Electronic Guide to Federal Procurement ADR
The purpose of this section of the Guide is to provide contracting officers and other frontline procurement personnel with information and guidance on practicable aspects of utilizing ADR. The section is divided into eleven sub-topics. Each addresses a critical point in the ADR process.
SECTION III CONTENTS
- Deciding Whether to Use ADR in Your Case
- Choosing a Form of ADR
- The Role of Legal Counsel in ADR
- The Role of the Auditor
- Negotiating an ADR Agreement
- Confidentiality Issues
- Choosing and Engaging an ADR Neutral
- Preparing For and Participating In ADR
- Deciding Whether to Settle the Case — Risk Assessment
- Memorializing the Settlement Terms
- Measuring ADR Success
Deciding Whether to Use ADR in Your Case
The FAR identifies the “essential elements” of ADR as including: (1) existence of an issue in controversy; (2) a voluntary election by both parties to participate in the ADR process; (3) an agreement on alternative procedures and terms to be used in lieu of formal litigation; and (4) participation in the process by officials of both parties who have authority to resolve the issues in controversy. FAR §33.214(a). There is a wide range of guidance available concerning types of controversies that are best suited for ADR. Some authorities in the field view the use of ADR expansively, believing that ADR should be attempted in virtually every dispute. Others believe that restrictive screening criteria should be employed to determine whether ADR will be used in a particular case.
Guidance as to when to use ADR may be found within the ADRA of 1996 itself. Federal contracting personnel are required by the ADRA of 1996 to give consideration to specifically stated factors which, if present in a particular case, would tend to argue against ADR use. It must be emphasized that the ADRA of 1996 does not prohibit the use of ADR in cases where any or all the factors are present. However, in every case the presence or absence of the defined factors should be reviewed and taken into consideration by the contracting professional. The ADRA factors are:
- Whether a decision by an adjudicating body is needed by the agency for precedential value;
- Whether a significant issue of government policy requiring development in the law is present in the case;
- Whether maintaining an established policy or avoiding variations in decisions is of special importance;
- Whether the dispute involves parties that would not be parties to the ADR;
- Whether it is important to develop a full public record in the case; or
- Whether the agency has a significant jurisdictional need to maintain control of the matter or to alter the ADR outcome.
Under the ADRA of 1996, agency decisions concerning use of ADR are shielded from judicial review. However, when a party decides not to use ADR for a controversy covered by the CDA, a written explanation must be provided to the other party. See CDA, 41 U.S.C. §605 (d) and (e), FAR §33.214(b); FAR §52.233-1, “Disputes (December 1998)”. In addition to the above, the Department of Justice Guidelines, which control the use of ADR during federal court litigation, provide helpful case screening criteria.
Ultimately, it is up to the parties to decide whether use of ADR will be beneficial in a particular case. In reaching that decision the federal contracting professional should attempt to balance the interest in the possibility of reaching an expeditious settlement of a dispute against any factors that would tend to support the use of litigation, such as the need to establish and develop a policy or to develop a full public record. In most cases, ADR can and should provide a viable alternative to formal litigation.
Choosing a Form of ADR
Once the parties decide to pursue ADR, there is a wide range of ADR techniques available to assist in resolving issues in controversy relating to bid protests and contract claims. These include conciliation, facilitation (i.e., facilitative mediation), evaluative mediation (neutral evaluation and the “settlement judge” approach), fact-finding, mini-trials, summary trials with binding decision (as offered by the Boards of Contract Appeals), arbitration, and the use of ombuds, as well as hybrids of these techniques. These options range from informal to formal in nature and vary in use and practice among federal agencies. Definitions of each of these ADR techniques have been included in the Resources section of this Guide for ready reference. See Guide Section VI.A, ADR Definitions.
In determining the type of ADR to use, the first choice to be made is between binding ADR and non-binding ADR. At the outset, it should be recognized that there are strict limitations on the use of binding arbitration by federal agencies. The ADRA of 1996 requires that, prior to using binding arbitration, each federal agency prepare and submit guidance for its use for approval of the Attorney General. In this regard, an interagency group headed by FDIC and Department of Energy representatives has developed suggested agency guidance for binding arbitration that is currently undergoing review by the Department of Justice.
Accordingly, most federal agencies avail themselves of non-binding forms of ADR such as facilitated mediation and neutral evaluation to resolve their procurement related controversies. Facilitative mediation involves the parties’ joint selection of a neutral to assist them to overcome whatever obstacles or differences may be preventing an amicable settlement. Mediation typically begins with all parties meeting in joint “session.” When the neutral deems it appropriate, he or she may confer with the parties individually in private “caucus.” At times, particularly when emotions run high, the mediator may choose to keep the parties separated and to conduct “shuttle diplomacy.” The neutral will work with the parties to try to identify common interests and to narrow the gap between the parties’ respective positions.
Neutral evaluation (also referred to at times as “outcome prediction” or the “settlement judge” approach) involves the neutral’s: (1) review of the parties’ positions and the information they provide; and (2) evaluation of the relative strengths and weaknesses of each party’s position. These evaluations can be given to the parties individually or in joint session. Sometimes neutral evaluation will be combined with facilitative mediation.
See Guide Section V for a description of the forms of ADR typically utilized by the various federal dispute resolution forums. You may also wish to see the following:
The Role of Legal Counsel in ADR
The basic decisions concerning whether to use ADR in a particular case, the type of ADR to use, and the selection of an ADR neutral generally are made by the person or team responsible for the management of the procurement or contract. These decisions may also be made by an “Integrated Product Team” — a team consisting of agency contracting officials, agency engineers, and agency procurement attorneys, if the agency utilizes that form of contract administration. Frequently, legal counsel will be part of that team and thus will be in a position to advise the team of the legal implications of its decisions. The government procurement professional will want to consult with legal counsel in any case to obtain guidance as to whether a proposed settlement will comply with applicable law. In addition, legal counsel can provide insight into and assistance with the assessment of litigation risk, so that the contract professional can make an informed and defensible decision on whether or not to settle a controversy.
Of course, matters filed in the United States Court of Federal Claims or in a federal district court are under the direction and control of the Attorney General and will require consultation with the Justice Department. Any settlement must be coordinated with the assigned Justice Department attorney and approved by the Attorney General or her delegee.
The Role of the Auditor in ADR
Often in the ADR process, audit input on financial matters is critical to establish facts needed to justify a settlement. Many contract controversies stem from audit exceptions. These issues are often complex and require in-depth knowledge of accounting and related regulations. To fully understand the financial consequences of decisions, government procurement professionals will want to include auditors as part of the ADR team in appropriate cases. Consider providing for an audit, if one is needed and if one has not already been completed, for any equitable adjustment proposals or claims which will be included in the ADR. The agreement should address what information or types of information and documents are to be provided to the auditor and whether there are any restrictions on the use of the information or documents provided.
Negotiating an ADR Agreement
Once the parties reach agreement on the use of a particular form of ADR, they will want to memorialize their agreement and set forth the specifics in writing. The written agreement should specifically describe the ADR procedure that will be utilized and if possible, the exact process to be followed. It also should include a schedule for completion of the ADR. The agreement should provide for selection of the neutral and for compensation of the neutral, if pertinent. Depending on when the ADR is being attempted, it may be necessary to agree to a stay of litigation during the pendency of the ADR process. The agreement should also specify who will participate in ADR on behalf of the parties. Samples of ADR agreements that have been utilized in federal procurement matters can be obtained from the ASBCA and the FAA.
One key consideration involves confidentiality in ADR, more particularly whether non-participants may gain access to any information exchanged during the ADR process. Confidentiality is addressed both in the ADRA of 1996 and in FAR 33.214(e). A related issue concerns whether any information developed or exchanged during the ADR process may be utilized during any adjudication that may occur if the ADR is not successful. Use of settlement discussions in litigation is governed by the Federal Rules of Evidence, Rule 408. All of these confidentiality issues should be spelled out clearly in the ADR agreement. A Sample ADR Agreement Confidentiality Clause has been included in this Guide as a starting point for your consideration. The provision should be tailored to the circumstances of each individual case. Participants in ADR should understand that government agencies may be required to make available ADR-related documents pursuant to a request under the Freedom of Information Act (FOIA), unless the documents qualify under FOIA Exemptions or are covered by the limited confidentiality protections afforded for dispute resolution communications under the ADRA of 1996.
Choosing and Engaging an ADR Neutral
In some instances, agencies have developed mechanisms for using high level agency procurement officials as neutrals to review the merits of controversies and assisting the parties in resolving their differences. One long-standing example is Dispute Review Boards at the Naval Facilities Engineering Command. High level agency and contractor officials can also serve jointly in given cases, either as co-mediators or as a minitrial panel. Although minitrials more commonly involve the assistance of a third party neutral, occasionally, the parties, as a first step, will try to resolve their controversy through a structured settlement process that uses the minitrial form without the neutral. Although these individuals are not technically “neutrals,” since they are employed by parties to the controversy, if they have not had direct involvement with the matters at issue, they can maintain a considerable degree of impartiality. Moreover, in some instances, their involvement is all that is required to settle a controversy.
When seeking assistance of a third party neutral, always choose an individual with a reputation for unquestioned integrity, someone who can be trusted to be impartial and unbiased. The neutral should have ample knowledge and experience in the resolution of federal contract-related controversies, preferably experience with the kinds of issues, contract type and subject matter that your controversy involves.
For detailed information about the availability and selection of experienced neutrals for the resolution of your agency’s contract controversies, see Guide Section V.
Preparing For and Participating In ADR
Preparation for ADR will depend upon the type of ADR to be used. See Section B above. In order for the parties to prepare themselves for any ADR proceeding, they each must have a grasp of the facts and an understanding of the other party’s positions on the issues in controversy. For the parties to achieve the comfort level needed to reach a negotiated settlement, they must first do an appropriate amount of fact-finding. The ADR neutral can aid them in structuring a sensible schedule of pre-ADR fact-finding in the form of document exchanges, informal meetings and formal depositions of critical personnel. For most ADR proceedings, it can be helpful to have the parties prepare and submit to the neutral and to their counterparts brief position statements, which set forth concisely a chronological statement of the salient facts and of the legal bases relating to each claim element to be addressed in ADR. Copies of key relevant documents and supporting affidavits should be appended to the position statements. To streamline any proceeding, it may also be advisable (although not always possible) to have the parties submit stipulations of undisputed facts.
In terms of participation in any non-binding form of ADR, it is essential that the parties designate in advance of the ADR proceeding principal negotiating representatives (“principals”) for the proceeding. The principals should be at a high enough level within their respective organizations and should have sufficient authority to commit their organizations to a complete settlement of the controversy. It is preferable that these principals not be involved directly in the evaluation or award of the contract at issue (for bid protests) or in the day-to-day administration of the contract (for claims under existing contracts), so that they may maintain a certain degree of objectivity during the course of the ADR proceeding. In addition to the principals, each party should make available for the ADR proceeding the individuals within their organizations who possess first-hand knowledge of the facts.
In addition to the pre-ADR position statements, it is frequently helpful for both parties to develop and have available for ADR initial settlement offers and “fall back” negotiating positions. These, of course, will be subject to modification, based on the facts that emerge from the ADR proceeding. Agency representatives should also identify in advance of any ADR proceeding the sources of funding that will be available should the parties be able to settle their differences through ADR. Familiarity with the types of funding that may be accessed as well as with the use of the Judgment Fund administered by the Treasury Department is advisable. An excellent analysis of funding sources has been prepared by the Air Force Materiel Command (AFMC). Information regarding the use of the Judgment Fund can be found in a comprehensive article by Carl Vacketta and Eric Kantor, Obtaining Payment from the Government’s Judgment Fund, Briefing Paper No. 97-3 (Federal Publications, Inc. February 1997). The Department of Justice has developed a useful Attorney’s Checklist for ADR preparation. See also Department of Veterans Affairs Web Site: “VA Handbook Appendix D”.
Deciding Whether to Settle the Case – Risk Assessment
For a party to evaluate an ADR settlement proposal properly, or to have adequate confidence to put forth a proposal to the other party, it first must be able to assess the risks associated with litigation, should the controversy fail to settle by means of ADR. Assuming that the parties have engaged in an adequate amount of pre-ADR information exchange, at the conclusion of the presentation phase of an ADR proceeding, the parties, with the assistance of the ADR neutral (through neutral evaluation), should be able to assess the strengths and weaknesses of their respective positions and to quantify realistically the risks and costs of proceeding with litigation.
Memorializing the Settlement Terms
Once a settlement has been achieved through ADR, the best practice is never to leave the proceeding without first setting forth the terms of your settlement in the form of a written agreement. To aid you, Sample ADR Settlement Agreements and Terms , which may be modified to suit the needs of each particular case, have been included in this Guide. It is suggested that you download one or more of these samples to have available for use at the ADR proceeding, should the opportunity arise for their use.
Measuring ADR Success
ADR success can be measured in a number of ways. For example, a party may wish to compare the result achieved by ADR against the total amount originally claimed. Or, the comparison may be to the outcome of a party’s litigative risk analysis. In addition, the mere fact that a longstanding dispute has been resolved signifies success, in that the parties can again turn their attention to more productive pursuits, i.e., performing and administering current contracts. In most instances, settlement by means of ADR will result in a substantial savings in the time and expense that litigation would otherwise entail. Even where parties are unable to reach an amicable settlement through ADR, the ADR process may allow them to narrow the issues in dispute, streamline or eliminate weak claims, focus on more meritorious claims, and reduce the time and expense of any litigation.
There are also intangible — less measurable — benefits that may be realized from ADR. Frequently, where a settlement emerges from an ADR process, parties will have improved an ongoing relationship, by reason of having obtained a better understanding of one another’s viewpoints, goals and interests during the course of the proceeding.
Additional general information regarding the assessment of ADR success may be found in a paper that had been developed some time ago by the Evaluation Subgroup of the Dispute Systems Design Working Group of the Administrative Conference of the United States (ACUS) entitled Performance Indicators for ADR Program Evaluation.
On to Section IV