How to Renegotiate Your School Beverage Contract

by Debora Pinkas*

The “School Beverage Policy” recently announced by the nation’s largest soft drink manufacturers presents schools across the country with an unprecedented opportunity to renegotiate their soda contracts and stop selling sodas and other non nutritious beverages such as diet sodas and sports drinks to their students.   

Under the policy, the American Beverage Association, PepsiCo, Inc., Coca-Cola Company, and Cadbury Schweppes have agreed to establish new guidelines to limit portion sizes and reduce the number of calories available to children during the school day. The companies also have pledged to make diligent efforts to encourage their bottlers to adopt the Policy.

While adoption of the policy is undoubtedly a necessary first step, in order for this voluntary policy to have an actual impact on student’s health it must be followed by the logical next step which is for individual schools or school districts to re-open contract negotiations with their local bottler (or other vendor) and change the terms of their contracts. Re-negotiation can result in an amended contract that on the one hand excludes the sale of sugary drinks and diet sodas while on the other incentivizes the sale of milk, water and 100% fruit juice through price structures and commission rates.

Under ordinary circumstances there is little incentive for bottlers to renegotiate the terms of their contracts and schools must wait (often for ten years) until their beverage contract is about to expire before they have an opportunity to change their contract terms. Now however, with the release of the School Beverage Policy, the beverage companies themselves have stated that they will work with their bottlers and schools in the spirit of mutual financial fairness to amend the terms of existing contracts in order to change the product mix described in the contracts. 

Why do contracts matter so much? Because contracts create a private body of law between the parties to the contract where one would not otherwise exist. This gives each party the legal right to enforce the obligations and restrictions to which the other party has agreed. As applied to school beverage agreements, contracts matter because they are the only available means by which a school can turn the soda industry’s voluntary policy into one that is mandatory as to the beverage industry and legally enforceable as to the school.

But how can a school turn this unexpected chance to “re-open” negotiations of the terms and conditions contained their soda contract into a genuine and concrete opportunity to improve student nutrition? The answer is for the school to identify what nutritional and financial outcomes it is seeking to obtain through contract amendment and then negotiate all other related clauses in relation to those goals. Following is a list of “best practices” relative to the amendment, renewal or execution of a new soda contract that a school can use to help guide the negotiations process.

Best Practice #1--Maximize Student Health by Controlling What Beverages Are Sold Or Advertised

• Schools—not vendors—must retain absolute control over the following contract terms:
  • Number of vending machines placed on school property;
  • Choice of beverages sold, including the choice not to sell any product offered by the vending company such as diet sodas or sports drinks, regardless of calorie content.
  • Slotting position of all beverages;
  • Hours of vending operation;
  • Portion size of beverages; and
  • Advertising rights, including the decision to prohibit advertising of all kinds including vending machine fronts, vendor supply cups, incentives posters, and sports scoreboards.
• Ensure that any beverages “donated” by the vendor to the school are in compliance with the approved product list as set forth in the contract.

Best Practice #2—Maximize Student Health by Controlling How Beverages Are Sold

• Milk, 100% juice and plain water should be priced lower than diet sodas, sports drinks or flavored waters.
• Higher commission rates should be paid by the bottler to the school for the sale of milk, 100% juice and plain water then are paid for diet sodas, sports drinks or flavored waters.
• Milk, 100% juice, and plain water must be kept stocked on a continuous basis, with no gaps in service. Ensure that the contract defines a gap in service as a material breach of contract.
• If for any reason the vendor stocks the vending machine with beverages that are not on the schools approved product list, ensure that the contract defines that action as a material breach the contract and attach liquidated damages.

Best Practice #3 – Maximize School Finances by Building In Financial and Legal Accountability

• Ensure financial accountability by requiring the vendor to provide accurate, timely and readily understandable financial reports.
• Ensure vendor accountability by requiring the vendor to permit the school to perform periodic audits of the vendor’s books as they relate to the contract.
• Ensure that the contract can be terminated for cause or convenience without financial or other penalties attaching to the school.
• Ensure no more than a five year contract term.
• Ensure that the contract can be modified if passage of federal, state, or local laws affects the contract terms.
• Ensure that all vending machines supplied to the school meet the highest energy efficient standards.  Energy costs associated with powering a refrigerated vending machine 24/7 can be substantial.  Since schools invariably absorb such costs, if an energy efficient machine is not installed it can have a negative impact on the amount of profit a school can make from their soda contract.

Finally, to increase a school’s chance of successfully negotiating these or any other contract provisions, school districts should consider consolidating and centralizing all vending operations at the district level, rather than allow for decentralized vending operations at an individual school basis.

The increased bargaining power that such a centralized procurement and contracting system offers cannot be overstated. Since successful contract negotiation relies on the relative bargaining positions of each of the parties, the only meaningful way that schools can increase their bargaining power (and thus their profits) is to aggregate their student body into a consolidated purchasing block and leverage the power that bargaining from a position of strength can provide.

Now is the moment for schools to use the School Beverage Policy to their advantage.  Schools should not hesitate to use the Policy to bring the soda bottlers to the table and hold the beverage industry to their word that they want to help change school nutrition.  However, the power to help transform student’s eating habits will remain unrealized unless and until the schools get the commitment from the bottlers in writing.  By re-opening soda contract negotiations—with each party bargaining in good faith to genuinely improve school nutrition--schools and bottlers can make a significant contribution towards improving the overall health of students nationwide.

*For further technical assistance regarding school soda contracts, please contact Debora Pinkas, Staff Attorney, Public Health Law Program, Public Health Institute, (510) 302-3353.

The Public Health Law Program’s School Nutrition project was made possible by a Grant from the Vitamin Cases Consumer Settlement Fund.  Created as a result of an antitrust class action, one of the purposes of the Fund is to further the health and nutrition of California consumers.