Although the Administrative Dispute Resolution Act of 1996 permits federal agencies to use binding arbitration, only a few agencies have issued the necessary guidance and its use is extremely rare. Nevertheless, it is a viable option for resolution of disputes involving government contracts.
Statutory Prerequisites. Agencies may use binding arbitration after the head of the agency, “in consultation with the Attorney General,” issues appropriate guidance. 5 USC 575(c); FAR 33.214(g). Such use must take into account the factors contained in 5 USC 572(b), which describe when ADR is not appropriate. Furthermore, only an employee or officer who has actual authority to settle the issue in controversy (in most cases, a contracting officer), may execute the agreement to use binding arbitration. 5 USC 575(c).
Ad Hoc Arbitration is the Norm. Given that federal contracts may not “require any person to consent to arbitration as a condition of entering into a contract” (5 USC 575(a)(3)), binding arbitration is typically elected only after the parties realize that there is an issue in controversy that could be resolved through arbitration. This means that procedures that are common in the commercial context — like invoking standard arbitration procedures under an arbitration clause — are not available to the parties of a federal contract. Such parties, instead, must identify their dispute and negotiate the procedures that they will use if they seek to use binding arbitration.
Agencies with Binding Arbitration Guidance. The Department of Transportation’s Federal Aviation Administration (FAA) and the Department of the Navy have binding arbitration guidance applicable to the field of public contract law. The FAA’s guidance is found online on the ODRA’s website. The Navy’s guidance is in the form of a Secretary of the Navy Instruction, i.e. SECNAVINST 5800.15, Use of Binding Arbitration for Contract Controversies (2007).
Why Use Arbitration? Given the availability of other ADR processes and the flexible approaches offered by federal contract forums, arbitration has not been widely used in the field of government contracts. It might be appropriate, however, in unique circumstances. For example, one advantage of arbitration is that the parties can use an arbitrator who is not a judge. Thus, parties at odds over a technical or scientific issue can give an engineer or scientist the final word through appointment as an arbitrator. Similarly, arbitration procedures could be incorporated into projects that use a Dispute Resolution Board. See Ch.07, DR Boards.
Similar – Summary Trials with Binding Decision
Some agencies have a general policy that precludes binding arbitration outside of the collective bargaining context. See e.g., the Air Force policy at AFI, 51-1201. Such agencies, however, will permit the use of a process at the Boards of Contract Appeals called “Summary Trial with Binding Decision.”
A summary proceeding with binding decision permits the parties to expedite the appeal schedule and to try their appeal informally before an administrative judge or panel of judges. Generally, the parties elect to have one judge decide the case (instead of a three judge panel used in traditional hearings), submit pre-hearing position papers (instead of post hearing briefs) and opt for more streamlined evidentiary presentations. The judge will issue a bench decision upon conclusion of the proceeding or a summary written decision at an agreed-to time following the receipt of the trial transcript. By agreement, the parties limit the scope of appeal.
In practice, there is very little difference between arbitration and summary trial with binding decision. The technical differences lie in the underlying statutory framework. Summary Trial with Binding Decision results in a “decision” of the board by a judge. An arbitration results in an “award” by an “arbitrator” that is subject to “confirmation” and limited review under the Federal Arbitration Act found in title 9 of the United State Code. Compare 41 USC 7101 (a)(1) with 7101(a)(3).