You’ve decided to enter into a contract with a neighbouring municipality for the provision of services to your community. You know what services you need, you know where they are needed, you know who to engage to make it happen, and you know how to get what you need – by entering into a service agreement. The one remaining question is when – how long does this agreement need to be in place?
There is no fixed time a service agreement must be in place for, therefore it is open to you to decide whether the duration of your agreement is effective for a short, medium, or longer term. You also have a say in how the agreement is suspended or terminated, and the process to be followed. The term of the agreement is in place to provide stability to both partners for continuation of service, and the suspension and termination terms are written to ensure the contract is not broken without due cause or following a fair process, so take the time to think about what you would like to see in these terms.
If it’s your first service agreement, you may think that keeping the contract valid for a short (1-5 years) period of time is your best bet. Agreements on this term can provide greater flexibility for you and your service provider, as it reduces the amount of time that you are locked into the agreement. For non-critical services (i.e. not an immediate risk to public health and safety), such as garbage collection, a short term is a reasonable choice as your options for providers is likely varied, and you may not need to make infrastructure investments to enable the service, which allows for more flexibility in changing how your service is provided.
A short term contract is not always the best choice, however. If your community has needs for critical services that protect the health and safety of the community (e.g. water or fire protection), an agreement with such a short term could endanger the stability of the supplied service to your community. In instances where your option for service providers is limited, or an investment in new or upgraded infrastructure is required, it’s preferable to ensure your agreement is for a long-term.
The process of negotiating or re-negotiating a service also takes time and effort – not only does a short agreement term result in frequent negotiations, but it leaves your community at risk of losing the service if the negotiation process takes longer than expected.
Termination and Suspension
Parties usually enter into agreements with good intentions. Trust, and an attitude of good faith are some of the most important things to take into a service agreement partnership that will provide benefit to both parties. It’s common for parties to continue to build their relationship, and trust, and good faith throughout the service agreement. But in rare circumstances, things can change, and one or both of the parties may wish to terminate the agreement.
Reasons for termination may not always be about the relationship or a breach of contract by one of the parties. Agreements may also be terminated because needs for services, ability to deliver services, and priorities change. Including termination or suspension terms in your agreement is beneficial to both communities.
Suspension is an intermediate step between provision and termination, allowing the party in breach of contract to correct the offending issue to preserve the agreement. Suspension of service terms are more appropriate to include in service agreements for non-critical services, such as garbage collection or animal control; than for critical services like water and sewer, or fire protection. The suspension may only apply to specific services within the service agreement. For example, in a water service agreement that includes operation and maintenance services, the suspension term may only refer to the operations and maintenance portion of the services. This ensures that the part of the service that is critical to health and safety (water supply) is not affected. Your agreement should outline the conditions and process for suspension, and the process for resuming services after the issue has been resolved.
Termination is the discontinuation of the agreement. An agreement can be discontinued with or without cause. Your agreement should clarify the specific acceptable reasons for termination so there are no surprises. Give yourself time to react by detailing what kind of advanced notice is required for suspension or termination. Typical notification periods for non-critical services with more service delivery options are 60 days or 120 days. For services that require infrastructure investment or longer lead periods to make alternate service delivery arrangements, such as water and sewer, the notification period should be longer (i.e. up to a few years).
You should decide who has the authority to suspend or terminate the contract. In case of termination, clarify if capital contributions or rates paid in advance will be reimbursed and on what basis.
With careful thought to your community’s service needs and timelines, you should be able to identify the best term for your agreement, and a suitable process for suspension or termination. This will help to ensure long term stability for your community and to ensure smooth renegotiations when required.
Preparing to negotiate a service agreement with your neighbouring community can seem like an intimidating task for any First Nation. You may have read in a previous blog post, ‘Knowing Your Municipal Service Needs…And What’s Possible’, that the best place to start is by identifying exactly what it is your community needs.
Once you’ve determined your needs, the next step is understanding what it might cost to provide the service you need before sitting down with your neighbouring municipality. Preparing yourself with this information will create a more open and informed negotiation process. The Pathways to Service Delivery website contains various resource tools to assist First Nations and municipalities through the negotiating process, including a cost calculator.
The cost calculator is an interactive Excel based tool developed to highlight information about the costs of services, such as water and sewer. While the cost calculator will not provide you with the exact rate, it acts more like a tool for discussion purposes with your neighbouring municipality, to better understand what goes into determining the rate.
Excel Cost Calculator
The cost calculator is not only a great tool for First Nations preparing to negotiate a service agreement for the first time but also those First Nations with existing service agreement that are nearing their expiration date.
How exactly does it work?
The cost calculator supports the user in thinking about what a fair rate might be for providing a service to their location. It assists in estimating how much the First Nation might pay annually for services and based on the annual estimated cost, how much of that cost is eligible to receive funding from INAC and how much would need to be funded through other sources of revenue. To determine these costs, the cost calculator relies on information about rates in the neighboring community and helps the user compare rates and levels of service.
The cost calculator includes three services, all which are eligible for funding through INAC. These include water, sewer, and fire protection. Because fire protection varies so much from community to community, the calculator provides a range of average rates per household. This can be used to give people an idea of how their rate compares with rates in other communities. Also, from time to time, service agreements might cover a full bundle of services. Some of these services may already be provided by the First Nation, in which case it may be fair to apply a credit of up to 100% for that service. The cost calculator helps the user review different services that are often included in a service bundle and consider which ones might receive a credit and why.
For the cost calculator to work, you’ll first need to identify and provide some basic information including, the municipal rate for the service, the number of member homes, and the number or non-member homes who will receive service. For water and sewer, you can identify municipal water rates by looking at the Water and Sewer Bylaw of your neighbouring municipality. This bylaw is publically available information and should be accessible through the municipality’s website.
By inputting these values, the pre-formatted Excel sheet will display estimated rate for how much your First Nation might pay annually for services, how much of that cost is eligible to receive funding from INAC and how much would need to be funded by your community through other sources of revenue.
Now – let’s go through an example, looking at what BC First Nation, a fictional community, might pay for water through their neighbouring municipality, BC Town.
The Administrator from BC First Nation has already gone onto BC Town’s website to find their municipal water rate.
Looking at BC Town’s water user fees, the Administrator can see the Town charges a fixed rate only and has no volume rate. This varies from community to community with some municipalities only charging a fixed rate, while others use a combination of a fixed rate and volume rate.
The Administrator has taken the municipal water rate and the number of member and non-member homes and entered it into the cost calculator. Because a service agreement is not yet in place, simply enter the same rate you entered for the municipal water rate and the calculator will provide an initial estimate based on the rates in BC Town.
From there, the Administrator is able to better understand what it might cost to provide water to their members through a service agreement with BC Town annually ($81,316.44) if rates were the same as in BC Town, as well as how much of that annual cost would be covered through INAC funding ($60,211.01) and how much the First Nation would need to pay for themselves through other sources of revenues ($21,105.43).
The Administrator of BC First Nation knows that the service agreement with BC Town will not include operations and maintenance of infrastructure on reserve, so the rate that is paid for on-reserve service through the service agreement may be less than what is paid by customers of BC Town off-reserve.
The Administrator can now go into discussions with BC Town with a baseline of costs that can be discussed with BC Town, to get a better understanding of what will be included in the rate and how it will compare to the rate being paid in the Town.