Now that Broadband Offices have started the process of soliciting BEAD grant applications, I thought I’d discuss a topics that anybody who wins a BEAD grant is going to care about – how a Broadband Office will reimburse grant winners for making expenditures. You might think this is straightforward, but unfortunately it is not. Grant offices are taking a wide variety of approaches to how they reimburse ISPs for grant expenditures.

From an ISP perspective, the ideal reimbursement plan would flow money to a grant recipient each month based on invoices of real expenditures that are submitted to a grant office. This is the process used in the commercial world for the many companies that make and build things. Every two to four weeks they submit invoices for the work done and quickly get paid. The payee will audit the invoices, and if something was paid that shouldn’t have been, it is netted off the next payment. In the financial world I’ve always heard this referred to as the true-up process. There is a regular process of paying, with adjustments made on the fly as errors or changes are discovered by either party.

Unfortunately, very few broadband offices are going to be that easy, and some and are going to go to the other extreme. Some broadband offices are going to be paranoid about paying for something they should have. Such offices will take the approach of verifying every invoice before making a payment. I’ve seen this manifested in the past. For example, there are states that only paid once per quarter for state broadband grants. This results in long delays between the time that expenses were incurred and then reimbursement collected.

Some states are slow payers in general. When I’ve done work for states or large city governments, it’s not been unusual to routinely wait three or four months to get paid. Such states typically have a byzantine internal payment system that makes it challenging to make payments, even when somebody internally tries to speed up the process.

One of the scariest scenarios for BEAD grant reimbursements is to get paid on milestones. That means payments will be based on completing tasks that were contractually agreed upon. For example, a State Broadband Office might divide a grant network into segments, and only reimburse for any section when it has been completely built and the fiber lit. This kind of payment scheme can be scary for an ISP since everybody who builds a network knows that there are sometimes small events that stop completion of a given neighborhood. Perhaps there are a few troublesome poles that are taking forever because of make-ready, or perhaps there is a backorder for a cabinet that has to go in the neighborhood. Such an area could be 90% completed for months, with most customers connected – but not eligible for grant reimbursement until construction is 100% done.

Another worrisome milestone is to be reimbursed for each customer connected. Most large construction projects spend the majority of the money building the underlying network in the first half of the project and spend the money to connect customers in the second half. This could mean waiting a really long time to get reimbursed for the underlying network costs.

There are grant offices attuned to this issue. There are a few state broadband offices that paid out 20% or more of a state broadband grant on day one to allow an ISP to order the needed materials. These offices reasoned correctly that allowing ISPs to buy materials upfront removes inflation from that part of the project.

Why does the method of payment matter? It probably doesn’t to giant ISPs. They can float the cash and can wait to get paid. But slow payments can be deadly to a smaller ISP. I have one client who turned down a state grant when he was presented with a contract that showed there would be a 3 – 4 month delay in payments. This ISP knew he wouldn’t be able to make payroll with that kind of delay and feared having vendors hounding him during the entire grant process. This could be mitigated by getting a line of credit to borrow against – but that adds even more cost to the grant project.

The bottom line is that if you are going for BEAD grants, you might want to ask now how the broadband office plans to pay you. Hopefully you are in a state where you will like the response.