FEDERAL CONTRACT LAW

Mandatory ADR is too much of a good thing

Karen Powell

Since 1996, when Congress directed agencies to adopt alternative dispute resolution policies, all but two cabinet level departments have implemented them. Much credit for the spread of ADR in the government belongs to the Interagency ADR Working Group, formed in 1998.

The Air Force has been touting the use of ADR in contracts. Air Force policy is to evaluate all appeals filed at the Armed Services Board of Contract Appeals (ASBCA) for resolution through ADR. The Air Force ADR Web site, at www.adr.af.mil, provides a comprehensive electronic guide to using ADR in procurement disputes.

The Administrative Dispute Act's purpose was to save the government time and money using ADR rather than litigation. You'll find anecdotal reports of the use of ADR to resolve high-profile procurement disputes, but no study has documented the cost savings.

Contractors see good and bad in the government's ADR initiative. There are troubling signs that some agencies are seeking to drive up ADR use by requiring contractors to submit disputes to ADR or risk being branded as uncooperative.

In the success column is ASBCA's highly effective program. Parties choosing to participate are assigned to a settlement judge who schedules an informal hearing or negotiating session with the parties. Both sides must send a representative with decision-making authority. Presentations are informal and the rules of evidence don't apply.

The settlement judge then provides a private assessment to each side of the merits of its case. The parties can engage in direct negotiation or use the services of the settlement judge as a mediator.

During the six years the program has been in operation, the board has processed 298 requests for ADR assistance, achieving an impressive 97 percent settlement rate.

But the way some agencies are pushing ADR before contractors file appeals may infringe on contractors' legal rights.

For example, in May the Defense Logistics Agency issued a final regulation authorizing use of a new contract clause. It requires a contractor to engage in ADR before filing an appeal at ASBCA. Contractors are allowed to opt out either by rejecting the clause prior to award of a contract or, if they agree to the clause, rejecting ADR in specific cases after providing the contracting officer a written statement justifying the decision.

Most contractors will be reluctant to reject the clause during competitive best-value procurements. DLA's approach makes it more likely rather than less likely that the parties will treat a mandatory ADR process as simply a formality. The result might be a longer and more costly claims resolution process.

The Air Force's new initiative is even more troubling. In May, the service announced plans to explicitly include in its evaluation of contractor past performance the contractor's record of participation in Air Force ADR programs.

An ad hoc committee of the American Bar Association's Dispute Resolution and Public Contract Law sections recently met with Air Force representatives to discuss guidance being prepared to implement this policy. So far, the service has been receptive to private sector worries over this twist in past performance.

Mandatory ADR interferes with rights established in the Contract Disputes Act. It also could produce a counter-intuitive result: The contractor who raises and then resolves disputes through ADR gets a higher mark than the contractor who's program is problem-free, or who decides, as a business matter, not to fight every issue.

Karen Powell is a partner with GCN columnist Joseph J. Petrillo in the Washington law firm of Petrillo & Powell. Contact her at KDPlawyer@aol.com.

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