Over the last few years, the concept of Alternative Dispute Resolution (ADR) has been touted throughout the federal government. It all began in 1990, when problems of overburdened courts and exorbitant litigation costs inspired Congress to enact the Administrative Dispute Resolution Act of 1990 (ADR Act), enactment that prompted a lot of discussion, but not much action. In 1994, 26 federal agencies pledged to use ADR to resolve disputes. In 1996, Congress permanently restored the about-to-be sunsetted ADR Act of 1990 when it passed Public Law 104-320, or the ADR Act of 1996. Granted broad authority by the ADR Act to use ADR, the Department of Defense responded by directing its Military Departments, Joint Chiefs of Staff, and its Agencies and Field Activities to use ADR instead of litigation wherever appropriate. The GSA Administrator also directed his Heads of Services and Staff Offices and Regional Administrators to implement ADR on a wide basis. Yet, until just recently, many were still saying that ADR in government, despite this activity, is more rhetoric than reality. The non-believers are now taking notice. As this article is written, the United States Air Force is conducting a market survey to obtain information in support of a potential major procurement for ADR services. Other agencies are either soliciting proposals or have already awarded contracts for the provision of ADR services.
When parties choose litigation over ADR, it is not that they consciously desire to litigate. Parties are driven to that process by their mutual desire to “win the battle.” Examples abound. So it went in the case of McDonnell Douglas Corp./General Dynamics v. U.S., US Fed. Cl., No. 91-1204C, which involved a default termination of a contract to produce the Navy’s A-12 attack aircraft. The parties spent almost three years in preparing for trial. More than $3 billion was at issue in the case. It has been estimated that the parties were spending $66 million a year in litigation expenses. After many years of trial preparation with both sides reviewing and processing literally thousands of documents and interviewing countless individuals, the U.S. Court of Federal Claims has decided the matter. Having decided in favor of the contractors, the court avoided a full-scale trial on the merits of the contractors’ allegations of constructive changes and breach. Instead, the court required both sides to “share the pain” of the contract termination, by restricting the contractors’ recovery to their incurred costs of performance, but excluding profits and amounts included in the contractors’ requests for equitable adjustment.
The big question: if these parties could start over again, would they have chosen to pursue the ADR route that would have empowered them to arrive at a solution that would be equal to or better than the solution the court provided? The facts relied upon by the court were probably well known by the parties. Facts, of course, are everything in alternative dispute resolution. What kept the parties from utilizing this powerful tool to exploit them?
Putting aside the affect of congressional and high level executive branch interest in the A-12 matter, several general observations are worth noting. Perhaps, cases like these do not settle because of the enormous complexities, the high dollar amounts, the involvement and intertwining of numerous contractor and government-caused cost-generating events, legal and policy questions, and other confounding issues. All these factors, individually and collectively, prevent reaching mutual agreement easily. Complicate this by the fact that each side wants to win and offers little room for compromise. Negotiating parties are not likely to succeed without outside assistance.
There is an important fact common to successfully negotiating settlement of a dispute, and it is that the amount of discovery taken to prepare for trial is usually far more than that needed for settlement. This is particularly significant to parties who have learned that discovery and pre-trial processes can become a “black hole” for time and cost. Another important fact is that many docketed cases settle before or during trial. Why? The parties learn more about each other’s positions from pretrial motions, discovery, and preliminary hearings. The parties, due to deadlines set by a tribunal, are better able to understand the facts, appreciate the risks and assess the likelihood of success at trial. The cost, time, and anxiety of the trial itself cause the parties to take a good look at their respective positions. Thus, frequently the parties come to terms by “bargaining in the shadow of the law.”
When one considers that in 90% of cases docketed, the parties choose to settle either before or during the trial, the logic to use the less expensive ADR approach becomes even more compelling, i.e., before the expenses of fees, time, and the distractions of the litigation itself occur. If the parties are resolving approximately 90% of their disputes in litigation before a decision is handed down, it makes eminent sense for them to resolve disputes through ADR early on and thus avoid discovery and other pretrial expenses.
When the parties select ADR instead of litigation, arbitral-type proceedings being an exception, they substitute for a judge (who decides the case for the parties) a neutral (who helps the parties decide their own case). This is particularly attractive to business persons who want to be in charge of their destiny. The ADR neutral encourages parties to listen carefully to each other instead of arguing, exhorting, or game playing. Instead of procrastinating, the parties, encouraged by the ADR neutral’s participation, are able to come to terms with the strengths and weaknesses of their respective cases so that they can decide what is best for them. ADR quickly clarifies the issues and helps the parties to appreciate what the likely outcome would be if they chose litigation.
Increasing numbers on both sides are seeking ADR training and are using or intending to use ADR more than in the past. The reasons are clear to those who have tried it. ADR is faster, better and less expensive than litigation. It is faster because it avoids discovery and the long litigation process. It is better because it provides a choice of remedies. And it is, for these reasons, less expensive. As we approach the year 2000 and beyond, there will continue to be an increasing demand for ADR by those in federal procurement who recognize it as a better way of avoiding, mitigating, and resolving disputes.
In our next issue, we will address selecting the best form of ADR and how to prepare for ADR.
— Robert J. Gomez
Copyright © 1998 Kilcullen, Wilson & Kilcullen. All rights reserved.