Year 2000 Disputes: Don't Litigate — Mediate
By Campbell killefer
The press, financial analysts and legal pundits predict a tidal wave of litigation relating to year 2000 disputes. More than 50 year 2000-related lawsuits already have been filed. But the tidal wave only will amount to a trickle if advocates of alternative dispute resolution (ADR) get their way.
ADR's attraction stems from the notion that businesses should try to compromise disputes and preserve their ongoing relationships before resorting to litigation.
ADR advocates such as the Information Technology Association of America, JAMS/Endispute, and the Center for Dispute Resolution in London, among others, want companies to pledge to resolve their year 2000-related disputes through mediation or other resolution forms.
In contracts ranging from simple software license agreements to complex technology outsourcing agreements, sophisticated companies call for mandatory, escalated negotiation by executives or fast mediation with a respected neutral before either party can pursue litigation or arbitration.
Sweeping language of "disputes arising out of or relating to" the company's agreement will ensure the parties are required to give mediation a chance to resolve Y2K-related problems.
A contractual ADR provision should include: ensuring confidentiality in the mediation; administered vs. nonadministered mediation; location of the mediation; setting a fast but realistic schedule and addressing whether any discovery will occur.
Additional or fewer ADR provisions can be negotiated for the party's particular agreement.
Year 2000 problems are not rocket science, but more of a management challenge. Being ready for 2000 involves many tasks, a finite amount of time with limited available resources, and at least one IT project deadline that will not be extended.
Good engineering practices should apply, with management scrupulously documenting important decisions, what alternatives were considered and the reasons behind choices.
The prudent answer almost always will be the common-sense response to an issue, but contemporaneously documenting the decisions will go a long way to undercut after-the-fact criticism.
Faced with overbudget and long-delayed nuclear power plant projects, utilities were often subjected to regulatory prudence reviews in the 1980s and early 1990s. State public utility commissions, not being immune from political pressures, engaged in disallowing huge costs from rate base treatment with the benefit of 20/20 hindsight. These prudence reviews applied a reasonableness standard, but more often than not second-guessed many decisions that had been thoroughly analyzed and supported when they were made.
The decisions many years ago of computer programmers, hardware designers and embedded microprocessor vendors to use two digits to designate a year (e.g., 99 denotes 1999), and then companies' failures to remediate or replace the defective items before year 2000 may well be subject to a similar after-the-fact prudence standard.
If that proves to be the case, some of the same prudence factors applied to nuclear power plant projects may be brought to bear in year 2000 disputes: regulatory requirements compliance, active and disciplined management oversight, thoughtful and documented planning, procedures development and use, alternatives evaluation, appropriate use of consultants, rigorous testing and documentation, project sense of urgency.
Mediating year 2000 disputes may well avoid unrealistic prudence standards and facilitate companies' sensible solution of their business problems.
In either mediations or more contentious litigations and arbitrations, companies are more likely to show management reasonableness if their year 2000 programs demonstrate senior management commitment, rigorous yet flexible approach and frequent and effective communication.
Companies have interdependent relationships with vendors, suppliers and customers, which is particularly true of heavily regulated industries such as financial institutions, utilities, government contractors, transportation companies and medical device manufacturers.
A company may be year 2000 ready but be vulnerable to year 2000-induced problems from the weakest links in their supply chains.
That fact militates toward aggressive management of critical vendors, suppliers and at-time customers, whose credit worthiness may be hurt by year 2000 problems.
Campbell Killefer is a partner at Shaw Pittman in Washington