State of Arizona school districts, and other similar political subdivisions of the State of Arizona, have the authority to enter into a special category of agreement or contract referred to as an “intergovernmental agreement.” An intergovernmental agreement, or “IGA”, is a form of contract authorized by Arizona Revised Statues (“A.R.S.”) §11-952 and only available to “public agencies” or “public procurement units.” The terms “public agencies” and “public procurement units” are statutorily defined terms which may or may not apply to all parties seeking to enter into an IGA. It is vital to determine if all parties to a proposed IGA satisfy the requirements of either being considered a “public agency” or a “public procurement unit” before executing the IGA. It is important to understand what should be contained in an intergovernmental agreement.
It is important to note that in order for an IGA to conform to the requirements of A.R.S. §11-952 there are several statutorily required clauses. A.R.S. §11-952(B) states that an IGA shall incorporate provisions to address the following:
- Its duration.
- Its purpose or purposes.
- The manner of financing the joint or cooperative undertaking and of establishing and maintaining a budget for the undertaking.
- The permissible method or methods to be employed in accomplishing the partial or complete termination of the agreement and for disposing of property on such partial or complete termination.
- If a separate legal entity is formed pursuant to subsection A, the precise organization, composition, title and nature of the entity.
- Any other necessary and proper matters.”
If any of the above required provisions are not incorporated into the IGA, then the IGA does not meet the requirements of A.R.S. §11-952 and must be revised before a “public agency” or a “public procurement unit” can execute it.
The required provisions outlined above can be deceptively simple. “Duration” simply means that the IGA must specify what its commencement date is and when it terminates. This can become complicated when multiple parties are executing the same IGA at different times or if the parties seek to incorporate some form of automatic renewal provision.
“Purpose or purposes” is simply a statement within the IGA of the intentions or goals of the parties in executing the IGA . It is important that this provision clearly states, to the satisfaction of all parties to the IGA, the accurate intentions or goals of the parties. Many misunderstandings in future dealings can be avoided if the purpose of the IGA is not only clearly stated but also decisively agreed upon by the parties at the drafting phase.
“The manner of financing the joint cooperative undertaking” requires that the IGA specify how the parties intend to pay for whatever it is the IGA is designed to accomplish. This includes billing provisions, late fees (if legally permissible), invoicing requirements, and assigning pro-rata shares of costs as a few examples. This portion of A.R.S. §11-952 goes further to require that the parties outline how a budget (if one is needed) will be maintained. For example, this includes which party is responsible for the bookkeeping, tracking expenses, and assigning out costs.
“The permissible method or methods to be employed in accomplishing the partial or complete termination of the agreement” requires that each party have a viable method of terminating the IGA outlined in the terms of the agreement. This can be accomplished in conditional unilateral termination (one party can terminate if specific incidents occur) or unconditional unilateral termination (one party can terminate with or without cause). This provision can also be satisfied by a mutually effectuated termination provision (both parties have to agree to terminate the IGA).
The second portion of the termination provision requirement is quite possibly the most misunderstood. The second portion provides that the IGA must contain a provision addressing “disposing of property on such partial or complete termination.” This provision is required regardless if the parties intend to jointly or individually acquire property in the performance of duties pursuant to the IGA. In order to satisfy this provision, the IGA must state which party is entitled to property (or a portion thereof) acquired as a result of the performance of duties assigned by the IGA if the IGA is terminated. If there is no contemplated acquisition of property, this provision still requires that the IGA state that no joint acquisition of property is contemplated and that all property will be returned to the purchasing party upon partial or complete termination of the IGA.
A.R.S. §11-952(A) permits the parties to an IGA to form a “separate legal entity” in order to effectuate the purpose of the proposed IGA. There are many different types of “legal entity,” each with its own formation and operation requirements. Once the form of “legal entity” is decided upon, A.R.S. §11-952(B)(5) requires that the “the precise organization, composition, title and nature of the entity” be clearly outlined in the IGA. Depending on the type of entity formed, this requirement can render the IGA quite lengthy.
The final requirement outlined in A.R.S. §11-952(B) is a “catch-all” provision that all other “necessary and proper matters” be outlined in the IGA. This section can be difficult to interpret and is highly subjective. A close examination of the individual circumstances surrounding each IGA is important as what is considered “necessary” or “proper” will vary greatly from IGA to IGA.
Another important required IGA provision is found in A.R.S. §11-952(D). This section provides that IGA’s must be submitted to the attorneys for each respective party prior to a party signing and executing the IGA. The attorney is required to confirm that the IGA is “in the proper form and is within the powers and authority” granted to the party seeking to execute the IGA. This means that the attorney is required to confirm that the IGA contains all of the statutorily required provisions and that the party seeking execute the IGA is legally permitted to perform the duties and actions required by the terms of the IGA. If the attorney cannot affirm that the IGA is within the proper form or is within the powers and authorities of the party seeking to execute it, then the attorney cannot sign the IGA and the party cannot execute the IGA.
It is important to note that there are different forms of IGA’s which do not require the signature of an attorney. These exempt IGA’s (cooperative purchasing intergovernmental agreements for example) are outlined in statute and have other specific drafting requirements. Regardless of whether or not an IGA is statutorily required to be endorsed by an attorney, it will require that the above referenced provisions be included in its terms. It is best practice to contact legal counsel to confirm what the exact drafting requirements of a particular IGA are prior to executing an IGA as many, if not all, concerns can be addressed prior to execution with greater ease than after execution.
This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice regarding What Should Be Contained in an Intergovernmental Agreement?, or any other estate planning matters, please feel free to contact at 480.461.5300, log on to udallshumway.com, or contact an attorney in your area. Udall Shumway PLC is located in Mesa, Arizona and is a full service law firm. We assist Individuals, families, businesses, schools and municipalities in Mesa and the Phoenix/East Valley.