The ACT provides schools, driver's licences and child protective services, amongst others, to Jervis Bay Territory, which includes the Indigenous community of Wreck Bay, as part of a legacy fee-for-service deal with the Commonwealth.

The arrangement was criticised as "not optimal" almost five years ago because of the distance between the two territories and difficulties achieving economies of scale, and talks began to potentially transfer service delivery to neighbouring NSW.

Ministerial briefs obtained under freedom of information show the NSW government was concerned about: "Commonwealth's commitment to meeting the full cost of an expanded service delivery model in Jervis Bay Territory and financial support in transitioning to an expanded model".

"This concern stalled plans for NSW and the Commonwealth to seek their respective cabinets' approval for the transition model," the documents read.

While the ACT is supposed to provide services on a no-net-cost basis, "it is likely that this funding level does not represent full cost recovery for the ACT", the briefs said.

Around two weeks before NSW advised that it was pulling out of talks, the ACT government spoke of a "renewed commitment to progress the issue" and their confidence that a resolution would be reached soon, in a brief prepared for the Aboriginal and Torres Strait Islander Elected Body Hearings.

But NSW Premier Gladys Berejiklian's decision to withdraw from the tripartite working group "ends all current efforts for the ACT to transfer service delivery in Jervis Bay Territory to NSW", a later document concluded.

The NSW Department of Premier and Cabinet failed to respond to requests for comment.

The ACT's memorandum of understanding to provide services to the South Coast community is currently being reviewed, in order to develop a new agreement and funding model to begin next financial year.

Territory officials saw the review as an "opportunity to refine costings and achieve more accurate funding levels for ACT’s service delivery", the ministerial briefs show.

"The largely Aboriginal population of Jervis Bay Territory is very sensitive regarding a long history of perceived government neglect, mis-communication, environmental damage and mismanagement," the documents read.

"A key sensitivity will be managing expectations from Wreck Bay Aboriginal Community Council. There is a fine distinction between those ACT services that [the council] feels the Jervis Bay Territory community is entitled to and those that are funded through the existing Service Level Agreement and MoU."

The ACT had a budget of $3.5 million in 2017-18 to provide services to the coastal villages, funded through the Department of Infrastructure, Regional Development and Cities on "(nominally) a no net cost basis", the documents stated.

Running the Jervis Bay Primary School and transporting secondary students to NSW schools cost around $2.7 million in 2017-18. Providing ad hoc court hearings cost $159,063, while child protective services cost $297,005.

An earlier report obtained under freedom of information revealed gaps in services to the 400-strong community had led to "sometimes perverse outcomes", with Jervis Bay residents forced to travel to Canberra for simple court matters or to serve out custodial sentences.

There was even a case where a body was left stranded in Canberra's morgue because of the bizarre arrangements.

The Commonwealth government previously said it was looking at all options for the future management of services to the area.