A searing internal review prepared by two longtime Oak Bluffs attorneys concludes bluntly that the former town administrator had no legal authority to award personal service contracts and special one-time bonuses to a variety of town employees.

The 12-page opinion, prepared by town counsel Ronald H. Rappaport and special labor counsel Michael Gilman at the request of the Oak Bluffs selectmen, recommends that effective July 1, five employees give up their personal service contracts, which are legally invalid, and be paid according to town personnel bylaws.

Dated Feb. 27, the opinion from Mr. Rappaport and Mr. Gilman was received by the selectmen this week but has not been discussed by the board in public yet.

The legal opinion also carries a stamp of approval from Kathleen Colleary, chief of the state bureau of municipal finance law for the Massachusetts Department of Revenue. "We are authorized to state that none of our conclusions are inconsistent with positions taken by the DOR," the two town attorneys write.

Mr. Rappaport and Mr. Gilman reviewed some 14 personal service contracts ranging from town finance director to principal assessor.

Among other things they found:

* Former town administrator Casey Sharpe, even in her dual position as personnel administrator, had no legal authority to enter into personal service contracts with town employees. That power rests with either the selectmen or other boards with legal authority by statute, or by town meeting vote. "There is nothing in the statute or the [personnel bylaw] which empowers the town administrator to enter into personal service contracts," the attorneys write. They also write: "While the various contracts purport to be entered into by the board of selectmen, only in the instances of the fire chief and wastewater treatment manager did a quorum of the board sign the contract. We have asked for, and have not been provided with, any documentation establishing that the other contracts were authorized by a vote of the board of selectmen."

* Ms. Sharpe had no legal authority to award bonuses totalling over $22,000 in July 2006 to highway superintendent Richard Combra, library director Danguole Budris, harbor master J. Todd Alexander and former informational and technology director Raven Lee Gagne-Marino.

* The town had no legal authority to pay building inspector Jerry Wiener $13,068 in lieu of his share of health premiums for fiscal year 2006. According to town records, the payment was authorized by Ms. Sharpe to bring his salary in line with what was negotiated when he was first hired in 2005. "The only health benefit to which he is entitled is the one offered to all employees," Mr. Rappaport and Mr. Gilman write. ". . . If Mr. Wiener does not need to receive that benefit . . . there is nothing authorizing the town to reimburse Mr. Wiener for its savings. In our opinion such a payment was unauthorized."

* The town had no legal authority to pay 100 percent of employees health premiums as stipulated in several personal service contracts. "The town cannot pay a greater share of an employee's health insurance premium than it does for other employees," the two attorneys write.

Union employees in Oak Bluffs and those covered by town personnel bylaws are required to pay 25 per cent of their health insurance premiums.

Selectmen asked for the legal review last month after a series of stories appeared in the Gazette reporting on the unusually high number of personal services contracts in town and the awarding of bonuses and other one-time payments to certain employees.

Following a written inquiry from selectman Kerry Scott, the state Department of Revenue had urged the selectmen to consult their town attorney.

Oak Bluffs has 16 employees with personal service contracts, multi-year agreements that usually reward the worker with additional perks and a higher level of pay than other municipal and union employees. In Oak Bluffs there are far more personal service contracts than in any other town on the Vineyard, and possibly in the state.

Most of the contracts extend for more than one year and automatically renew unless the town or the employee gives notice. Six of the contracts stipulate that the town will pay 100 per cent of the employees' health premiums.

Mr. Rappaport and Mr. Gilman note that state law recommends that personal service contracts be limited to the four positions of town administrator, town accountant, police chief and fire chief. The contracts are limited because town budgets and salary appropriations are made on an annual basis.

News of the town's high number of personal service contracts first surfaced last year after Ms. Sharpe, who had her own personal service contract as well, left her post. At first selectmen said Ms. Sharpe had resigned, but later they confirmed that they had agreed to terminate her without cause - at her own request - triggering a clause in her contract that paid her a severance package of $76,000 in salary and benefits.

Mr. Rappaport and Mr. Gilman conclude that the contracts for five department heads are illegal and therefore invalid: highway superintendent, wastewater superintendent, principal assessor, harbor master and informational and technology director.

They recommend that the employees be notified that effective July 1 they will be paid under the terms of the town personnel bylaw, but it stops short of recommending that any unauthorized amounts be paid back to the town.

"But [we] advise that payments for bonuses and reimbursement for health insurance not happen again," the two attorneys write.

Mr. Rappaport and Mr. Gilman declined to offer an opinion on town finance director Paul Manzi's practice of treating travel and expense money as income for the purpose of his retirement fund, noting that the issue falls under the purview of the Dukes County retirement board.

But they did offer their services to help with what is likely to be fallout in the weeks and months ahead for town employees whose contracts are illegal.

"We are available to provide guidance as to how to restructure arrangements with various persons who are affected by our opinion," the two attorneys write.

Two selectmen who had seen the letter offered different reactions yesterday.

Board chairman Duncan Ross said it is still unclear whether the town did anything improper or illegal. "There may be more room for interpretation as to who can and can't receive contracts," he said.

Mr. Ross said selectmen will likely discuss the letter either at a regular or special meeting in the coming weeks.

"We need to get our ducks in a row first before we do anything. Whatever happens next, we have to careful not to hurt or penalize our employees, because they are not at fault here," he said.

Ms. Scott said the opinion from Mr. Rappaport and Mr. Gilman should serve as a starting point for creating parity for all town employees.

"When I first looked into this last April, my intention was not to penalize or expose anyone for how much money they made or the types of benefits they received. It's to try and create a healthy working environment where people are treated fairly," she said, adding: "Town employees - and town residents, for that matter - are not well served by a culture in which back door agreements are made and such an obvious consolidation of power exists. It's not good for employee morale, and it's just not good for the town," she said.