“When will mankind be convinced and agree to settle their difficulties by arbitration?” - Benjamin Franklin
In 1993, testimony before the U.S. Senate Subcommittee on Courts and Administrative Practice revealed that contract disputes resolved through arbitration cost seventy percent less than disputes resolved through litigation. In 1995, Army contract attorneys saved approximately 2,190 days of work by resolving just nine cases using Alternative Dispute Resolution (ADR). Case complexity and prolonged discovery only add to contract litigation costs. The Armed Services Board of Contract Appeals (ASBCA) is seeing the effect of this with time-consuming cases creating a significant backlog. Therefore, to minimize litigation and reduce the backlog, the ASBCA should mandate use of ADR procedures prior to litigation.
In 1978, Congress promulgated the Contracts Disputes Act (CDA) which authorized the Department of Defense (DoD) to establish an independent, informal board of contract appeals, distinct from the DoD, and outside its management authority. The ASBCA was established to resolve post-award contractual disputes between government contractors and the DoD. The Board has approximately twenty to thirty administrative law judges who adjudicate between 500 and 900 appeals per year. However, there is a significant backlog in appeals cases according to the ASBCA’s annual report of transactions and proceedings for fiscal year (FY) 2016. Though the number of appeals filed annually has remained relatively steady since 2011, the number of appeals pending before the Board on 1 October 2016, increased by more than ninety percent compared to 1 October 2011. Specifically, there were 566 pending appeals in 2011 compared to 1,077 in 2016. Thus, the ASBCA is taking longer to resolve cases, creating an increasing number of pending appeals.
Yet, the ASBCA was created to be a faster method for handling contractual disputes, and it offers several types of ADR to expedite the process. When ADR is agreed upon by the parties, proceedings are generally concluded within 120 days of approval by the ASBCA’s chairman. Conversely, contested proceedings can take two to four years before reaching a resolution. Although ADR is a free service that has been shown to save time and money, ASBCA litigants continue to choose litigation over ADR.
It is unclear why ASBCA litigants tend to prefer litigation when ADR has proven to be successful throughout the federal government. For instance, the Federal Aviation Administration (FAA) reported resolving ADR disputes in approximately sixty-seven calendar days. Additionally, from 2001 to 2005, the Department of the Navy alone saved nearly $3 million in direct expenses and potential interest by using ADR. Moreover, beyond the time and cost savings, ADR helped to maintain and rebuild relationships that otherwise may have been adversely affected by litigation. Furthermore, parties that use ADR, whether voluntary or mandatory, generally prefer ADR to litigation.
This article will briefly discuss a history of the CDA and the ASBCA. It will also examine ASBCA statistics, specifically the number of appeals filed versus the number of requests for mediation. Additionally, the article will discuss observations from state judiciaries that have implemented mandatory ADR. Furthermore, government entities such as the FAA and the U.S. Air Force successfully use ADR. The article will review the structure of their ADR programs, why they have been successful, and what, if any, processes can be applied to the ASBCA to improve its ADR program. It will also outline the advantages and disadvantages of ADR, and detail the types of ADR the ASBCA makes available to the parties. Finally, it will look at how the ASBCA is using ADR to resolve complicated disputes, and discuss how mandatory ADR can be implemented to increase efficiency.
II. History of the ASBCA and CDA
A. The Armed Services Board of Contract Appeals and the Contracts Disputes Act
The ASBCA was formed in 1949 as a quick, cost-effective method for resolving disputes. Yet, over time, the ASBCA evolved into a more structured process as the demand for due process increased. This led to lengthy resolution timeframes, and the ASBCA still lacked due process mechanisms to manage large, complex claims as it was initially contemplated to have limited discovery and subpoena powers. Thus, Congress sought to remedy this issue when it drafted the CDA in 1978.
In accordance with the CDA, Boards of Contract Appeals are designed to provide “to the fullest extent practicable, informal, expeditious, and inexpensive resolution of disputes” arising from government contracts. One of the primary objectives of the CDA was “to induce resolution of disputes with the government by negotiation rather than litigation and provide alternative forums for dispute resolution.” Congress also intended that the CDA “equalize the bargaining power of the parties when a dispute exists.” The CDA’s legislative history states that “[t]he contractor should feel that he is able to obtain his ‘day in court’ at the agency boards and at the same time have saved time and money through the agency board process.” Thus, the CDA sought to create a fair and balanced system to adjudicate disputes between the government and its contractors.
Today, the ASBCA is comprised of twenty-two full-time, independent attorneys who serve as administrative judges appointed by “the Under Secretary of Defense for Acquisition, Technology and Logistics, the General Counsel of the Department of Defense, and the Assistant Secretaries of the Military Departments responsible for acquisition.” Additionally, in accordance with the CDA, the ASBCA is now required to offer ADR as an option to resolve disputes. Typically, a panel of two to three judges decide cases; however, when using ADR, often one judge decides disputes. Thus, the ASBCA has developed a robust structure with highly qualified judges to ensure a more efficient process.
B. Background and Statistics on the Armed Services Board of Contract Appeals
Alternative Dispute Resolution is a term generally applied to a group of methods used to resolve disputes informally without going to court, usually under the guidance of an impartial third-party who assists the parties in resolving the dispute. Although dispute resolution has been practiced for centuries, ADR did not gain widespread use until the 1960s. Since that time, the use of ADR has continued to grow, and many court systems now mandate that disputants use ADR prior to attempting to resolve the issue through litigation. From the mid-1990s until today, the ASBCA has aggressively encouraged disputants to use ADR. In 2014, the ASBCA revised its rules of procedure to incorporate ADR. Yet, although the ASBCA strongly encourages its use, a relatively small number of cases are resolved at the ASBCA using ADR.
The ASBCA conducts both binding and nonbinding ADR. Binding ADR occurs when the parties agree that a decision or ruling rendered by the ASBCA, acting as a third-party neutral, is “final, conclusive, not appealable, and may not be set aside, except for fraud.” Conversely, nonbinding ADR does not obligate the parties to accept the ASBCA’s decision as it is merely an advisory opinion that may be rejected. Additionally, all requests for ADR at the ASBCA must be voluntary. Mandatory ADR for government acquisitions, a procedure requiring that parties attempt to resolve disputes through ADR prior to litigation, is not allowable under the Federal Acquisition Regulation (FAR). Thus, the ASBCA requires that the parties “jointly request ADR procedures,” and that the ASBCA chairman approve the request prior to entering into ADR proceedings.
Despite the fact that there were nearly 1,100 appeals pending before the ASBCA in FY 2016, parties requested ADR only forty-one times out of the 654 appeals filed that year. Of the forty-two ADR requests that were concluded, including requests from previous years, three were for binding ADR and thirty-four were requests for nonbinding ADR. Additionally, three nonbinding requests were unsuccessful and two were withdrawn.
The ASBCA has recorded statistics on ADR success rates since the late 1980s. Nonbinding ADR has had a high success rate. Since 1987, the success rate has been consistently over ninety percent, with the exception of FY 2016, which had an eighty-six percent success rate. Furthermore, only five years have been below ninety-five percent. Interestingly, both FY 2013 and FY 2014 had 100 percent success rates out of 145 cases in the two years combined. These statistics show a thirty-year track record of success in using ADR to resolve cases without going to trial. Implementing a mandatory ADR process in the ASBCA may contribute to even more savings in DoD time and money, as has been in the case in several states.
III. Mandatory ADR Observations
In recent years, several states have instituted mandatory ADR programs for both civil and criminal matters. Specifically, these state court systems require that disputants use ADR for civil issues such as divorce proceedings, child welfare, and small claims. There has been considerable research to study some of the mandatory ADR programs and its effectiveness. Although a state court system does not function like the ASBCA, and the types of cases that a state court reviews differ from contracts, similarities such as case complexity and high contentiousness make the ADR research valuable tool in determining whether the ASBCA could be successful in requiring mandatory ADR.
In 2014, the Maryland Judiciary completed a study on the use of ADR. The Maryland study is unique among current ADR research in that it examined the impact of using ADR to resolve a dispute as a distinct factor, separate from the effect of the ultimate resolution in the case. Maryland has ADR processes integrated statewide throughout its court system to include the district, circuit, appellate, and orphan’s courts. The study was a cost-benefit analysis of its ADR program using information compiled from July 2010 to January 2013. The study compared disputants who resolved their cases through litigation with those who used ADR. Most of the ADR cases were resolved through mediation; however, a few were resolved through a settlement conference, where an attorney facilitated resolution.
The study found that when ADR was used, the parties were more satisfied with the system than were those who reached agreements without ADR. Additionally, those parties that used ADR were more likely to acknowledge their responsibility in causing the dispute, and more likely to feel that all of the disputed issues were resolved. Overall, the results of the Maryland study “suggests that there is something significant about participating in the mediation or ADR process itself that generates greater party satisfaction and confidence in the judiciary, separate from the outcome of reaching a settlement on their own.” Party satisfaction and confidence in the judiciary are both important factors to be considered when making broad changes to any court system. The positive results from the Maryland study demonstrate how litigation at the ASBCA can be improved to more closely align with the CDA’s intent to provide an informal, expeditious method for dispute resolution. There are already some indicators within the government that ADR use can be a successful tool: the FAA and U.S. Air Force experiences with ADR.
IV. Success in Government Use of ADR
A. Federal Aviation Administration Office of Dispute Resolution
The Federal Aviation Administration Office of Dispute Resolution for Acquisition (ODRA) is unique among federal agencies as it is exempt from the FAR and the CDA. Instead, the “ODRA is the sole, statutorily designated tribunal for all contract disputes and bid protests under the FAA’s Acquisition Management System.” The FAA’s policy for resolving disputes is “to use voluntary ADR to the maximum extent practicable.”
Since 1998, more than nine hundred ODRA filings have been made. Although the use of ADR is voluntary, the ODRA “expects parties to ‘make a good faith effort to explore ADR possibilities . . . and to employ ADR in every appropriate case.’” Thus, “approximately ninety percent of all contract disputes . . . have been resolved in the ADR process without an adjudicated decision.” In fact, ADR is often used even when it is not likely to resolve a case in its entirety, as the mere process of negotiating an ADR agreement can often expedite a case. Specifically, the voluntary exchange of information in ADR often leads to resolution of many of the underlying issues, resulting in “a more streamlined adjudication of the remaining case.”
The ODRA initiates the ADR discussion during an “initial status conference, which generally is held within five business days of a . . . contract dispute filing.” “Of the more than 124 pre-dispute matters handled by the ODRA [from 1998 to 2014], only three percent have required adjudication.” Additionally, contract disputes at the ODRA utilizing ADR take approximately eighty-six calendar days to complete, while adjudicated decisions take approximately 162 calendar days.
Subsequently, the ODRA has found that parties that utilize ADR note that ODRA meets its “goals of providing fair, fast, and efficient dispute resolution.” Furthermore, the ODRA has observed that by working with each other through the ADR process, the FAA and its contractors often forge stronger relationships. Although the ODRA processes are not mandatory, an “attempt at ADR is made in virtually all ODRA cases” because the “process does not rely on the parties to initiate ADR,” and the ODRA “expects parties to ‘make a good faith effort to explore ADR possibilities.’” Thus, the ODRA’s widespread use of ADR on large FAA contracts shows what might be gained by mandating ADR at the ASBCA. The Air Force’s experience with ADR is similarly positive.
B. The Air Force ADR Program
In 2002, the Air Force created the Air Force ADR program—ADR First. Even prior to ADR First, the Air Force had great success using ADR. In late 1999 or early 2000, the Air Force used ADR to resolve a claim for $785 million that had been in dispute with Boeing for over ten years. Additionally, in 2001, the Air Force saved $23 million by using ADR to resolve a dispute over B-1 bomber parts. That year, the Air Force reportedly “save[d] about [$]100 million . . . with a ninety-eight percent success rate” by using ADR. From FY 2002 through FY 2006, the Air Force reported an annual savings of approximately $57.6 million in liability. By 2012, the Air Force estimated its savings at nearly $275 million over the life of the ADR First program. Today, the program continues to boast savings in excess of $1 billion and a ninety-three percent success rate.
The Air Force has been innovative in the implementation of its ADR program. The Air Force has reaped benefits by implementing ADR agreements with twenty-five of its top contractors and significantly reducing the time to resolve large disputes. Specifically, “large disputes that took an average of five years to resolve through litigation are now being resolved by the use of ADR in an average of just over twelve months.” Furthermore, the Air Force offers the use of ADR in over eighty percent of its contractual disputes and considers ADR to be the default resolution method. “Cost savings from the [Air Force’s] use of ADR flows primarily from reduced cycle time, and include years of lawyer and staff effort, direct expenses of litigation such as witness fees, travel, and document production, and Contract Disputes Act interest on contractor claims.” The success the Air Force has had in implementing its ADR program shows that even large-scale disputes with the nation’s top defense contractors can be efficiently resolved at tremendous time and cost savings. The use of ADR at the ASBCA can be equally effective in resolving similar disputes.
V. Alternative Dispute Resolution at the Armed Services Board of Contract Appeals
A. Types of ADR Offered by the ASBCA
The ASBCA offers several different types of ADR methods. The two most common are mediation and summary trial with binding decision. However, other agreed-upon methods may be utilized.
First, mediation is a nonbinding method of ADR. A third-party neutral who assists the parties in the settlement process usually conducts mediations. At the ASBCA, an administrative judge serves as the neutral. The administrative judge has no decision-making authority; however, he may make nonbinding recommendations as to resolution of the dispute.
Mediation is a widely used method because it is informal, and can be tailored to meet the disputants’ needs. There are two types of mediation—facilitative and evaluative. During facilitative mediation the neutral “facilitates discussions between the parties and does not evaluate or opine on the merits of the parties’ respective positions.” Evaluative mediation differs in that the neutral shares his views of the merits of the parties’ respective positions and makes suggestions for resolution.
Another popular method of ADR at the ASBCA is the binding summary trial. The ASBCA judge hears argument from both parties and renders a binding decision that may not be appealed in this informal, expedited process. It resembles a trial, but the judge’s decision “will not contain any findings of fact or conclusions of law.”
Although not frequently used, the ASBCA may also conduct mini-trials. A mini-trial is a “highly flexible, expedited, but structured, procedure.” This method relies on the participation of senior principals from both parties and a third-party neutral facilitates. In a mini-trial, the parties agree on the manner of presentation of the case to a panel comprised of a senior principal with decision-making authority from each side and the third-party neutral. Additionally, there is limited discovery, and each party may present its case in an abbreviated hearing. Following the hearing, the panel meets to discuss resolution.
The disputants may also agree on other informal methods of ADR to resolve the dispute. These methods may be binding or nonbinding and may also include hybrid methods. The key factor is that they “are structured and tailored to suit the requirements of the individual case.”
Some of the popular hybrid methods include mediation followed by binding summary trial, and mediation followed by binding summary decision. Both of these methods begin with evaluative mediation, but they differ in how they proceed if the mediation fails. Specifically, if the mediation is unsuccessful where parties choose mediation followed by a summary decision, the judge then issues a binding decision based solely on the information presented during the mediation. However, parties that agree to mediation followed by summary trial are allowed to present additional evidence that the judge considers along with information presented during the mediation. The ASBCA’s flexibility in using a variety of ADR methods, including hybrids, makes it well suited to conduct ADR on a wide-scale basis because it has several tools from which to choose.
B. Mega Alternative Dispute Resolution
Over the years, the ASBCA has used hybrid ADR techniques to resolve extremely complicated, high-value cases. The ASBCA provided ADR services in two intricate cases—Boston’s Big Dig (Big Dig) and Computer Sciences Corporation (CSC). Both cases involved multibillion-dollar claims and some practitioners have labeled them as megaprojects or Mega ADR due to their large scale and complexity. It is useful to explore these cases to understand why implementing mandatory ADR in the ASBCA makes sense.
1. The Big Dig
The ASBCA is often requested to assist entities outside of the Armed Services to resolve disputes. The Big Dig was a major construction project that began in the early 1990s to reroute the Central Artery Interstate through the middle of Boston. The project took an incredible fifteen years and $15 billion. Additionally, there were twenty-five thousand disputes and claims arising from this project. Twenty-nine claims valued at approximately $175 million went to a dispute resolution board, and approximately seventy-five percent of the recommendations were accepted or led to settlement. The ASBCA provided judges to sit on mediation panels composed of two to three mediators who guided the parties through the evaluative mediation process. “Overall, the structured negotiation/mediation program closed out disputes and claims with an aggregate claimed value of more than 500 million dollars.”
Requesting assistance from the ASBCA made sense because there were strong similarities between state and federal contract terms for public construction projects. Although the Big Dig was not a claim brought before the ASBCA, it was analogous to the large claims that the ASBCA reviews. Specifically, the military enters into extremely complex, large-scale contracts for planes, submarines, satellites, missiles, and other intricate systems. Oftentimes, these projects involve multiple prime and subcontractors, and they frequently last for several years at significant cost. Thus, the ASBCA’s involvement in the resolution of the issues in this case demonstrates the skill of the ASBCA judges at resolving large-scale, complex disputes with ADR techniques, and that mandatory ADR can work.
2. Computer Sciences Corporation
The ASBCA also helped resolve a complex, multibillion-dollar dispute between Computer Sciences Corporation (CSC) and the U.S. Army. In 2007, the Army and CSC entered into litigation over a contract for an update to the Army’s logistics management system. Initially, CSC claimed it was due $858 million, but the claim increased as time progressed. The Army submitted counter claims, and by 2010, fourteen appeals had been docketed. The total amount in dispute reached over $2 billion. It had been three years since the original claim was filed, with no end in sight. To make matters worse, approximately $60,000 in potential CDA-mandated interest was accruing per day. Because both the Army and CSC faced significant litigation risks, the Army and CSC entered into ADR at the ASBCA.
After consultation with the board, the parties agreed to use a nonbinding, evaluative mediation followed by mini-trial. They also agreed to attempt to resolve both docketed and non-docketed matters. ADR offered the parties the flexibility to include matters that had not been docketed. The parties established a schedule for joint and private mediation sessions, and set time aside for a final session to conclude negotiations and develop a final agreement. After engaging in protracted litigation for four years, ultimately, the parties were able to attain resolution using ADR. Additionally, the parties were able to maintain their working relationship and, as part of the mediation, agreed to a $1 billion follow-on contract. Had the ASBCA required mandatory ADR, it would have saved the parties a significant amount of time and money. The success of the CSC case can translate across the spectrum of appeals, and the ASBCA’s expertise in ADR and adaptability in approach to the CSC case highlights its suitability for implementation of mandatory ADR.
VI. Implementing Mandatory ADR at the ASBCA
Although ADR has been in practice for many years, parties and attorneys are still accustomed to litigation to resolve contract disputes. In some situations, initiating mediation may be perceived as a sign of weakness. Additionally, some may feel that they would reveal their hand if forced to use ADR, or that ADR is a waste of time and money. Because of this, many do not choose ADR. However, their fears are largely unfounded.
Parties are generally happier with ADR than without, even in cases where settlement was not reached. The studies discussed earlier in this article prove that ADR is relevant and useful at the ASBCA. ADR is a very useful tool because the government and its contractors want to preserve, and maybe even enhance, their working relationships. The contractor and government relationship is symbiotic, mainly because the parties rely on each other and draw on the other’s strengths. Success stories like the FAA and the Air Force show that tremendous cost and time-savings can be achieved by conducting ADR. Additionally, cases like the Big Dig and CSC demonstrate that ASBCA judges have the capability and the acumen to successfully conduct ADR in large-scale matters.
Although today the ASBCA notifies all litigants of the option to conduct ADR, only a small portion choose it despite the fact that ADR has proven to be successful. Thus, in order for ADR to be the most beneficial for the ASBCA, nonbinding ADR must be made mandatory. One of the main benefits in successful implementation of mandatory ADR is ASBCA judges continuing to provide cost-free, neutral services to disputants. However, binding ADR would still function in the same manner as it currently does. Only if parties cannot agree might a judge direct them toward a specific method, which, in complicated cases, may result in a hybrid, nonbinding ADR method.
Although litigants at the ASBCA are often very savvy, some may have the impression that using ADR is not beneficial because they must compromise and cannot “win.” However, most view the ASBCA as a reputable forum, trust its decision-making authority and comply with its rules. Thus, although they may not voluntarily agree to use ADR, most litigants will acquiesce to mandatory ADR and many may subsequently learn to appreciate it.
Additionally, in a state court system, the parties are frequently forced into mediation without a choice of ADR method. However, with ADR at the ASBCA, the parties and the judges would have several options from which to choose. By allowing the parties to select the type of ADR method they use, the parties would take ownership of ADR because they would have more of a say in the process.
Some states impose financial penalties upon parties that do not actively participate in court-mandated mediation. However, a financial penalty is not suggested as a method of controlling non-compliance at the ASBCA, as the intent is not to dissuade disputants from filing appeals. A more practical approach would be for the ASBCA to refuse to docket the cases of non-compliant litigants and force them to litigate their case at the Court of Federal Claims—another forum with jurisdiction to hear their appeal.
Another suggestion for implementation is to allow the ASBCA judge discretion to decide that a particular case should not require ADR, as is currently done in many state courts. Along with this provision, litigants will have an opportunity to opt out of ADR by filing a motion with the judge. Although the judge should only grant such motions in cases where ADR is not appropriate, the judge will be allowed to give deference to individual disputants’ situations. This is particularly important because small business owners may not be able to afford both ADR and a trial if ADR is unsuccessful.
The biggest hurdle in implementing mandatory ADR at the ASBCA is the FAR. Currently, FAR Part 33.214(a) states that an essential element of ADR is “voluntary election by both parties to participate in the ADR process.” Thus, mandatory ADR is prohibited. Nevertheless, the FAR regularly undergoes revisions based on the ever-changing contracting world. Therefore, the FAR should be updated to allow the ASBCA to mandate ADR.
The ASBCA would be more efficient if it employed mandatory ADR prior to litigation. Both civilian courts and litigants realize time and cost savings from mandatory ADR. The current backlog of cases cannot be allowed to continue to increase as the ASBCA takes longer and longer to decide a case. The optimal solution to reduce the backlog is mandatory ADR. Mega ADR examples such as the Big Dig and CSC demonstrate that the ASBCA is successful at effectively resolving even extremely complex, multibillion-dollar contracts using ADR. Although complicated cases that are unsuccessful in ADR may still take significant time to be adjudicated, they can be resolved more expeditiously because both sides have focused the issues prior to trial. It is time to require mandatory ADR so that the ASBCA more closely meets the intent of the CDA by providing the most efficient resolution times.