Dispute Resolution Choices Not Always Cheaper

Jonathan Cain

Alternative dispute resolution, as applied to government contract protests and claims, is undergoing another flurry of promotion by the U.S. Court of Federal Claims, some contract appeal boards and federal agencies. In the government sector ? as in the private sector ? ADR has strong detractors and advocates. It has risks as well as potential benefits, and it is important that any contractor considering ADR understand those risks before taking up an offer to use it in lieu of litigation.

Because the courts and boards are again aggressively promoting ADR, using their own judges as neutrals, it is helpful to examine the circumstances when the alternatives to traditional litigation might be usefully employed by a government contractor.

One ADR mainstay is that parties may agree to engage in almost any procedure of their own design to resolve a dispute. Generally there are three categories: neutral case evaluation, mediation and binding arbitration.

Neutral case evaluation is simply getting a knowledgeable third party's view of the merits of the parties' respective positions. The evaluator's goal is to get the parties to appreciate the weaknesses, as well as the strengths, of their positions and thereby advance a settlement.

Mediation is a structured process in which the mediator tries to find common ground or perhaps a non-monetary solution that the parties find mutually advantageous. Arbitration is binding, quasijudicial decision-making by a single arbitrator or a panel of arbitrators.

Government agencies are required by law to have and employ ADR procedures in appropriate cases. Agencies with large, sophisticated contracting organizations have found ADR useful when:

? The parties are polarized into an all-or-none position and a fresh evaluation by a neutral third party could help resolve the matter;

? Some entitlement exists and the real task is negotiating or agreeing to a reasonable amount;

? It could speed settlement by limiting the exchange of information;

? The government is faced with bad facts, bad law or other factors that the agency wants to avoid leading to an undesirable precedent.

ADR is much less likely to be successful, and litigation will be needed to resolve a dispute when:

? One party wants a definitive, authoritative decision as a precedent for future disputes;

? Government policy is at issue;

? There are non-parties whose interests are likely to be significantly affected by the outcome;

? One party wants to create a public record of the proceeding.

ADR's lower costs, an often-cited advantage, needs to be analyzed in each case. ADR does not always produce quicker or less expensive decisions. In two critical areas, recovery of pre-judgment interest and of attorney fees, ADR is most often disadvantageous to contractors.

First, there is nothing inherently less expensive to the contractor about ADR. Regardless of the procedure used, there will be some exchange of information, and it is likely the contractor will employ legal counsel. The amount of discovery can be limited or expanded by agreement whether in an ADR proceeding or in litigation. The time to prepare and present a claim to a mediator or a panel of arbitrators may or may not be any less than that required to try the matter before a board of contract appeals.

Second, in any settlement achieved through neutral evaluation or mediation, the first item of a contractor's damages that inevitably falls in negotiation is the interest due the contractor from the filing date of the certified claim. This can be a substantial sum, and contractors should consider whether achieving a quicker settlement at the cost of accumulated interest is worth the price. Also frequently overlooked is the fact that judgments resulting from litigation are covered by prompt payment requirements and accumulate interest, while settlements may not.

Third, businesses that are entitled to recover attorneys fees under the Equal Access to Justice Act for winning judgments against the government are not entitled to recover those fees in the absence of a judgment. Earlier this year, the Supreme Court ruled that, in the absence of a consent decree entering judgment in favor of the contractor, the favorable settlement of a claim against the government does not entitle the contractor to Equal Access to Justice Act compensation, even if the contractor prevailed in the ADR procedure.

Contractors considering entering into an ADR procedure should ensure that the government consents in the ADR agreement to have the result entered as a consent decree in a filed, formal proceeding, and that a final judgment will be issued in that formal proceeding.

Jonathan Cain is a member of the law firm Mintz Levin Cohn Ferris Glovsky & Popeo PC in Reston, Va. The opinions expressed in this article are his. He can be reached by e-mail at

About the Author

Jonathan Cain is a member of law firm Mintz Levin.

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