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.