Alternative Dispute Resolution

Effective Solutions for Disputes

World Congress 2007

Brenda Patton, Boeing, CFCM, Certified in ADRWhitney Taylor, WellPoint, Inc., M.A. Certified in

ADR

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Alternative Dispute Resolution “ADR”

Concept Process Value/Benefits Integration Policy Considerations Case Studies Keys to Success

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“I was never ruined but twice: once when I lost a lawsuit, and once when I

won.”

Voltaire

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ADR Concept

Neutral third party Variety of approaches that may or

may not be binding Includes negotiation, mediation,

arbitration, mini trial, summary jury trial, moderated settlement conference

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Hypothesis

ADR is a growing trend that will rapidly prove its value to corporations worldwide

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Trends 1980’s - ADR adopted by 600 large

corporations; achieved considerable savings Litigation “look alike” process negatively

impacted success Companies committed to ADR and to an ADR

process Increasing costs of litigation Legal expertise in demand, expensive and

limited access Most states across US have instituted Ethical

Guidelines for Mediators and State ADR Acts 1987 Senate Bill 1436 passed enabling ADR

in Texas – primarily for family disputes

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Trends (Continued)

1999 US Air Force adopted “ADR First Policy” Judges referring cases to mediation 10% or less of lawsuits filed are resolved by judge

or jury verdict Organizations’ contracts are incorporating

arbitration clauses Escalation clauses & processes adopted to ensure

resolution at appropriate management levels Even when “you know you’re RIGHT,” ADR still

proves beneficial Beneficial for value-based relationships High level of receptivity due to time and cost

savings

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Mediation

“Mediation is a decision-making process in which the parties are

assisted by a third party, the mediator, who attempts to improve the process and assist the parties

in reaching an outcome to which all can assent.”

Laurence Boulle, Mediation: Principles, Process, Practice (1996)

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Process

Expands conversation Focuses on interests Identifies common interests Results in mutually satisfactory solutions Maintains control of outcomes Documents results in writing; signed by

parties involved

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Value/Benefits

No perfect contracts Defines and facilitates mutual agreement

for dispute resolution process Reduces court cases and related costs Saves time and anguish Enables parties to maintain control of

outcomes Maintains/Improves relationships Results are in writing and requires

agreement by parties involved

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Reduces Court Cases

$20 Billion annually in attorney feesFMCS – 2006 statistics 5,484 Collective Bargaining Contract Negotiations 2,473 Labor Arbitration Cases 1,625 Grievance Mediation Cases 1,022 Employment Cases

Importance when Disputes Arise with Customers/ Suppliers1

Cost: 72% Winning: 72% Predictability: 65%

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Integration

Escalation Process Escalate through leadership levels Establish Mediation triggers, process and timeframes

If unresolved at VP or SVP level, then Prior to any lawsuits being filed and termination Parties select a 3rd party mediator Parties agree to sign Mediation Settlement

Agreement on or before 90 days following Mediation Trigger

Define next steps – include timeframes Mandatory Non-Binding Arbitration Binding Arbitration - Commercial Arbitration Rules

of the American Arbitration Association

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Policy Considerations

ADR clause included in both purchase and sale contracts

Informal Dispute Resolution Mediation Mandatory Non-Binding Arbitration Binding Arbitration in accordance with the

Arbitration Rules of the American Arbitration Association

Justification required for omission

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Boeing ADR Case Study

“Getting To Yes” Apache Program Case Study

1994 – had 12 or more cases in litigation with US Army

2004 – 0 cases in litigation Adopted informal form of ADR we called

“joint self mediation” with ArmyFisher, Roger and Ury, William Getting to Yes, New York:

Penguin Books, 1991Hepworth, Joseph M., Joint Self Mediation,

Arizona ADR Forum Winter 2004 Issue, January 2004

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Process Used

Negotiated process to be used Explore respective interests Generate options for mutual gain Identify appropriate standards Discuss risks associated with alternatives

to agreement Decision makers & their attorneys meet

to reach agreement Document agreement

Hepworth, Joseph M., Joint Self Mediation, Arizona ADR Forum Winter 2004 Issue, January 2004

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Future of Process

Every dispute introduced to process solved

New disputes are managed primarily by contracts & program personnel

Record the process so that it isn’t personality-based

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U.S. Air Force Case StudyScenario prior to ADR $1B in contract claims resolved at trial Years to resolution Goals Foster better business relationships Increase remedy options Reduce time necessary to resolve disputesPolicy Use ADR to maximum extent practicable to

resolve disputes at earliest stage

Douglas, Karen (Major, U.S. Air Force JAG). “ADR for Air Force Contracts: Precision-Guided Solutions Right on Target.” Contract

Management. December 2005

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U.S. Air Force (Cont’d)

Outcome 18 largest contractors use ADR first (i.e.

Boeing, DynCorp, GE Aircraft Engines, Lockheed Martin Corp, Northrop Grumman Corp., Raytheon, etc.)

Offers ADR in 85% of contract appeal cases based on ADR selection criteria; 40-50% choose to participate

$1B in contract claims Resolved in months, not years

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NCR/AT&T Global Information Solutions

Dispute Resolution Evolution Committed to ADR Process including immediate

action Implemented ADR System Hired ADR expert to manage process Prohibited use of court system in future Tracked dispute avoidance and savingsOutcomes Reduced lawsuits from 263 in 1984 to 9 incurring

outside legal fees <$1M in 1994 Resolved 60% of filed cases within one year Eliminated need for court resolutions Achieved substantial cost savings

Carver, Todd B. and Vondra, Albert A., “Alternative Dispute Resolution: Why It Doesn’t Work and Why It Does” in Harvard Business

Review on Negotiation and Conflict Resolution, ed (Boston: 2000)

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Other Case Studies

Chevron - $25,000 for ADR-based mediation VS an estimated $700,000 for external legal council facilitated mediation VS $2.5M for court case and 3-5 years for resolution

Carver, Todd B. and Vondra, Albert A., “Alternative Dispute Resolution: Why It Doesn’t Work and Why It Does”

in Harvard Business Review on Negotiation and Conflict Resolution, ed (Boston: 2000)

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Compare dispute clause to ADR

FAR Disputes Clause 33

Part 33.1 Protests, Subpart 33.2

Disputes, & Appeals 52.225-11 Long process

FAR ADR Clause 33.214 Can be used anytime

KO has authority to resolve issue If contractor rejects… If KO rejects…

3rd Party Neutral Confidentiality Binding Arbitration

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Keys to Success

Commitment Immediate action Persistence Thoroughness Analysis & process improvements

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ADR Resources

Association for Conflict Resolution Alternative Dispute Resolution of the

State Bar of TX Bond University, Australia Center for Public Resources Harvard University Pepperdine University Southern Methodist University

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Bibliography

Boulle, Laurence, Mediation Skills and Techniques, Chatswood: 2006, Butterworths

Carver, Todd B. and Vondra, Albert A., “Alternative Dispute Resolution: Why It Doesn’t Work and Why It Does” in Harvard Business Review on Negotiation and Conflict Resolution, ed (Boston: 2000), 189

Cialdini, Robert B., Influence, the Psychology of Persuasion, New York: William Morrow and Company, 1993

Douglas, Karen (Major, U.S. Air Force JAG). “ADR for Air Force Contracts: Precision-Guided Solutions Right on Target.” Contract Management. December 2005

Fisher, Roger and Ury, William Getting to Yes, New York: Penguin Books, 1991

Hepworth, Joseph M., Joint Self Mediation: How the Apache Program Avoids Litigation, Arizona ADR Forum, January 2004

Ury, William L, Brett, Jeanne M., and Goldberg, Stephen B., Getting Disputes Resolved, Designing Systems To Cut The Costs of Conflict, San Francisco: Jossey-Bass, 1988

Q&A

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Brenda Patton, BoeingBrenda.g.patton@boeing.com

Whitney Taylor, WellPoint, Inc.Whitney.taylor2@wellpoint.com