.
Frontier also disputed the federal government’s determination that the state must return $4.7 million, urging the state to file an appeal.
“To avoid the waste of millions of West Virginia taxpayer dollars, the [state] should appeal,” wrote Mark McKenzie, a Frontier engineer who oversaw the company’s role in the project.
In 2010, the federal government awarded West Virginia $126.3 million in stimulus funds to expand high-speed internet to schools, libraries, health clinics and government buildings. The grant money included $42 million for a fiber cable network.
The state asked Frontier to install 915 miles of fiber cable to hundreds of public facilities across the state, but scaled back the project to 675 miles. Nonetheless, the state paid Frontier the entire $42 million initially set aside for the project. Frontier finished the project two years ago.
The company improperly tacked on $4.24 million in extra charges to pay for administrative costs, according to the federal report. Frontier labeled those charges as “loadings.”
Another $465,000 in improper payments went to Frontier to process invoices, the report says.
State officials have told investigators that a federal broadband grant administrator gave the state the go-ahead to pay the extra fees. But the federal administrator has denied saying that. The inspector general’s report cites a “miscommunication” between the federal broadband agency and West Virginia officials.
The feds have not directed the state — nor Frontier — to return the stimulus funds.
“As you know, the [state] agreed to pay Frontier for its indirect costs, regardless of whether those costs were eligible under the grant,” Frontier said in its letter to the state.
West Virginia officials have declined to say if they plan to appeal.
The federal government’s $4.7 million payment demand could grow even higher. The Commerce Department also cites findings that Frontier misled the public about the amount of unused fiber cable — called “maintenance coil” — the company installed across the state. The extra cable, which is stored at public buildings and used for repairs, drove up the broadband expansion project’s cost.
Frontier placed 49 miles of spooled-up, unused fiber cable in West Virginia, four times the amount the company had disclosed to state officials.
The feds ordered West Virginia to find out if the extra coil was included in the total miles of cable the state claimed that Frontier built with stimulus funds. The state also was directed to get an “explanation from Frontier for the reason it misrepresented the maintenance coil mileage to the public.”
In the letter to Dunlap, Frontier said it didn’t mislead anybody.
In 2013, at the state government’s request, a Frontier employee gave an estimate of the amount of extra fiber the company planned to set aside — and bill the state — for maintenance. But the employee was “unaware of factors that often caused the proportion of maintenance coil to be higher,” the company said. Those factors include an “engineer’s judgment,” terrain, the site’s condition and the height of poles used to string the extra coil, according to Frontier’s letter. The employee also told a state official that a “more accurate estimate could be determined” by reviewing engineering maps of the project.
Frontier acknowledged that the 49 miles of spooled-up, extra coil was included in its 675-mile total of fiber the company installed across the state, according to the letter to Dunlap. The state wound up paying about $240,000 more for coil compared to the employee’s initial estimate, the letter said.
Last year, Citynet sued Frontier for allegedly stifling competition in West Virginia and using the federal stimulus funds to build a broadband network that solely benefits Frontier. Frontier has disputed the allegations, characterizing Citynet as a disgruntled competitor with a six-year vendetta against Frontier, which is headquartered in Connecticut.
While the state paid Frontier $42 million in federal stimulus funds to bring high-speed fiber service to more than 1,000 public buildings across West Virginia, nobody seems to know how many facilities are using that fiber today.
On Sept. 18, Dunlap posed that question to Frontier. The company wrote back that the state government selected the sites and that Frontier doesn’t monitor which public facilities now use the fiber cable.