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. Sections 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. Sec. 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. Sections 575-581 and must be reviewed carefully before an agency begins developing binding arbitration guidance. Although the ADRA authorizes 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. Sec. 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. Sec. 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. Sec. 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. Sec. 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. Sec. 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. Sec. 576).

Section 577 Arbitrators

1. The parties to an arbitration are entitled to participate in selecting

an arbitrator. (See: 5 U.S.C. Sec. 577(a)).

2. The arbitrator must meet the definition of a neutral contained in Sec. 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. Sec. 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. Sec. 578(1)).

2. An arbitrator may administer oaths and affirmations. (See: 5 U.S.C. Sec. 578(2)).

3. An arbitrator may compel the attendance of witnesses and the production of documents. (See: 5 U.S.C. Sec. 578(3)).

4. An arbitrator may make awards. (See: 5 U.S.C. Sec. 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. Sec. 579(b)(1) thru (4)).

3. Parties are entitled to be heard and present evidence. (See: 5 U.S.C. Sec. 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. Sec. 579(4)).

5. The arbitrator shall interpret and apply any relevant statutes, regulations, legal precedents and policy directives. (See: 5 U.S.C. Sec. 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. Sec. 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. Sec. 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. Sec. 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. Sec. 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. Sec. 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. Sec. 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. Sec. 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. Sections 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. Sec. 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.

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. Sec. 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?

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. Sect 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 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