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ALTERNATIVE DISPUTE RESOLUTION (ADR) IN GOVERNMENT CONTRACTING* * ADR AS A CONTRACT MANAGEMENT TOOL! Naval Postgraduate School Monterey, California Charles.

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Presentation on theme: "ALTERNATIVE DISPUTE RESOLUTION (ADR) IN GOVERNMENT CONTRACTING* * ADR AS A CONTRACT MANAGEMENT TOOL! Naval Postgraduate School Monterey, California Charles."— Presentation transcript:

1 ALTERNATIVE DISPUTE RESOLUTION (ADR) IN GOVERNMENT CONTRACTING* * ADR AS A CONTRACT MANAGEMENT TOOL! Naval Postgraduate School Monterey, California Charles E. Rumbaugh September 17, 1998

2 Overview n What Is ADR? n Benefits of ADR n October 27, 1997 Federal Register Proposed FAR Changes n Industry’s “Radical” Response Calling for Expanded Use of ADR! n Management of Contracts/Subcontracts Through Effective ADR! n Use of ADR at the Get-Go-- Contract Award/Performance 2

3 What Is ADR? ADR SPECTRUM n Facilitated Negotiation n Mediation n Fact-Finding n Mini-Trials n Partnering n Non-Binding Arbitration n Binding Arbitration n Litigation 3

4 What Is ADR? n Founded Upon Contract Principles n Scope of ADR “Obligation” Based on ADR Provision, e.g. “Arising Under or Relating To” Agreement n Applicable ADR Rules n Selection of ADR Neutral 4

5 ONE METHOD OF ADR... WHAT IS ARBITRATION? n Forum & Neutral Selection n Filing of Claims/Counter-Claims n Preliminary Hearing n Scope of Discovery n Exchange of Witness/Exhibit Lists n Stipulations n Applicable Rules of Evidence n Form of Award n Appeal Rights 5

6 Benefits of ADR ADR ATTRIBUTES n Preserves Relationships n Satisfies Interests of Parties n Cost Effective n Timely n Ability to Select Expert Neutral n Creativity Enhanced n Tailored Remedies n Less “Legalistic” 6

7 EXPANDING ROLE OF ADR... CORNELL UNIVERSITY STUDY FOUND THAT 88% OF LARGEST CORPORATIONS USED MEDIATION IN PAST 3 YEARS AND THAT 79% HAVE USED ARBITRATION! –OVERWHELMING PERCENTAGE FOUND IT MORE SATISFACTORY THAN LITIGATION! –90% FOUND MEDIATION LESS COSTLY! LAST YEAR THE AMERICAN ARBITRATION ASSOCIATION REPORTED IT RESOLVED 70,516 CASES THROUGH ADR--AN INCREASE OF NEARLY 100% SINCE 1982! CENTER FOR PUBLIC RESOURCES’ ADR CORPORATE PLEDGE HAS BEEN ADOPTED BY 4,000 COMPANIES! PRESIDENT ISSUED EXECUTIVE ORDER ON 2/5/96 CALLING FOR USE OF ADR WITHIN GOVERNMENT! SEVERAL GOVERNMENT AGENCIES ADVOCATE ADR INTERNATIONAL TRANSACTIONS REQUIRE ADR, e.g. NAFTA. GOVERNMENT & COMMERCIAL TRANSACTIONS USE ADR. ADR ARTICLES IN JANUARY & JULY 1997 ISSUES OF CONTRACT MANAGEMENT MAGAZINE 7

8 10/27/97 Federal Register Proposed FAR Changes n Implements the Administrative Dispute Resolution Act of FAR n Retention of Neutral as an exception to “Full and Open Competition” Requirement n ADR Certification Conforms to Contract Disputes Act n Communication Exempt from FOIA Disclosure 8

9 Industry’s “Radical” Response Called for Expanded Use of ADR! n Advocated Explicit FAR Policy Authorizing Binding and Non- Binding Arbitration as ADR Methods n ADR Remains “Voluntary” Between Contracting Officer and Prime Contractors n Contractors “must” have ADR Provisions in its Subcontract Terms & Conditions in order to comply with FAR! n ADR Costs Shall be deemed Allowable Costs n Expanded Use Of Private Neutrals n Authorize Contracting Officer to “Select and Use Special, Uniquely drafted ADR Clause when Specifically Negotiated With, and Agreed to by, the Contractor” 9

10 Management of Contracts/Subcontracts Through Effective ADR! Challenges in Prime/Subcontractor Relations… CHALLENGES... n Fewer Programs n Merger & Acquisition “Craze” in Quest for Shareholder Value n Fewer Primes----More Subs? n Excess Capacity n Price is too High n Preferred Supplier Programs n Supply Chain Management n Best Value Procurements n Walsh-Healey Manufacturer/Dealer Requirement Relaxed n Commerce Business Daily Announcements Follow-On Contract Competitive? 10...

11 Management of Contracts/Subcontracts Through Effective ADR! Challenges in Prime/Subcontractor Relations… CHALLENGES CONTINUE WHILE MARKETPLACE REFLECTS... n Fixed Price Development Subcontracts n FFP Subcontract Under Cost Type Prime n “What’s Yours Is Mine” Technical Data Clauses n Unabridged Termination for Convenience Clauses n Detailed Cost Breakdown Requested for Competitive Procurements n Excessive Certification Requests n “Evergreen” Warranties 11

12 Management of Contracts/Subcontracts Through Effective ADR! Challenges in Prime/Subcontractor Relations… CHALLENGES CONTINUE UNABATED WHILE MARKETPLACE REFLECTS... n No Cost Changes n “Direct Costs Should be Characterized as Indirect Costs” n FMS Program: No Progress/Milestone Payments! n Suspension/Reduction of Progress Payments w/o Prior Notice n Single Process Initiative Implementation at Subcontractor Level n Obligation to Continue to Perform Pending Resolution of Dispute and Without $ n Disputes Resolved in Courthouse n Adversial Environment 12

13 Use of ADR at the Get-Go-- Contract Award/Performance Contract Formation Issues---- Letter Contracts/Subcontracts Finalize Open Items Teaming Agreement Issues Location of Hearing Baseball Arbitration Other Scenarios... 13

14 Use of ADR at the Get-Go-- Contract Award/Performance Drafting Appropriate ADR Clauses-- Format Forum Authority Limitations on Neutral Use of Checklists in Drafting Clauses 14

15 Use of ADR at the Get-Go-- Contract Award/Performance Drafting Appropriate ADR Clauses-- Recommended Solutions By Neutral Unilateral Direction To Perform Without $? Follow The Relevant Law? Consolidated Decision Covering ALL Affected Contracting Parties Including Subs? Limits/Range of Award? Equitable/Legal Remedies? Punitive Damages Eliminated or Even an Issue? Provisional Remedies? 15

16 Use of ADR at the Get-Go-- Contract Award/Performance Commitment to ADR by Major Aerospace/Defense Contractors “New” FAR will Bring the Demise of the “Golden Rule” In Prime/Subcontract Relationships? 16


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