Legal and liability considerations for shared services agreements

Shared service and mutual aid agreements are valuable tools enabling cities and towns to pool resources. When properly implemented, they can save money and allow municipalities to leverage services they might otherwise be unable to provide.

In recent years, critical labor shortages and economic limitations have placed additional pressures on municipalities to explore mutual aid solutions to a diverse cross-section of services.

Regional alliances that implement due diligence, with specific indemnification language and insurance-related requirements, have seen great success in forging agreements. For example, multiple regions around the Commonwealth have agreements to share 911 dispatch services, including 70 communities in the greater North Shore area.

On the other hand, communities can encounter significant challenges when details are not carefully considered. For instance, in one shared animal control services agreement, coverage ambiguity arose when a local resident needed rabies treatment after a bat bite, leading to complications over how health care costs would be divided among the towns. In another case, vague terms in a shared services agreement resulted in a complex liability issue when an employee from one community filed a Massachusetts Commission Against Discrimination complaint against all municipalities in the agreement.

When considering new agreements, local leaders are advised to take a disciplined approach to fully define the scope of the agreement and the terms of service, including:
• The roles of the parties
• Governance and decision-making authority
• Legal and regulatory parameters
• Insurance provisions
• Risk transfer provisions, such as indemnification and hold-harmless agreements

Scope and parameters
Transparency is important from the outset. Gathering input and recommendations from the community and sharing them with municipal stakeholders is the first step. Best practices include forming a committee to lead the identification of shared service opportunities, conducting feasibility and cost analyses, and overseeing the implementation of the shared service. This committee can focus on singular opportunities; it may also be chartered to explore additional services across a broad spectrum of opportunities on a regional basis.

During this step, the partnering municipalities should also share common goals and expectations for the contemplated service and agree on the selection of service partners.

Terms of service agreements
Once an opportunity has been identified and partners are aligned, the next step is to create the shared service agreement. The quality of this agreement is critical to its long-term success.

The roles and expectations of the parties must be clearly defined, allowing for equity and fairness, as well as the ability to be easily understood if there is a change in municipal leadership. Each shared service opportunity is unique and must be analyzed carefully before an agreement is finalized.

Critical elements for consideration in the terms of service include:
• Allocation of service(s) between the parties
• Funding allocation/responsibilities
• Determination of responsibility for hiring and managing employees providing services
• Provision of insurance for assets, equipment, etc.
• Maintenance of equipment and frequency of maintenance
• Determination of shared liability
• Additional insured provisions protecting all parties
• Indemnification and hold harmless agreements
• Preservation of municipal liability protections set forth in the Massachusetts Tort Claims Act (Ch. 258)
• Resolution guidelines for governance and decision-making disputes

An analysis of the shared service opportunity may reveal additional factors that need to be addressed. The analysis should include input from the involved departments as to compliance with safety and health considerations, legal review by municipal counsel, and discussions with the municipal insurer to ensure there are no unintended gaps in coverage.

Written by Stephen Batchelder, MIIA Vice President of Claims Operation and Risk Management