A contractor wins a prized multimillion-dollar government contract.
But almost immediately, things begin to go badly. Costs balloon,
designs fail, and schedules slip. After assuring the government
for months that the company can turn things around, the contractor
finally concedes that the project is in serious trouble. Shortly
thereafter, the government terminates the contractor for default.
The government wants its money back. The contractor, anxious to
avoid a negative past performance rating, wants a termination for
convenience and millions in extra funds to cover its additional
As recently as five years ago, this kind of dispute would likely
have led to protracted litigation, taking many years to progress
through exhaustive discovery and multiple appeals, and costing both
sides tens of millions of dollars in legal fees.
"We’ve all been brought up in an inherently adversarial
system," says Richard Busch, senior government contracts lawyer
at the law firm of Faegre & Benson and a former general counsel
for defense contractor Lockheed Martin Corporation. "Litigation
isn’t about managing conflicts. It’s about winning,"
he adds. "But many businesses and agencies have begun to question
the time, money, and risk involved in all-or-nothing litigation.
More and more, they’re turning to tools like mediation to
Mediation is one of many techniques under the alternative dispute
resolution (ADR) approach. It’s also the technique preferred
by most federal agencies. Mediation relies on a trained neutral
party, who helps the principals in the dispute negotiate a settlement
that is acceptable to both sides. Like most forms of ADR, mediation
is a voluntary process. Although it isn’t intended to eliminate
litigation, it can be effective in settling many disputes without
the need for further legal action.
Congress and the White House have made ADR a top federal priority.
Thanks to a series of executive orders since 1995, and the Administrative
Dispute Resolution Act of 1996, agencies have faced a series of
mandates designed to increase the use of ADR, including:
ADR techniques save time and money, says Brian Malone, director
of contracts for the National Reconnaissance Office (NRO), the U.S.
agency in charge of building spy satellites. "In the right
circumstances, mediation can resolve a dispute faster and at a lower
level. But it also allows us to work together to find a solution,"
Malone says. "This helps us preserve a cooperative, rather
than a competitive, relationship with our contractors. And it’s
the relationships that make us go."
"The results can also be more equitable," says Busch.
"Litigation is like a flip of a coin. Heads you win, tails
you lose. In mediation, you have a greater opportunity to understand
the perspective of the other party and negotiate an outcome that’s
fair and acceptable to both sides."
There are significant challenges involved in reforming an adversarial
system. Making ADR work means changing cultures throughout the defense
community and training contracting staff in both the government
and private industry to implement techniques for managing conflict
in the earliest stages of developing a contract.
Several agencies, including the Air Force and Federal Aviation
Administration (FAA), already have developed sophisticated ADR programs
and begun to realize the benefits. The Air Force has employed ADR
in more than 60 contract disputes with a 90 percent settlement rate.
The FAA, which operates a special acquisition management system
that includes an office of dispute resolution for acquisition (ODRA),
highlights a variety of success stories on its ADR web site.
Other agencies are moving quickly to implement their own ADR programs
and to build partnerships with industry. The NRO, through its Acquisition
Center of Excellence (ACE), launched a formal ADR program in 2000,
and already has recruited more than a dozen contractors to sign
on to its ADR pledge.
As part of the program, the NRO is promoting ADR among its executive
staff, program managers, and contracting officers. In July, ACE
sponsored the second in a series of ADR training programs designed
to introduce the concept of conflict management and the use of ADR
techniques. In a unique example of partnering, the training included
members of the government and industry, as well as ADR professionals
from an international law firm and a dispute resolution firm. The
program featured a "mock mediation" that gave participants
an up-close look at the mediation process and how government and
business can put the tool to work.
To assist in the NRO’s training course, Busch recruited George
Bentley, a mediator with the Denver-based firm Beyond Dispute, as
well as other participants from the contractor community and the
government. Steve Post and Roger Israelson, of the Raytheon Company,
volunteered to participate in the training program, serving as industry
representatives in the mock mediation. Together with Rich Walters
of FAA’s ODRA and Dick Carroll of the NRO, the team staged
a "live" mediation from the initial fact-finding through
the final settlement negotiations. After each step in the mediation
process, participants had the opportunity to critique both sides
and ask questions.
"Making ADR a part of the culture of any organization takes
leadership and commitment," said Post, vice president of legal
affairs for Raytheon’s Aircraft Integration Systems. "That’s
why we’re so supportive of NRO and these kinds of training
programs. You can’t get industry or the government to really
buy into ADR without educating them about the nuts and bolts of
the process. They need to understand how mediation can shape a different
result than litigation without ‘giving up the store.’"
Walters of FAA agrees. "It takes time to break down barriers.
This is a whole new way of thinking about conflicts. But this kind
of program works. You could see the participants become engaged
in the mediation scenario. The program helped them see the possibilities
of a cooperative process."
The Mediation Process
In mediation, psychology is as important as facts. Most parties
come to mediation with a heartfelt disagreement about the rights
and wrongs of the dispute and often considerable emotion and professional
pride invested in the issue.
The mediator is the key to the process. Unlike litigation or arbitration,
the mediator’s role is not to make a decision or strong-arm
the parties into an agreement. Instead, a mediator serves as a catalyst
to help parties resolve the dispute on their own.
"The most important principle in selecting a neutral is choosing
someone who understands the psychology of settlement," says
Bentley, of Beyond Dispute, who served as mediator in the NRO’s
mock scenario. "It must be a professional with a unique ability
to relate to diverse personalities without becoming part of the
Building confidence in the mediator and the mediation process is
the first step. According to Bentley, "the greatest opportunity
to set the stage for settlement is early in the dispute. That’s
also the riskiest period, because if it isn’t handled properly,
the parties can end up in an adversarial relationship that’s
extremely difficult to overcome."
To navigate this minefield of ego and emotion, a good mediator
must rely on communication skills more than anything else. He or
she must listen to the words and the body language of the participants,
in order to identify the key factors underlying the dispute and
the nuances that may open the door to agreement. And the mediator
must also know when to speak up or ask probing questions, in order
to clarify issues, defuse tension with humor, and nudge the parties
in a common direction.
The process itself involves a series of joint sessions involving
all the parties and separate "caucuses" where the mediator
meets privately with each side.
"Each negotiating team, hopefully, gains trust in the mediator,"
Bentley says. "It’s a transforming process. Unlike litigation,
where you get one-sided advocacy, the caucuses help each side gradually
understand the perspectives and priorities of the other. Along the
way, they may also begin to acknowledge their own role in creating
the dispute. After all, conflict is rarely, if ever, one-sided."
Often, progress is slow and painstaking. There is no guarantee
of success. But for parties that cannot resolve a dispute through
direct negotiation, mediation is almost always the next best step.
ADR techniques, including mediation, are no panacea.
"There’s still a lot of hard work that needs to be done
to make mediation work and to effectively represent a client in
resolving a procurement dispute without litigation," says Busch.
"ADR is no substitute for a close examination of the risks
and the facts. In some ways, it may even be harder than litigation.
You can’t just hand the dispute to the lawyers and walk away.
Nor can you turn the responsibility for an effective resolution
over to a judge or jury. You have to forge a solution collaboratively.
That’s often painful and uncomfortable. But in return, you
preserve your relationships with the government or your sub-contractors
and, hopefully, achieve a fair, cost-efficient result."
There are other obstacles, too. Some contractors fear that ADR,
even though it is a voluntary process, is really designed to limit
their options and tilt the playing field against them. That’s
particularly true when the mediator comes from within the government
agency itself. After all, can an employee of the agency really be
"Naturally, that was one of industry’s first questions,"
says Post, of Raytheon. "Industry associations monitored the
results of early experiences with ADR and were pleased to find that
neutrals, even from within an agency, were truly neutral. The results
weren’t skewed to the government."
Nonetheless, contractors may feel a lingering reluctance to use
ADR out of concern that even a successful mediation may work against
them the next time they compete for a contract. Israelson, of Raytheon,
acknowledges that contractors need to get past that fear. But it
helps when the government opens the door. "If the customer
raises ADR, it’s easier for the contractor to overcome their
concerns," he says. "Most contractors will welcome ADR
in that environment."
Even confidence in the fairness of the process, of course, is no
substitute for a genuine belief in the value of ADR as a tool to
manage conflict. For years, dispute resolution has meant one thing:
coming out on top. It takes a major shift in thinking among agencies
and contractors alike to encourage and reward equitable solutions
based on dialogue and compromise. Organizations need to audit their
business practices and incorporate ADR as part of their strategic
vision. That means taking steps to assure that disputes don’t
derail the completion of the contract.
"We don’t know when disputes will arise," says
Busch. "But we know they will happen. Conflicts are a normal
part of doing business. That’s why we need to anticipate disputes
and build a process into our contracts for dealing with them. We
also need to remember that the process of mediation assumes the
importance of relationships. The little gestures, like the NRO and
its industry partners working together to train the agency’s
staff, go a long way. It sends a message to the defense community
as a whole: ‘We’re in this together.’
Brian Freeman is a head of public relations for Faegre & Benson
LLP. Jana Gordin Meisinger is deputy director for acquisition innovation,
for the National Reconnaissance Office’s contracts acquisition
center of excellence.