August 17, 2007
BESB VENDING CONTRACT AND STATE COLLEGES AND UNIVERSITIES
By: Robin K. Cohen, Principal Analyst
Rute Pinhel, Research Analyst
You asked how the state colleges and universities provide vending machines that dispense soda and other drinks to students and faculty. You wanted to know (1) whether Coca Cola Bottling Company (Coke) has the exclusive right to place its machines in the institutions; (2) if exceptions are made for smaller institutions (e.g., community colleges); and (3) if Coke has this exclusivity, whether the legislature has tried to end it. Finally, you wanted to know how neighboring states' higher education institutions handle vending services.
The state's public colleges and universities provide vending services (soda and other machine products) through either the Board of Education and Services to the Blind (BESB) exclusive contract with the Coke or private contracts with vendors.
By law, BESB has the right, superior to all others, to place vending machines in any federal, state, or local building or property, which includes the public higher education institutions. Coke is currently nearing the end of a 10-year exclusive contract it maintains with BESB for these services, in which BESB is entitled to a 35% commission on all vending sales. Revenues from these sales help support blind entrepreneurs.
Currently, six community colleges and Western Connecticut State University provide vending services through the BESB-Coke contract. At these sites, generally the full 35% commission goes to the student activity funds for vending sales in non-administrative buildings, while BESB keeps the commissions for sales in administrative ones.
With the exception of Western, UConn and all of the Connecticut State Universities (CSUs) have exclusive vending and beverage service contracts with Coke or Pepsi; each institution has negotiated its own contract through an open bidding process. The contract terms, including the exclusivity arrangements, vary by institution and in most instances include (1) various commission percentages for beverage and vending machine sales, (2) annual payments for academic or athletic programs, and (3) complimentary merchandise or beverages. None of the other community colleges has exclusive beverage service contracts.
Massachusetts, New York, and Rhode Island exempt public higher education institutions from their blind entrepreneur or “mini-Randolph-Shepard” laws. Although its state law does not appear to exempt any facility operating on state property, Rhode Island's regulations exempt state colleges and universities. A separate survey we did found that neighboring states' public colleges and universities have similar exclusive beverage service contracts.
The legislature has not recently attempted to eliminate altogether BESB's right of first refusal. In 2002, a bill that would have ended municipalities and schools' obligation to give BESB vending rights failed. We likewise are not aware of any legislation that would have limited BESB's ability to have an exclusive contract with Coke. But the Attorney General's Office is currently reviewing the vending law to advise Ridgefield as to whether the town can be required to comply with BESB's implementation of it. BESB wants the town's vending machines to dispense Coke products exclusively, but the town wishes to provide Pepsi products as well. A decision is due later this month.
BESB'S RIGHT OF FIRST REFUSAL FOR VENDING SERVICES
The law (CGS § 10-303 (a)) requires the authority in charge of state- or municipally owned, operated, or leased property to grant BESB a permit to run any on-site vending operations, when the authority believes such operations are desirable. This permit gives BESB a right, superior to all others, to operate vending facilities in public buildings.
BESB requires the state or municipal authority in charge of the property to give written notice of its intent to establish a vending facility or install a vending machine on site. The state law, passed in the 1940s, mirrors the federal Randolph-Shepard law, which requires vending in all federal building to benefit blind entrepreneurs.
Under state regulations, within 30 days after receiving notice, the BESB executive director or his designee must check the proposed facility for its potential value as a vending facility to be operated by a blind vendor and either (1) request a permit or (2) notify the authority in writing of BESB's decision not to request one.
If the director requests a permit, the state or municipal authority must issue it, thereby authorizing BESB to establish and maintain a vending facility (including machines) on the property. If the director fails to respond to the notice within 30 days or indicates a decision not to request, the state authority can contract for other vending services (Connecticut Agency Regs. §10-303-18). (According to BESB's Andrew Norton, BESB recently developed a uniform permit form for state and local officials to use.)
BESB has interpreted the law to allow it to (1) license its own clients to operate vending services or (2) subcontract with food service companies who can place vending machines in public buildings.
The regulations governing the vending program, which BESB refers to as its Business Enterprise Program (BEP), say nothing about exceptions to this rule. (The only exception to BESB's right of first refusal is a statutory provision allowing vendors who operated stands before the law's effective date (October 1, 1945) to continue in that capacity.) But the board attempts to accommodate local needs and in some instances has agreed not to take over vending operations (e.g., Little League programs). Likewise, BESB allows existing contractual relationships to expire before taking over a property's vending services.
In March 1999, BESB issued a request for proposals (RFP) to four “prequalified” vendors: Canteen Corporation of Middletown; All Seasons of Southbridge, MA; Coca Cola Bottling Company of East Hartford; and Classic Foods of Greenfield, MA. According to the RFP, BESB was looking for a single vendor to take over vending operations to replace the more than 200 separate vending agreements at individual locations
throughout the state. In addition to wanting to be relieved of the administrative burden, the RFP stated that another goal was to expand the number of vending locations under BESB management.
The RFP called for the proposals to be submitted by April 9, 1999. The contract would be for five years, with an option for a five-year renewal. A renewed contract would be contingent, in part, on the vendor's providing a detailed plan for reinvesting in new equipment after the first five years (or some amount of time BESB determined).
The RFP included a provision inviting the vendors to offer financial incentives for BESB to consider when making its award determination. It also called for the products to be vended to be nationally known brands, unless BESB granted prior approval to offer others. The RFP included a list of items BESB would review when evaluating each proposal. These included:
1. commissions and other incentives,
2. a plan for installing new machines and continuing operations of existing ones,
3. the vendor's financial condition, and
4. if the vendor was a small business (for which it would be given favorable consideration).
In late June 1999, BESB awarded the contract to Coke. In its proposal, Coke had offered to provide $75,000 in an initial signing bonus, a flat 35% commission on all sales, and an additional $75,000 upon the five-year renewal. According to BESB, the actual signing bonuses were $100,000, paid in June 1999, and an additional $100,000 paid in July 2004.
Coke also agreed to provide a software package and pay for other training for the blind operators and program staff at least twice yearly.
BESB Use of Vending Revenue
Until 2001, the law was silent on where state and local vending receipts were to be deposited. (The Randolph-Shepard Vending Stand Act (20 USC 107) specifies how money vending machines located in federal buildings must be spent.) In practice, BESB was depositing them into the BEP account. PA 01-9, June Special Session (§ 35) authorized BESB to maintain a nonlapsing account for such revenues.
BESB must use the money in the account for fringe benefits, training and support for blind vending facility operators, and entrepreneurial and independent living training and equipment to (1) blind adults and (2) children who are either blind or visually impaired, as well as other vocational rehabilitation programs. (BESB clients who run vending operations keep a portion of the machines' proceeds, but they go first to BESB, which cuts them a check.)
In addition, BESB can disburse state and local vending machine income to student or client activity funds. The law defines these as funds operated in state educational institutions or welfare or medical agencies set up for the benefit of their students or employees (CGS § 10-303).
Colleges and Universities Operating Under the BESB Contract
Recently, BESB staff stated that public schools, state higher education institutions, and parks and recreation facilities at which Coke places machines under the contract keep the 35% commission. But BESB distinguishes between student-occupied and administrative college buildings. Revenues from machines placed in the latter buildings revert to BESB, thus the colleges keep money only from sales in student-occupied buildings. BESB asserts that machines in administrative buildings represent a “distinct minority” of the total number of machines.
There is one other exception: at three college campuses, a blind operator runs the campus food service facility. In this instance, the operator gets 20% of the 35%, with the college getting the balance.
BESB currently has Coke machines at the following state colleges and universities:
1. Western Connecticut State University,
2. Asnuntuck Community College,
3. Capital Community College,
4. Middlesex Community College,
5. Northwestern Connecticut Community College,
6. Tunxis Community College, and
7. Three Rivers Community College.
BESB's Tracey Morin stated that BESB is currently in communication with Tunxis Community College to operate the school's cafeteria and vending machines. BESB has no machines at the University of Connecticut as it (correctly) believes the university already has a contract for machines. It does not know when the contract expires, nor has it approached the university about replacing the existing machines once it does.
NON-BESB VENDING AND BEVERAGE SUPPLY CONTRACTS AT PUBLIC HIGHER EDUCATION INSTITUTIONS
In January 2001, UConn issued an RFP to select a vending and beverage supplier. It received two responses: Coke and Pepsi Bottling Group. UConn awarded a 10-year contract to Coke, effective July 1, 2001, giving Coke exclusive rights to sell its beverages on all UConn campuses.
Under the contract, UConn receives 35% commission on all beverage sales. In the first contract year, Coke also paid the university $1 million to support its mission and $500,000 to the Division of Athletics. From year two through 10 of the contract, Coke also makes $440,000 in annual payments to UConn for the following programs:
1. $300,000 to the Division of Athletics;
2. $50,000 to the African National Congress/University of Fort Hare in South Africa;
3. $50,000 for student life initiatives (e.g., scholarships or student facility improvements);
4. $25,000 to the Jorgensen Center for the Performing Arts; and
5. $15,000 for campus activities (e.g., back-to-school picnic for students).
Connecticut State Universities
With the exception of Western Connecticut State University (WCSU), which is under BESB's contract with Coke, all of the CSUs obtained beverage supplier contracts through a competitive bidding process.
Central (CCSU) and Southern (SCSU) have contracted with Coke, and Eastern (ECSU) has contracted with Pepsi Bottling Company of Worcester.
CCSU. CCSU's contract with Coke has been extended to June 30, 2008. Under the agreement, Coke has exclusive rights to sell its beverages on CCSU's campus and in turn the university receives various commissions on all beverage sales. Coke paid CCSU $50,000 upon signing the contract and also annually contributes (1) $95,000 in sponsorship fees, (2) $5,000 worth of merchandise or products, (3) $1,000 for in-kind marketing support for athletics, and (4) various incentive commissions for every case sold over 25,000 cases.
ECSU. ECSU's contract with Pepsi expires on July 31, 2008. The university receives various commissions (ranging from 24 to 30%) for beverage and vending machine sales. In addition to a one-time $25,000 contribution to the ECSU Foundation and a $5,000 payment for electronic scoreboard maintenance, Pepsi annually contributes (1) $4,800 to the ECSU Foundation for stadium signage, (2) $3,000 to the ECSU Foundation for product promotion, and (3) up to 100 cases of canned or bottled beverages to ECSU or the ECSU Foundation.
The contract allows other vendors to supply vending machines as long as they dispense cans, not bottles.
SCSU. SCSU's contract with Coke expires on February, 28, 2008. Under the terms of the agreement, Pepsi supplies, installs, and maintains all vending, fountain, and cooler equipment. SCSU receives various commissions on beverage and vending sales. Coke also paid a $50,000 one-time advance fee (paid over the life of the contract) and annually contributes (1) $70,000 in sponsorship fees, (2) $10,000 for a distinguished lecture series, (3) $10,000 in complimentary products, (4) $5,000 for campus activities, and (5) various other incentive commissions.
Under the agreement, Coke has exclusive rights to operate full service beverage vending on campus. The contract allows SCSU's food service provider (Chartwells) to sell beverages that Coke does not provide (e.g., flavored iced teas).
Neighboring State Universities
We performed a phone survey and Internet search to determine whether neighboring universities have exclusive beverage service contracts. The University of Massachusetts at Amherst, Boston, and Dartmouth and the State University of New York at Albany have exclusive contracts with Coke. The University of Rhode Island has an exclusive contract with Pepsi.