[Federal Register Volume 65, Number 159 (Wednesday, August 16, 2000)]
[Notices]
[Pages 50005-50014]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-20828]
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DEPARTMENT OF JUSTICE
Core Principles for Federal Non-Binding Workplace ADR Programs;
Developing Guidance for Binding Arbitration--A Handbook for Federal
Agencies
AGENCY: Department of Justice/Federal Alternative Dispute Resolution
Council.
ACTION: Notice.
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SUMMARY: This notice contains two documents to assist Federal agencies
in developing alternative dispute resolution (ADR) programs: ``Core
Principles for Non-Binding Workplace ADR Programs'' and ``Developing
Guidance for Binding Arbitration--A Handbook for Federal Agencies.''
These documents were created by the Federal ADR Council, a group of
high level government agency officials chaired by the Attorney General.
The documents are based on the combined expertise of ADR specialists in
federal agencies with active ADR programs. The first document describes
ten key elements that are essential in any fair and effective ADR
program. The second document provides information and assistance for
agencies on the use of binding arbitration.
FOR FURTHER INFORMATION CONTACT: Peter R. Steenland and Jeffrey M.
Senger, Office of Dispute Resolution, United States Department of
Justice, Room 5240, Washington, DC 20530; (202) 616-9471.
Dated: August 8, 2000.
Jeffrey M. Senger,
Deputy Senior Counsel for Dispute Resolution, United States Department
of Justice.
Federal Register Introduction
The Administrative Dispute Resolution Act of 1996 (ADRA), 5 U.S.C.
571-584, requires that each Federal agency take steps to promote the
use of ADR and calls for the establishment of an interagency committee
to facilitate and encourage agency use of ADR. As
[[Page 50006]]
the Presidentially appointed chair of this interagency committee, the
Attorney General created the Federal ADR Council, an organization
composed of high level officials from various agencies with ADR
expertise. The Council's mission is to develop policy guidance on
crosscutting issues that involve the creation and operation of Federal
ADR programs. The first two documents from the Council are published
below.
The first document is entitled ``Core Principles for Non-Binding
Workplace ADR Programs.'' We believe that any fair and effective
program must address the following issues: Confidentiality, neutrality,
preservation of rights, self-determination, voluntariness,
representation, timing, coordination, quality, and ethics. This
document briefly describes the nature of each of these principles.
The second document is called ``Developing Guidance for Binding
Arbitration--A Handbook for Federal Agencies'' which provides
information and assistance for agencies that are considering the use of
binding arbitration. Federal government experience with binding
arbitration is limited because it was not explicitly authorized until
recently, with the passage of the ADRA. Because participants in binding
arbitration must give up various rights and remedies, including the
right to appeal, many agencies prefer more consensual forms of ADR,
such as mediation. Nonetheless, circumstances may exist where an agency
may wish to employ binding arbitration, such as when the need for
prompt resolution of a matter is paramount. The ADRA requires that an
agency considering binding arbitration develop a policy on its use, in
consultation with the Department of Justice. The attached Handbook
assists agencies in developing this policy as well as in using
arbitration.
Nothing in these guidance documents shall be construed to create
any right or benefit, substantive or procedural, enforceable at law or
in equity, by a party against the United States, its agencies, its
officers or any other person.
The Federal ADR Council
Chair: Janet Reno, Attorney General, Department of Justice
Vice Chair: Erica Cooper, Deputy General Counsel, Federal Deposit
Insurance Corporation
Members: Leigh A. Bradley, General Counsel, Department of Veterans
Affairs; Meyer Eisenberg, Deputy General Counsel, Securities and
Exchange Commission; Mary Anne Gibbons, General Counsel, U.S. Postal
Service; Gary S. Guzy, General Counsel, Environmental Protection
Agency; Jeh C. Johnson, General Counsel, Department of the Air Force;
Harold Kwalwasser, Deputy General Counsel, Department of Defense; Nancy
McFadden, General Counsel, Department of Transportation; Janet S.
Potts, Counsel to the Secretary, Department of Agriculture; Harriett S.
Rabb, General Counsel, Department of Health and Human Services; Henry
L. Solano, Solicitor, Department of Labor; John Sparks, Principal
Deputy General Counsel, Department of the Navy; Peter R. Steenland,
Jr., Senior Counsel for Dispute Resolution, U.S. Department of Justice;
Mary Ann Sullivan, General Counsel, Department of Energy; Robert Ward,
Dispute Resolution Specialist, Environmental Protection Agency.
Core Principles for Non-Binding Workplace ADR Programs
Confidentiality: All ADR processes should assure confidentiality
consistent with the provisions in the Administrative Dispute
Resolution Act. Neutrals should not discuss confidential
communications, comment on the merits of the case outside the ADR
process, or make recommendations about the case. Agency staff or
management who are not parties to the process should not ask
neutrals to reveal confidential communications. Agency policies
should provide for the protection of privacy of complainants,
respondents, witnesses, and complaint handlers.
Neutrality: Neutrals should fully disclose any conflicts of
interest, should not have any stake in the outcome of the dispute,
and should not be involved in the administrative processing or
litigation of the dispute. For example, they should not also serve
as counselors or investigators in that particular matter.
Participants in an ADR process should have the right to reject a
specific neutral and have another selected who is acceptable to all
parties.
Preservation of rights: Participants in an ADR process should
retain their right to have their claim adjudicated if a mutually
acceptable resolution is not achieved.
Self-determination: ADR processes should provide participants an
opportunity to make informed, uncoerced, and voluntary decisions.
Voluntariness: Employees' participation in the process should be
voluntary. In order for participants to make an informed choice,
they should be given appropriate information and guidance to decide
whether to use ADR processes and how to use them.
Representation: All parties to a dispute in an ADR process
should have a right to be accompanied by a representative of their
choice, in accordance with relevant collective bargaining
agreements, statutes, and regulations.
Timing: Use of ADR processes should be encouraged at the
earliest possible time and at the lowest possible level in the
organization.
Coordination: Coordination of ADR processes is essential among
all agency offices with responsibility for resolution of disputes,
such as human resources departments, equal employment opportunity
offices, agency dispute resolution specialists, unions, ombuds,
labor and employee relations groups, inspectors general,
administrative grievance organizations, legal counsel, and employee
assistance programs.
Quality: Agencies should establish standards for training
neutrals and maintaining professional capabilities. Agencies should
conduct regular evaluations of the efficiency and effectiveness of
their ADR programs.
Ethics: Neutrals should follow the professional guidelines
applicable to the type of ADR they are practicing.
Developing Guidance for Binding Arbitration
A Handbook for Federal Agencies
Prepared by:
Phyllis Hanfling, Department of Energy
Martha McClellan, Federal Deposit Insurance Corporation
This document creates no legal rights or remedies and is
intended solely for guidance.
Introduction
ADRA of 1996
The Administrative Dispute Resolution Act of 1996 (``ADRA''), 5
U.S.C. 571-583, made substantial changes in the arbitration
provisions found in the ADRA of 1990. Specifically, the ADRA of 1996
authorizes the voluntary use of binding arbitration, without the
1990 Act's qualifying proviso that allowed heads of agencies to
vacate an arbitrator's award. Before an agency can exercise this new
power, it must issue guidance, in consultation with the Attorney
General, on the appropriate use of binding arbitration. See 5 U.S.C.
575(c).
Handbook Purpose
This Handbook is designed to do several things: (1) Serve as a
practical introduction to binding arbitration; (2) set out the ADRA
requirements for federal agencies' use of binding arbitration; (3)
introduce the issues which an agency should consider before drafting
its arbitration guidance or participating in binding arbitration;
and (4) outline Department of Justice requirements for an agency's
arbitration guidance.
Form of Guidance
Because of the vast differences among federal entities and their
use of ADR, this Handbook does not include model language or
recommended guidance. However, agencies may wish to issue their
guidance in the form of a rulemaking, to provide constructive notice
of policies that may affect members of the public.
Section I--Arbitration Provisions of the ADR Act
Specific provisions for the use of binding arbitration are
contained in 5 U.S.C. 575-581 and must be reviewed carefully before
an agency begins developing binding arbitration guidance. Although
the ADRA authorizes
[[Page 50007]]
agencies to use binding arbitration at their discretion in
appropriate cases, the Act contains a number of requirements
limiting that use. These limitations reflect Congressional intent to
ensure that the government's interests in maintaining control over
policymaking and protecting the federal budget are not compromised
by federal agencies' use of arbitration. Thus, the Act is
permissive--it authorizes agencies to use binding arbitration, but
does not require them to do so; it allows arbitration to be invoked
only with the prior, knowing agreement of responsible agency
officials; it allows the parties to choose the issues to be
submitted to arbitration and requires them to agree in advance on a
maximum award. The Act also contains directions regarding the role
and authority of the arbitrator, conduct of the arbitration,
arbitration awards and judicial review.
This section provides an outline of the ADRA binding arbitration
provisions and identifies the requirements that must be met before
binding arbitration can be used. It also contains requirements on
the use, conduct, or enforcement of the arbitration process. In the
section-by-section analysis that follows, requirements appear in
bold type.
Section-by-Section Analysis
Section 575 Authorization of Arbitration
1. The decision to arbitrate must be voluntary on the part of
all parties to the arbitration. (See: 5 U.S.C. 575(a)(1)).
2. A party may limit the issues it agrees to submit to
arbitration. A party may agree to arbitrate on the condition that
the award is limited to a range of possible outcomes. (See: 5 U.S.C.
575(a)(1)(A) and (B)). Note that this provision does not contradict
the requirement (set out in 3., below) that the parties agree on a
maximum amount that the arbitrator can award.
3. An agreement to arbitrate must be in writing. It must set
forth the subject matter submitted to the arbitrator, and must
specify the maximum award or ``cap'' that may be granted by the
arbitrator. (See: 5 U.S.C. 575(a)(2)).
4. An agency may not require anyone to consent to arbitration as
a condition of entering into a contract or obtaining a benefit.
(See: 5 U.S.C. 575(a)(3)).
5. An officer or employee of the agency who offers to use
arbitration must otherwise have the authority to enter into a
settlement concerning the matter or must be specifically authorized
by the agency to consent to the use of arbitration. (See: 5 U.S.C.
575 (b)(1) and (2)).
6. Prior to using binding arbitration under this subchapter, the
head of an agency, in consultation with the Attorney General, must
issue guidance on the use of binding arbitration and when an agency
officer or employee has the authority to settle a dispute using
binding arbitration. (See: 5 U.S.C. Sec. 575(c)).
Section 576 Enforcement of Arbitration Agreements
Agreements to arbitrate that are governed by the ADRA are
enforceable pursuant to section 4 of title 9 of the United States
Code. (See: 5 U.S.C. 576).
Section 577 Arbitrators
1. The parties to an arbitration are entitled to participate in
selecting an arbitrator. (See: 5 U.S.C. 577(a)).
2. The arbitrator must meet the definition of a neutral
contained in section 573. (A neutral may be a Federal employee or
anyone else acceptable to all parties. He or she may have no
official, financial or personal conflict of interest with the
respect to the issue in controversy, unless that interest is fully
disclosed in writing and all parties agree that he may serve.) (See:
5 U.S.C. 577(b)).
Section 578 Authority of the Arbitrator
1. An arbitrator may regulate the course and conduct of the
arbitration hearing. (See: 5 U.S.C. 578(1)).
2. An arbitrator may administer oaths and affirmations. (See: 5
U.S.C. 578(2)).
3. An arbitrator may compel the attendance of witnesses and the
production of documents. (See: 5 U.S.C. 578(3)).
4. An arbitrator may make awards. (See: 5 U.S.C. 578(4)).
Section 579 Authority of the Arbitrator
1. The arbitrator shall set the time and place for the
arbitration hearing and notify the parties at least five days before
the hearing.
2. Parties are entitled to a record of the arbitration hearing.
Any party wishing a record shall make the arrangements for it,
notify the arbitrator and other parties that a record is being
prepared, supply copies to the arbitrator and other parties, and pay
all costs unless the parties have agreed to share the costs. (See: 5
U.S.C. 579(b)(1) thru (4)).
3. Parties are entitled to be heard and present evidence. (See:
5 U.S.C. 579(c)(1) and (2)).
4. The arbitrator may hear any oral and documentary evidence
that is not irrelevant, immaterial, unduly repetitious, or
privileged. (See: 5 U.S.C. 579(4)).
5. The arbitrator shall interpret and apply any relevant
statutes, regulations, legal precedents and policy directives. (See:
5 U.S.C. 579(5)).
6. No interested party shall have any unauthorized ex parte
communication with the arbitrator. If an interested party violates
this provision, the arbitrator may require that party to show cause
why its claim should not be resolved against it for the improper
conduct. (See: 5 U.S.C. 579(d)).
7. The arbitration award shall be made within 30 days after the
close of the hearing unless the parties agree to another time limit
or the agency rules provide for another time limit. (See: 5 U.S.C.
579(e)(1) and (2)).
Section 580 Arbitration Awards
1. Unless an agency provides otherwise by rule, an arbitration
award shall include a brief informal discussion of the factual and
legal basis for the award. Formal findings of fact and law are not
required. (See: 5 U.S.C. 580 (a)(1)).
2. A final award is binding on the parties and may be enforced
pursuant to sections 9 through 13 of title 9. (See: 5 U.S.C.
580(c)).
3. An arbitration award entered pursuant to this subchapter may
not serve as an estoppel in any other proceeding and may not be used
as precedent in any factually unrelated proceeding. (See: 5 U.S.C.
580(d)).
Section 581 Judicial Review
1. Any action for review of an arbitration award must be made
pursuant to sections 9 through 13 of title 9. (See: 5 U.S.C.
581(a)).
2. An agency's decision to use or not use ADR shall not be
subject to judicial review, except that arbitration shall be subject
to judicial review under section 10(b) of title 9 for evident
partiality or corruption of the arbitrator(s). (See: 5 U.S.C.
581(b)).
Section II--Binding Arbitration Guidance: Suggested Components
In developing its arbitration guidance an agency must address,
at a minimum, the requirements of 5 U.S.C. 575(a) and (b) which are
discussed in Section I, supra. We believe there are many other
issues an agency also should consider to ensure its guidance is
accurate, comprehensive and useful in those situations where the
agency chooses to participate in arbitration. We suggest that
complete binding arbitration guidance should include the following
three components:
Component 1: A description of the various types of ADR, a
statement of the preference by the agency for consensual forms of
ADR, especially mediation, and a statement that binding arbitration
is appropriate in some cases,
Component 2: A definition of binding arbitration and a
description of the various forms of arbitration which the agency
will consider using and the circumstances under which they might be
used, and
Component 3: Substantive arbitration issues.
Each component will be addressed in detail below.
Component 1--A Description of the Various Types of ADR Statements
About Consensual Forms of ADR and Binding Arbitration
ADR Spectrum
ADR includes all forms of dispute resolution other than court
adjudication. ADR processes, as defined in 5 U.S.C. 571(3) include,
but are not limited to, conciliation, facilitation, mediation, fact-
finding, ombuds, mini-trials, and arbitration. ADR processes are
generally designed to reduce costs, avoid the delays of judicial
proceedings, protect the privacy of the parties and increase the
level of compliance by involving decision makers in the process.
Agencies should be committed to the use of ADR to resolve
appropriate disputes in more timely, less costly manner than
litigation or administrative adjudication. The use of ADR should not
be viewed as an end in itself, but as an additional tool to
accomplish the agency's mission efficiently, economically and
productively. If an agency has published its ADR Policy, it should
be referenced in the statement of support. If an agency has not
published an ADR Policy, it can use the Declaration of Policy on Use
of Alternative Means of Dispute Resolution in Appendix A. The
agency's statement of support should emphasize its preference for
consensual forms of ADR, especially mediation.
[[Page 50008]]
Component 2--A Definition of Arbitration and Description of the
Various Forms That the Agency Will Use
Arbitration, especially binding arbitration, is the dispute
resolution process most like adjudication. In arbitration, the
parties agree to use a mutually selected decision-maker to hear
their dispute and resolve it by rendering a final and binding
decision or award. The decision to arbitrate may be made after a
dispute has arisen between the parties or because an arbitration
provision has been included in a contract or agreement that already
exists between the parties. Like litigation, arbitration is an
adversarial, adjudicative process designed to resolve the specific
issues submitted by the parties. Arbitration differs significantly
from litigation in that it does not require conformity with the
legal rules of evidence and the proceeding is conducted in a private
rather than a public forum. Binding arbitration awards typically are
enforceable by courts, absent defects in the arbitration procedure.
Appeal from arbitration decisions rendered in disputes covered by
the ADRA is generally limited to fraud or misconduct in the
proceedings, pursuant to the Federal Arbitration Act, 9 U.S.C. 10.
Forms of Arbitration
Parties may decide in advance whether an arbitration will be
binding (the parties must accept the award), or non-binding (the
arbitrator's award is advisory only). If the award is non-binding,
the parties may decide to accept the non-binding opinion, use it as
the basis for further settlement negotiations, or reject it and
proceed to litigation. (Note that non-binding arbitration is not
subject to the arbitration restrictions of the ADRA.) Agencies may
wish to consider whether they might find non-binding arbitration
useful; they lose the value of finality but gain more of the
flexibility inherent in traditional ADR techniques. (An agency
should consider neutral evaluation if it wants the opinion of an
expert, but would prefer a less formal process than arbitration.)
Arbitration Terms--A Description of the Various Arbitration Forms
Mediation/Arbitration.--Arbitration may be part of a mediation/
arbitration (med/arb), where the parties attempt to mediate the
dispute first. Failing resolution, the same neutral (or another)
arbitrates and issues a binding or non-binding award. Using the same
person as both mediator and arbitrator may have a chilling effect on
full participation in mediation, as a party may not believe that the
arbitrator will be able to discount unfavorable information learned
during the mediation.
In co-mediation/arbitration, two neutrals preside over the
initial joint session. After that, the neutral designated as the
mediator works with the parties. Failing settlement, the case, or
any resolved issues, may be submitted to the neutral designated the
``arbitrator'', for a binding decision.
Arbitration/mediation is another way to avoid the problem of one
neutral serving as both mediator and arbitrator. The arbitrator
hears the case and makes a determination that is not disclosed to
the parties. He or she then attempts to mediate, with the
understanding that if the parties reach no settlement, his
determination will become the award.
Incentive Arbitration.--Parties agree, in advance, to a penalty
if one of them rejects an arbitrator's non-binding award, resorts to
litigation, and fails to improve its position by some specified
percentage or formula. Penalties may include payment of expenses and
attorney fees. Use of this form of arbitration by Federal agencies
may present significant questions of sovereign immunity.
Party Arbitration.--Each side selects an arbitrator. Each of
these ``party'' arbitrators then selects a third person and the
panel, usually of three, hears the case and issues the award.
Although favored in cases where there are highly technical issues,
party arbitration generally increases the cost and time of the
arbitration significantly.
Scheduling with multiple arbitrators and multiple parties is
extremely difficult. A single arbitrator is more likely to manage
the case expeditiously. In addition, it is important to remember
that party-appointed arbitrators are likely to lack, or to appear to
lack, neutrality and impartiality. This can be overcome if the
parties use a mechanism to jointly appoint both arbitrators who then
choose a ``neutral'' tiebreaker.
Administered Arbitration.--In administered arbitration, a
private ADR provider organization manages the arbitration process.
(National and local ADR providers can be found through telephone
directories, local bar associations, and court programs. Before
choosing any organization, references should be checked as quality
can vary widely. Agency Dispute Resolution Specialists and/or the
Senior Counsel for ADR at the Department of Justice can assist.)
Among other things, the provider may set procedural rules, select or
assist the parties in selecting arbitrators, schedule the
arbitration, provide a conference room, transfer documents, mail the
award and collect any fees. Providers charge varying administrative
fees to perform these services.
Government parties must take great care when using administered
arbitration to tailor existing rules to meet their specific needs.
For example, the ADRA requires that parties are entitled to select
the arbitrator(s); thus, an agency may not be able to enter into an
agreement for administered arbitration where the arbitrator is
selected by the administering organization. There are other
limitations on agencies' use of arbitration that must be considered
in administered arbitration. For example, federal agencies cannot
agree to escrow fees or potential award amounts or to compel
attendance by a specific agency official. Nor can an agency agree to
keep an arbitration award confidential.
Just as the decision to use arbitration must be voluntary and
agreed to by the parties, the operative rules should be negotiated
and agreed to by the parties. Any reputable ADR provider that
administers arbitration will work with the parties in making
necessary changes to the providers' arbitration rules. It is
expected that the major ADR providers will adjust their generic
rules to accommodate Federal agencies.
Ad Hoc Arbitration.--In contrast to administered arbitration,
the parties in an ad hoc arbitration manage the process themselves.
The parties jointly select the arbitrator(s) and either craft their
own rules or use those from a private ADR organization. The same
care as discussed above must be taken to tailor the rules to ensure
compliance with both the ADRA and an agency's arbitration guidance.
The agency Dispute Resolution Specialist or an agency attorney
should be designated to review all agreements to arbitrate.
Arbitration Techniques
The following are arbitration techniques designed to limit the
amount an arbitrator may award. Any of these will meet the ADRA
requirement of setting a cap on the award.
Baseball Final Offer or Last Best Offer.--Each party, prior to
the arbitration, submits a proposed award amount to the arbitrator,
who must choose one as the final award. This approach gives the
parties a strong incentive to offer a reasonable proposal and is
especially useful following mediation where the parties reached
impasse. The two numbers selected would be the parties' last offers.
Note that because the ADRA requires the parties to agree on a cap,
BOTH parties would have to agree to the higher number.
Night Baseball.--Related to baseball arbitration, this requires
the arbitrator to make a determination without knowledge of the
parties' proposals. The actual award would then be the party's
figure that was closest to the arbitrator's determination. This type
of binding arbitration must be preceded by an agreement between the
parties to establish maximum exposure, as required by the ADRA.
High-Low.--
The parties agree privately without informing the arbitrator
that the final award will be within certain parameters. At the
conclusion of the hearing, if the arbitrator's award is within the
agreed upon range, the parties are bound by that figure. If,
however, the award is outside the parameters, it is adjusted
accordingly. For example, if the high-low figures were $50,000 and
$100,000 and the award was $25,000, it would be adjusted to $50,000.
Similarly, if the award were $250,000, it would be adjusted to
$100,000.
Component 3--Checklist of Substantive Issues To Consider
The following checklist of questions includes not only the ADRA
requirements, but also related issues that agencies are encourged to
consider in order to avoid the problems and pitfalls of choosing and
participating in binding arbitration. Section III, which follows,
contains a discussion of each issue on the checklist.
Issue 1--For what type of cases will the agency be willing to
use binding arbitration?
Issue 2--Will the agency agree to arbitrate issues other than
money, e.g., specific performance, punitive damages, injunctive
relief, apportionment of fees?
Issue 3--How and by whom will the agency's decision to arbitrate
be made?
a. Who will have authority to recommend arbitration?
b. Who has the authority to enter into settlement? Can this
authority be delegated?
[[Page 50009]]
c. Who will negotiate the cap on the award?
d. Who will negotiate the rules and selection of the arbitrator?
e. Who will draft the Agreement to Arbitrate?
Issue 4--What will the process be for entering into arbitration?
Issue 5--What should the Request to Arbitrate memo include?
Issue 6--How can an agency encourage the efficiency of the
arbitration process?
Issue 7--How and by whom will requests for binding arbitration
from people outside the agency be accepted?
Issue 8--Will the agency allow arbitration clauses to be written
into contracts?
Issue 9--If the agency allows arbitration clauses in contracts,
what should be included in the clause?
Issue 10--What is the arbitrator's role under the ADRA?
Issue 11--Will the agency agree to a panel of arbitrators in
some circumstances?
Issue 12--What selection criteria will be considered in choosing
an arbitrator?
Issue 13--Will the agency agree to allow non-attorneys to
represent a party, or for a party to appear pro se, at the
arbitration?
Issue 14--What should an Agreement to Arbitrate include?
Issue 15--How will the agency pay the arbitrator(s)?
Issue 16--Is the agency willing to use administered arbitration?
Issue 17--What must the arbitration award include?
Issue 18--Will the agency allow arbitration on the documents
only, without a hearing, and if so, in what circumstances?
Issue 19--What selection criteria will be considered in choosing
or amending arbitration rules and what must those rules include?
Section III--Discussion of Substantive Issues
The following discussion is intended to raise many of the most
important and difficult issues concerning the use of binding
arbitration in federal agencies. It is not intended or expected that
any agency guidance will address all of them; they are listed for
information and consideration.
Issue 1--For What Type of Cases Will the Agency Be Willing To Use
Binding Arbitration?
The Alternative Dispute Resolution Act explicitly includes
binding arbitration among the ADR processes available to federal
agencies. However, most federal agencies encourage the use of
consensual forms of ADR such as mediation in contrast to binding
arbitration. Even those agencies that actively discourage the use of
arbitration may find that there are situations where binding
arbitration may be the most appropriate alternative to litigation.
In other cases, agencies may find that binding arbitration is
required under a contract the agency has ``inherited'' by one means
or another. Each agency must consider when, and under what
conditions, it will agree to use binding arbitration. To do this, it
is important to consider both the benefits and the risks of choosing
to arbitrate.
Benefits
The Benefits of binding arbitration may include: Savings of time
and money; finality, and a knowledgeable decision-maker.
Risks
The Risks of binding arbitration may include: an award that may
be arbitrary and without basis in fact or law; severely limited
grounds for appeal [Under the Federal Arbitration Act, 9 U.S.C. 10,
an award may be vacated only if procured by corruption, fraud, or
undue means; or if an arbitrator exhibits ``evident partiality'',
when misconduct by the arbitrator prejudices the rights of a party
or if the arbitrator exceeded his power.]; parties' loss of control
over the process and outcome; a long, expensive proceeding, if not
structured properly by the parties, and continued hostility between
parties who may have an ongoing relationship.
In addition, a party cannot unilaterally withdraw from binding
arbitration once an arbitration agreement has been signed. For these
reasons, careful consideration by senior agency officials and legal
consultation should precede any decision to arbitrate.
Determining Appropriateness of ADR
When considering whether arbitration is appropriate, agencies
should first look to the ADRA which contains guidance for
considering whether arbitration or any ADR process is appropriate
for a particular dispute. Section 572 (b) of the Act suggests that
agencies should consider NOT USING ANY ADR process if: There is a
need for precedent on the issue; the matter involves significant
matters of policy and ADR cannot help develop policy on the issue;
an established, consistent policy on an issue is necessary and the
possibility of inconsistent results in individual cases would not be
helpful; the case involves issues which affect persons or
organizations not a party to the ADR; a public record is needed; or
the agency must retain control over disposition of the matter in the
event that circumstances change.
Determining Appropriateness of Arbitration
In deciding which type of ADR to use, arbitration can be most
useful in disputes which are highly fact specific, and in which the
decision is likely to be single issue and quantitative. For example,
arbitration may be appropriate where the parties are only concerned
with monetary remedies such as ``the machine was to perform at ABC
level and the contractor was to be paid XYZ amount''. Arbitration
may also be attractive when the dispute is highly technical and the
parties can pick an arbitrator with mutually accepted expertise,
thus obviating the need to educate him and to reduce technical
arguments. Arbitration is also highly useful when finality is a
desired result and there is little concern over the risks or costs
of remedies (for example, resolving a small dollar figure dispute
that has been ongoing for a long period), or where the parties need
a decision made for them by a third party, but wish to avoid the
cost and delay of a trial.
Other factors to consider are:
1. Will the parties both agree to arbitrate? (Pursuant to the
ADRA, arbitration must be voluntary).
2. Have consensual forms of ADR, such as mediation, been tried
first?
3. Will the parties be able to find an arbitrator with
appropriate subject matter expertise?
4. Are the issues narrowly defined?
5. Will the parties be able to negotiate a maximum award ``cap''
in advance of the hearing? (This is mandatory under the ADRA).
6. Are the parties concerned about maintaining an ongoing
relationship?
7. Can the parties agree on governing rules for the arbitration,
including negotiating time limits so that costs do not escalate?
8. Are the parties concerned about limited appeal rights?
9. Are the parties interested in more confidentiality than a
trial affords? (Note, however, that the final award is not
confidential under ADRA.)
10. Do the parties (need) want a decision made for them by a
third party but want to avoid the delay of trial?
Agencies may decide to limit arbitration to certain categories
of cases, issues, or dollar amounts.
Issue 2--Will the Agency Agree To Arbitrate Issues Other Than Money,
e.g. Specific Performance, Punitive Damages, Injunctive Relief, and
Apportionment of Fees?
An arbitrator may not award punitive damages against the
government as the Department of Justice views them as a violation of
sovereign immunity. In general, given the express legislative
command to cap agency monetary exposure, great care and precision is
necessary in drafting the outer limits of an arbitrator's ability to
award non-monetary relief.
Issue 3--How and By Whom Will the Decision To Arbitrate Be Made?
There are generally three ways in which parties may enter the
arbitration process: at the request of one of the parties, through a
pre-existing arbitration clause in a contract, or by court
direction.
Agencies are given absolute discretion in the ADRA to decide
whether or not to participate in any ADR process, including binding
arbitration. One of the decisions an agency must make in deciding to
participate in arbitration is whether or not to entertain requests
for binding arbitration from parties outside the agency. (See Issue
No. 7). This decision may depend in large part on the approach an
agency takes to using binding arbitration generally. If an agency
wants to limit the use of binding arbitration, one way it could do
that is by refusing to accept requests from outside parties.
Likewise, agencies must determine if they will allow arbitration
language governing future disputes to be written into contracts.
(See Issue No. 8.)
Authority To Recommend
A. Who will have authority to recommend arbitration? The agency
should require, or at least encourage, that the recommending
official, whether it be a contracting officer, staff attorney, or
program official, consult with the Dispute Resolution Specialist.
This should ensure that, at an early stage, the parties consider or
attempt the preferred
[[Page 50010]]
consensual forms of ADR when appropriate. Such consultation should
also ensure that disputes which are inappropriate for arbitration,
whether based on the ADRA specifications, practical considerations
or agency requirements and policy, do not go forward to formal
submission.
Authority To Settle
B. Who has the authority to enter into settlement? The ADRA
requires that a person entering into binding arbitration on behalf
of the agency must have the authority to otherwise enter into a
settlement concerning the matter, or be specifically authorized by
the agency to consent to arbitration.
Most agencies already have procedures in place for settling
disputes, especially for resolution of disputes arising out of
contracts with outside parties. One approach is to delegate the
authority to consent to arbitration to the person (or position) that
currently has authority to resolve the dispute, such as a
contracting officer, subject to his warrant and internal agency
review procedures. This approach takes advantage of the existing
procedures while providing an additional means of resolving the
dispute. It also has the benefit of simplicity; any new procedures
are added to the existing structure rather than creating an entirely
separate system.
However, the decision to use binding arbitration involves so
many important and complex issues that agencies should consider
delegating the authority to use binding arbitration to a high-level
decision-maker like the General Counsel. Agency procedure should
alert the designee to the fact that the agency is considering
entering into a process that is, in many ways, more binding than
litigation. The person authorizing arbitration should be made aware
of what the capped amount of the award will be.
Negotiate Award Cap
C. Who will negotiate the cap on the award? This may be the
contracting officer, an attorney, or other person making the
recommendation to arbitrate.
Rules and Arbitrator Selection
D. Who will negotiate rules and selection of the arbitrator?
After approval to arbitrate has been granted by the authorized
official, negotiating rules and selection of the arbitrator can be
done by the recommending official, in conjunction with the Dispute
Resolution Specialist.
Agreement to Arbitrate
E. Who will draft the Agreement to Arbitrate? The Agreement must
be in writing, setting forth the subject matter of the arbitration
and the maximum award or ``cap.'' It must be agreed to by the
parties and should be drafted by an attorney, in consultation with
the Dispute Resolution Specialist. (See Issue No. 14).
Issue 4--What Will Be the Process for Entering Arbitration?
A request to use binding arbitration may come from an outside
party or may originate from agency personnel. In either case, the
procedures for requesting and obtaining authority to arbitrate need
to be clear and readily available. The initial consideration of a
request to arbitrate may be informal and should involve consultation
with agency or subdivision ADR specialists. If an agency designates
a specific office or position to initiate the arbitration approval
process, it will be necessary to identify the office and the steps
required for requesting that approval.
Therefore, the agency should identify the official who will have
authority to determine, on a case-by-case basis, whether to agree to
submit a dispute to binding arbitration. This will ensure that an
agency official will only agree to submit a dispute to binding
arbitration if: (1) There are sufficient funds committed to cover
the maximum possible award against the agency; and (2) prior written
approval has been obtained from the authorized agency official to
enter into the arbitration proceeding.
Since it is likely that the final decision-maker will have
little knowledge of the specific issues or risks involved in the
dispute, a written justification (the Request to Arbitrate
Memorandum) should be prepared.
Issue 5--What Should the Request To Arbitrate Memorandum Include?
Request to Arbitrate Memo
This is an internal document intended for the agency decision
making and approval process. The following information should be
included.
Facts
A presentation of the factual bases, legal reasons, and policy
considerations supporting the use of binding arbitration to resolve
the particular dispute, including:
A detailed description of the analysis that resulted in the
recommendation of whether to arbitrate. If the recommendation is to
arbitrate, this should compare the benefits of arbitrating the
matter with the benefits of litigating the matter, including
potential appellate litigation as well as the ability to withdraw
from litigation, to pursue settlement, to establish precedent, etc.
A detailed cost/benefit analysis of arbitrating the matter,
including the estimated costs of the arbitrator, agency personnel
costs, outside counsel costs (if applicable).
An estimate of the timeline for the arbitration process,
including time to negotiate the arbitration agreement, compared to a
timeline for litigation.
A litigation risk analysis.
Maximum Award
The proposed maximum award, as a dollar figure, should be
specifically addressed in the memorandum.
ADR Use Justified
An explanation supporting a determination that none of the
following factors exists, or if one or more does exist, binding
arbitration is nevertheless the most appropriate method to resolve
the dispute:
--A definitive or authoritative resolution of the matter is required
for precedential value, and a binding arbitration proceeding is not
likely to be accepted generally as an authoritative precedent;
--The matter involves or may bear upon significant questions of
Government policy that require additional procedures before a final
resolution may be made, and a binding arbitration proceeding would
not likely serve to develop a recommended policy for the agency;
--Maintaining established policies is of special importance, so that
variations among individual decisions are not increased, and a
binding arbitration proceeding would not likely reach consistent
results among individual decisions;
--The matter significantly affects persons or organizations who are
not parties to the proceeding;
--A full public record of the proceeding is important, and a binding
arbitration proceeding cannot provide such a record; or
--The agency must maintain continuing jurisdiction over the matter
with authority to alter the disposition of the matter in the light
of changed circumstances, and a binding arbitration proceeding would
interfere with the agency's fulfilling that requirement.
Source of Request
Whether the initial request is from an outside party, a joint
request of the agency and an outside party or from specified agency
personnel.
Recommendation
Whether the initiating agency official recommends accepting or
denying the request to arbitrate.
Disputed Issues
A brief description of the disputed issues, or if in litigation,
the status of the litigation.
Failure of Consensual Forms of ADR
A description of the consensual forms of ADR that have been
offered or attempted and the outcome. This should include a
statement of why further attempts with consensual approaches are
inappropriate or impractical.
Parties
A list of the parties' representatives for the arbitration.
(Under the ADRA, federal agencies must have policies regarding
outside parties use of non-attorneys to represent them in
alternative dispute proceedings. (See Issue No. 13.))
Draft Agreement to Arbitrate
A draft arbitration agreement agreed to by both parties as an
attachment to the memorandum.
Issue 6--How Can an Agency Encourage the Efficiency of the Arbitration
Process?
A. Limit the scope of discovery.
B. Establish reasonable deadlines for discovery, the hearing,
and rendering the award. Concerning the hearing, the ADRA states
only that it shall be conducted expeditiously. See section
579(c)(3). Therefore, it may be useful to include specifics about
timing in the agreement to arbitrate.
The issuance of the award, an area in which delay frequently
occurs, has been dealt with more specifically in the ADRA. Section
579(d)(1) requires that an award be issued within 30 days after the
close of the hearing or filing of post-hearing briefs
[[Page 50011]]
authorized by the arbitrator, unless otherwise agreed to by the
parties or so stated in an agency rulemaking. Finally, the ADRA
states that awards can only be enforced 30 days after service on
both parties, when they are considered as ``final''. See section
580(b).
C. Limit the number of witnesses.
D. Use one arbitrator and give that person the authority to
tightly control the proceeding.
E. Agree to arbitrate by document review or by phone in
appropriate cases.
Issue 7--How and By Whom Will Outside Requests for Binding Arbitration
Be Accepted?
Forms of Request
If an agency decides to entertain requests for binding
arbitration from outside parties, it should consider having both an
informal and a formal process for receiving them. The informal
process might be nothing more than a party asking the designated
agency representative if the agency would consider using binding
arbitration, or might include a short request form to be filled out
by the outside party and delivered to the agency representative. The
request form will ensure that the agency can track arbitration
requests efficiently and will be an easy way to obtain the opposing
party information that may be needed to complete the agency's
arbitration recommendation process.
The agency should determine who will respond and whether to
suggest that a formal request should be made.
Formal Request Process
A formal request process should require the outside party or its
representative to submit a written request to a specific agency
office for initial processing and tracking purposes and might
include a checklist provided by the agency to ensure that all the
information necessary to process the request is obtained. A formal
request for arbitration would require the agency to conduct a formal
review and prepare a written response approving or rejecting the
request.
It is recommended that all arbitration requests be screened by
the agency's Dispute Resolution Specialist.
Issue 8--Will the Agency Allow Arbitration Clauses To Be Written Into
Contracts?
Normally, parties enter arbitration at the request of either
party to a dispute, although both must agree to arbitrate. As
detailed below, parties may also use a pre-existing arbitration
clause they have negotiated in a contract. Regardless of how
arbitration is begun, it is critical that the ground rules are
carefully negotiated to meet the requirements of the ADRA and the
goals of the agency. For agencies which allow binding arbitration
clauses to resolve future disputes, i.e., in contracts, it is
important to draft the provision carefully, since the agency must
comply whenever the other party requests arbitration pursuant to the
contract. It is imperative for agencies to balance their statutory
duty to limit agency exposure with a desire to include provisions
calling for the use of arbitration in pre-existing contracts.
Despite the most careful drafting, it is unlikely that the original
drafters can foresee the exact nature of a future dispute.
Therefore, it is useful to include a statement to this effect:
If there is a dispute under this contract that is subject to
arbitration, the parties will meet and negotiate in good faith any
necessary procedural changes from the original requirements, in an
effort to reasonably expedite the process and otherwise to fit the
process to the dispute and the value at risk.
Issue 9--If the Agency Allows Arbitration Clauses in Contracts, What
Should Be Included in the Clause?
An agency might want to include the necessity for negotiation by
senior fficials and/or mediation before arbitration may be invoked.
See Appendix B for Sample Dispute Resolution Contract language.
Agencies must also devise a means to satisfy the statutorily
required cap on government exposure when including arbitration
clauses in contracts.
Issue 10--What is the Arbitrator's Role Under the ADRA?
Under the ADRA, arbitrators may: Regulate the course and conduct
of hearings; Administer oaths; Compel attendance of witnesses and
production of evidence, to the extent that the agency is authorized
to do so by law; and Issue awards.
In a complex arbitration, it is useful to have a case management
approach, negotiated by the parties, for the arbitrator to follow.
This will save time and money without diminishing the results. It is
also recommended that the parties choose an arbitrator who will
respect the time limits established in the agreement and move the
process along.
Issue 11--Will the Agency Agree to a Panel of Arbitrators in Some
Circumstances?
Generally, a single arbitrator is sufficient and saves time and
money. Exceptions might be technical cases where a person with
relevant expertise is deemed necessary. Traditionally, when more
than one arbitrator is desired, each party picks one and they agree
on the third. However, since the costs in time and money increase
exponentially as the number of arbitrators increases, it may be wise
to try to find one person with the necessary expertise.
Issue 12--What Selection Criteria Will Be Considered in Choosing an
Arbitrator?
The ADRA allows an agency to use, with or without reimbursement,
the services and facilities of other Federal agencies, State, local,
and tribal governments, public and private organizations and
agencies, and individuals, with the consent of such agencies,
organizations, and individuals, and without regard to the provisions
of 31 U.S.C. 1342. A judge from a Federal Board of Contract Appeals
may also be used if the parties agree.
As with any other neutral, an arbitrator who is agreed upon by
the parties may be selected non-competitively. The contract must be
in place before any work begins. See Appendix C for a checklist for
selection of arbitrators.
Issue 13--Will the Agency Agree To Allow Non-Attorneys To Represent a
Party, or for a Party To Appear Pro Se, at the Arbitration?
Federal agencies should have policies regarding the use of non-
attorneys by outside parties in arbitration. Agencies may decide
that it will not allow non-attorneys, or parties appearing pro se in
all cases, or that it will require attorneys only in highly complex
or specialized proceedings.
Both in choosing to arbitrate and in engaging in the actual
arbitration, parties irrevocably impact their rights and potential
legal remedies, far more so than in consensual decision-making ADR
processes. Because the arbitration decision rests in the hands of a
third party neutral, the ability of the parties to present and argue
evidence adequately is far more essential than in other, non-binding
forms of ADR. If an agency chooses to allow representation by non-
attorneys (or by the parties acting pro se), it should consider
requiring the parties to sign an acknowledgment of the risks and
limitations of arbitration before agreeing to arbitrate the dispute.
Issue 14--What Should an Agreement To Arbitrate Include?
The agreement to arbitrate must be in writing and should
include:
1. The names of the parties.
2. The issues being submitted to binding arbitration. The
parties can submit all or only certain issues in controversy to
binding arbitration.
3. The maximum award (cap) that the arbitrator may direct. (This
must be negotiated by the parties prior to signing the Agreement.)
4. Any other conditions limiting the range of possible outcomes.
5. The scope of the arbitration. This will limit time and cost
and give the arbitrator power to be a ``case manager''.
A sample case management provision might read, ``The Arbitrator
is expected to assume control of the process and to schedule all
events as expeditiously as possible, to insure that an award is
issued no later than ____ days from the date of this agreement.
Failure of the arbitrator to assume such responsibility shall be
deemed a breach of this contract.'' This lets the arbitrator know he
has the support of the parties to manage them and the arbitration.
6. A reference to which procedural rules will apply. This must
be designed to comply with the ADRA, including the amount and nature
of the discovery to be allowed, and the deadlines to be imposed for
discovery, the hearing, and the arbitrator's award. Agencies should
not enter into pre-dispute binding arbitration clauses or post-
dispute agreements to arbitrate without careful consideration of any
other local, state or federal substantive, procedural, and
arbitration statutes. Without a well-drafted choice of law
provision, an arbitrator may be free to disregard any applicable
statute of limitations, may be free to disregard either the
substantive or procedural law the agency intended to be applied in
the arbitration, and may be free to disregard the arbitration law
the agency expected to be applied.
Including an explicit limitation period in the agreement to
arbitrate or arbitration
[[Page 50012]]
clause will avoid most statute of limitations disputes. Questions of
which substantive or procedural law should apply can be limited by
avoiding the common ``this contract shall be construed under the law
of * * *'' language and using a more generic clause like ``all
disputes referred to arbitration and the statute of limitations and
the remedies for any wrongs that may be found, shall be governed by
the law of * * *''. Similar care should be given to the designation
of the ADRA or Federal Arbitration Act as the applicable arbitration
statute.
7. The name of the arbitrator, the amount of compensation and
how it will be paid. (Avoid any agreement or rule that provides for
deposits in an escrow account to pay for expenses of the proceeding,
that is, in advance of incurring such expenses.)
8. The date when the arbitration will commence.
9. The type of remedy available.
A sample Agreement to Submit to Binding Arbitration is at
Appendix D.
Issue 15--How Will the Agency Pay the Arbitrator(s)?
Generally, the parties agree in advance to share administrative
fees and arbitrator fees and costs, which will be paid after
issuance of the award. The government may not escrow funds or pay in
advance for arbitrator or administrative fees.
Issue 16--Is the Agency Willing To Use Administered Arbitration?
Agencies may use an ADR organization to administer an
arbitration. The organization could assist in the following tasks:
Narrowing the issues, negotiating the cap, selecting the arbitrator
(with the parties' participation), providing rules, scheduling the
hearings, mailing the awards and billing for services. Organizations
charge a fee which should be paid equally by the parties.
Outside organizations are more likely to be needed where the
dispute has been longstanding and there is a great deal of animosity
between the parties. In addition, when agencies use arbitration
clauses in contracts, it is important that they NOT merely
incorporate the rules of an ADR organization and assume they will
apply when and if a dispute later arises. There will likely be
provisions in these rules which are inconsistent with the ADRA.
Thus, any arbitration rules must be jointly reviewed before adoption
or inclusion in a contract.
If an agency prefers ad hoc, or ``do it yourself'' arbitration,
it should have clear guidance and well-trained personnel, who
consult with the agency Dispute Resolution Specialist.
Issue 17--What Must the Arbitration Award Include?
Form of Award
An arbitrator's decision is called an ``award'' and the opinion,
or findings and conclusions, are known as ``reasons''. Under the
ADRA, an arbitration award must be in the form of a document that
can be filed with the parties, including the relevant Federal
agency.
Confidentiality
Although it is often the practice in the private sector to keep
arbitration awards confidential, Federal Agencies Cannot Keep
Arbitration Awards Confidential. In addition, such awards will be
agency records for the purposes of FOIA and subject to disclosure.
Protected proprietary or Privacy Act information can be redacted and
is subject to reverse FOIA actions. Under the requirements of the
``Electronic FOIA'' amendments, agencies must provide electronic
access to material that is subject to repeated request, which may
include arbitration awards.
Cap on Award
An arbitration award under the ADRA cannot exceed the monetary
cap negotiated by the parties and specified in the arbitration
agreement. A well-drafted arbitration agreement should also have
limited the type and form of remedy that an arbitrator can award. In
most (though not all) jurisdictions, an arbitrator can utilize any
form of remedy a court in that jurisdiction may provide; in some
jurisdictions, an arbitrator may order any remedy that is not
specifically forbidden by the arbitration agreement. The ADRA
provides that an arbitration award cannot be used to estop a party
on an issue in another proceeding, and that arbitration awards
cannot be used as precedent, or ``otherwise be considered in any
factually unrelated proceeding.'' We note, however, that arbitration
decisions are given precedential weight in some fields and, as an
agency's (and the federal sector's) experience with arbitration
grows, its arbitration decisions may come to have informal, if not
formal, persuasive power.
``Naked Award''
An agency might want to consider permitting a ``naked award''
which provides only a monetary amount. This has the advantage of
reduced time and cost and may be all the parties require. The
parties may be able to request to have this award issued immediately
post-hearing. Many arbitrators prefer this type of award as well, as
it limits grounds for appeal. Arbitration awards under the ADRA are
subject to enforcement under the Federal Arbitration Act (FAA),
Title 9, United States Code. The FAA and the relevant case law
provide very limited grounds on which a court may vacate an
arbitration award, beyond fraud in the arbitration process. Unlike
judicial opinions, clear or even egregious error of fact or law may
not sufficient to overturn an arbitration award. Courts tend to
require a very strong showing on the available appeal grounds before
declining to enforce arbitration awards. To vacate an arbitration
award, it will probably be necessary to show manifest disregard of
the law (which some jurisdictions limit to cases in which a party
can show that an arbitrator knowingly misapplied the relevant law;
even gross error may not be sufficient if it cannot be shown to be
intentional) or that an arbitrator acted outside of the scope of
arbitral authority defined in the underlying arbitration agreement.
The simpler and more limited form of award the agency requires, the
less likely it is that any party will be able to sustain an appeal
to an arbitration award in court. Similarly, an arbitration award
which requires more than basic information into the arbitrator's
reasoning provides greater opportunity for successful appeal of a
poorly reasoned arbitration decision. In considering requirements
for arbitration awards, agencies must weigh the value of finality
against the ability to seek correction of significant error by
arbitrators. Other factors will affect this decision. For instance,
if the agency will use arbitration only in certain areas or when
there is only a low monetary exposure, the value of finality is
likely to outweigh the concern for appeal. If, however, the parties
believe they need more than a ``naked award,'' they may set a page
limit for the arbitrator or request that the award state only those
reasons necessary to support it, rather than address all issues
presented in evidence. Or, they can request a more complex award
form, including formal findings of fact and law and articulated
reasoning.
Flexible Format
An agency that wishes to provide flexibility for parties to
mutually agree to an award format other than a ``discussion of the
factual and legal basis for the award'' is required by the ADRA to
publish a rule in the Federal Register authorizing that procedure.
See: 5 U.S.C. 580(a)(1). As it would be a procedural rule and would
have no significant effect or impact on the substantive rights or
obligations of non-agency persons, prior notice and opportunity for
public comment is not required.
Issue 18--Will the Agency Allow Arbitration on the Documents Only,
Without a Hearing, and if so, in What Circumstances?
In simpler cases, the parties may agree to have the arbitrator
issue an award after only a document review. This has the advantage
of saving time, money and avoiding scheduling conflicts. It may not,
however, be the best choice where credibility of a party or
witnesses is an issue, as there will be no opportunity to argue or
cross-examine.
The arbitrator may also conduct all or part of a hearing by
telephone, video conferencing or computer, as long as each party has
an equal opportunity to participate.
Issue 19--What Selection Criteria Will Be Considered in Choosing or
Amending Arbitration Rules and What Must Those Rules Include?
Many ADR providers, or large international organizations, have
rules which will require some changes to conform to the ADRA. In
time, they will most likely develop special rules for Federal
agencies.
In addition, most providers have expedited rules which agencies
should consider. Simple cases require less rigorous rules than do
complicated, expensive ones.
Section IV--Procedures for Obtaining Department of Justice Approval
for Agency Binding Arbitration Guidance
This portion of the Handbook addresses the procedures for
obtaining Department of Justice approval of agency guidance on the
subject of binding arbitration. Pursuant to section 575(c) of the
Administrative Dispute Resolution Act of 1996, 5 U.S.C. 575,
agencies that wish to use binding arbitration must issue guidance on
the appropriate use of this dispute resolution process. Such
[[Page 50013]]
guidance must take into account the factors identified by Congress
in section 572(b) of the Act, and should identify when an officer or
employee of the agency has authority to settle an issue in
controversy through binding arbitration. Congress also provided that
agency guidance on this subject be issued in consultation with the
Attorney General.
As a general rule, the Department of Justice will defer to the
judgment and expertise of other agencies in the use of binding
arbitration to resolve issues in controversy pending before those
agencies. The Department interprets its statutory obligation under
section 575(c) as a duty to insure that those agencies seeking to
use binding arbitration will be able to make appropriately informed
judgments, mindful of the concerns of Congress that led it to
authorize this process in a limited and carefully circumscribed
manner.
These are the standards that the Department of Justice will
apply in reviewing agency guidance for use of binding arbitration.
Does the agency's guidance facilitate a thorough application of
the statutory criteria in section 572(b) for when dispute resolution
proceedings are inappropriate to the issues in controversy for which
binding arbitration might be considered.
Does the agency's guidance contain sufficient information to
permit users of that document to make informed decisions about the
use of binding arbitration, including an assessment of the benefits
of binding arbitration as measured against the costs or risks
associated with that process for resolving specific issues in
controversy.
Does the agency's guidance demonstrate that it was prepared with
specific reference to the types of issues in controversy that arise
in the course of fulfilling that agency's statutory missions.
Agencies seeking Department of Justice review of binding
arbitration guidance should send such documents to the Office of
Dispute Resolution, U.S. Department of Justice, Washington, D.C.
20530. Where appropriate, the Office of Dispute Resolution may
consult with other components of the Department of Justice as part
of the review process. Questions concerning this process can be
presented by calling the Office at 202-616-9471.
Appendix A--Declaration of Policy on Use of Alternative Means of
Dispute Resolution
Pursuant to the provisions of the Administrative Dispute
Resolution Act of 1996 and the Presidential Memorandum of May 1,
1998, implementing that act, the __________ Department/Agency
recognizes that in appropriate circumstances, there may be more
effective methods to resolve issues in controversy that arise
involving the Department/agency than through reliance upon more
adversarial administrative processes. The voluntary use of
alternative means of dispute resolution, such as mediation, fact-
finding, ombuds, neutral evaluation, and arbitration, often can
provide faster, less expensive, and more effective resolution of
disputes that arise with employees, contractors, the regulated
community and others with whom the Department/agency does business.
In recognition of this, the __________ Department/agency declares
that: (1) Its managers and attorneys will be knowledgeable about
alternative means of dispute resolution; (2) its managers and
attorneys will examine the suitability of using alternative means of
dispute resolution when issues in controversy arise involving the
Department/agency; and (3) in appropriate disputes, its managers and
attorneys will use alternative means of dispute resolution in a good
faith effort to achieve consensual resolutions of issues in
controversy involving the Department/Agency.
Appendix B--Dispute Resolution Contract Clause
1. Negotiation
The parties shall attempt in good faith to resolve any dispute
arising out of or relating to this Agreement by negotiating between
executives and/or officials who have authority to settle the
controversy and who are at a higher level of management than the
persons with direct responsibility for administration of this
contract. Any party may give the other party written notice of any
dispute not resolved in the normal course of business. Within 15
days after delivery of the notice, the receiving party shall submit
to the other a written response. The notice and the response shall
include: (a) A statement of each party's position and a summary of
arguments supporting that position, and (b) the name and title of
the executive or official who will represent that party and of any
other person(s) who will accompany the executive or official. Within
30 days after delivery of the disputing party's notice, the
representatives of both parties shall meet at a mutually acceptable
time and place, and thereafter as often as they reasonably deem
necessary, to attempt to resolve the dispute. All reasonable
requests for information made by one party to the other will be
honored.
If the matter has not been resolved within 60 days of the
disputing party's notice, or if the parties fail to meet within 30
days, either party shall/may initiate mediation of the controversy
or claim as provided hereafter.
2. Mediation
In the event the dispute has not been resolved by negotiation as
provided herein, the parties agree to participate in mediation,
using a mutually agreed upon mediator. The mediator will not render
a decision, but will assist the parties in reaching a mutually
satisfactory agreement. The parties agree to share equally the costs
of the mediation. The first mediation session shall commence within
30 days from agreement. If the matter has not been resolved within
60 days of the first mediation session, either party may/shall
initiate arbitration as provided hereafter.
3. Arbitration
Any dispute not otherwise satisfactorily resolved (shall, may)
be submitted to arbitration. (Details for specific arbitration
procedures to be added; for example, the name of an ADR provider,
the rules under which the arbitration will be conducted, the method
the parties will use to select an arbitrator, etc.
Appendix C--Checklist for the Selection of Arbitraror
1. Determine the number of arbitrators to conduct the
proceeding. (See Issue No. 11).
2. Design the selection procedure so the agency may place names
on the proposed list of arbitrators along with the other parties.
3. Provide an opportunity for the agency to strike any of the
proposed arbitrators.
4. Establish time limits so the selection process moves
expeditiously to completion.
5. Consult with your agency's Dispute Resolution Specialist,
Senior Counsel for Dispute Resolution at DOJ, local bar
organizations, and ADR entities for lists/rosters of arbitrators
suitable for governmental use.
6. Determine if the parties will agree on selection of the
arbitrator themselves or if they will use an organization to assist
them.
7. Research carefully the experience and ability of all proposed
arbitrators. In addition, consider the following factors:
Does the arbitrator have a reputation for integrity? (Check
references)
Does the arbitrator have extensive arbitration experience?
What kind of specific subject matter expertise, if any, is
needed?
Does the arbitrator's background show any leaning or
predilections?
If the arbitrator is a practicing attorney, does he specialize
in plaintiffs' and/or defendants' work?
Has the arbitrator worked with big companies, small companies
and/or governmental agencies?
Where is the arbitrator located geographically?
[[Page 50014]]
Does the arbitrator's background indicate a preference for more
formal proceedings as opposed to less formal ones?
Is the arbitrator available when necessary, and is the
arbitrator's calendar free enough to expeditiously handle your case?
Does the arbitrator have a record of being reasonably prompt in
scheduling hearings and issuing decisions?
Is the arbitrator's rate for services consistent with the rates
that the agency ordinarily would pay for similar services? (Check to
see if a government rate is available.)
8. Establish disclosure requirements that comply with agency
conflict of interest regulations to ensure that an arbitrator has no
official, financial, or personal conflict of interest with any of
the involved entities, unless such interest is fully disclosed in
writing to all parties, and all parties agree that the arbitrator
may serve.
9. Provide procedures to replace the arbitrator if the position
becomes vacant by disqualification or disability.
Note: You may hire an ADR provider to administer the arbitration
and perform all these functions for you. (See Issue No. 16.)
Appendix D--Agreement to Submit to Binding Arbitration
We, the undersigned parties, hereby voluntarily agree to submit
the following controversy to binding arbitration: (briefly describe
the controversy). We agree upon ______ as the arbitrator, to be paid
at the rate of $______, which will be jointly shared by the parties.
We further agree that the arbitration shall be conducted under the
(identify the applicable procedural rules). We further agree that we
shall faithfully observe this agreement and the (applicable
procedural rules), that we will abide by and perform any award
rendered by the arbitrator, and that a judgment of a court with
appropriate jurisdiction may be entered on the award. Finally, we
agree that the maximum award that the arbitrator can issue in this
binding arbitration shall not exceed (insert here the maximum award
that may be issued by the arbitrator and specify other conditions
limiting the range of possible outcomes).
[FR Doc. 00-20828 Filed 8-15-00; 8:45 am]
BILLING CODE 4410-AR-P