The Cost Savings Associated With The Air Force Alternative Dispute Resolution Program


by GSA Office Of Equal Employment Opportunity

May 2002

ADR SAVINGS

1. PURPOSE

THE United States Congress greatly encouraged federal departments to use Alternative Dispute Resolution (ADR) techniques to resolve various disputes involving the federal government by passing the Administrative Dispute Resolution Act of 1990. Subsequently to the Congress’s action, Air Force Secretary Donald B. Rice presented a memorandum to all Major Commands on January 12, 1993, encouraging them to use ADR to settle disputes quickly, cheaply, and amicably. Especially important for the government was concluding disputes before they entered the costly, litigative stage. Over the course of the last three years, much of the ADR effort has been to develop department wide ADR guidance, train hundreds of ADR field specialists, and identify all potential opportunities to employ ADR techniques and settle disputes early, cheaply, quickly and amicably. Though still a young program, ADR has resolved over 2,400 disputes.

Like any taxpayer supported program, the ADR program needs to demonstrate its value. The task at hand, therefore, is to provide a reasonable demonstration that the people’s tax dollars are devoted to a worthwhile endeavor that is bearing results.

11. TYPICAL ADR CASE TYPES

To begin with, we should first consider the various types of cases filed against the government in which ADR techniques can, be employed. These include Equal Employment Opportunity (EEO) discrimination complaints, Unfair Labor Practices (ULP), Merit System Performance Board (MSPB) complaints, military civilian disputes, and contractual disagreements.

111. STAGES OF THE DISPUTE PROCESS

Next, we should consider the costs that can be incurred by the government throughout the dispute process. To do so, we need to distinguish the different stages of the litigative process. Though there are endless possibilities as to how to designate the various steps of many types of claims, most disputes seem to include four stages:

ADR SAVINGS:

1. The exploratory stage where potential complaints receive advise and counsel about their situation;

2. A formal filing of a complaint and the subsequent investigation of facts;

3. A decision stage where either a settlement is agreed upon or a board judge hands down a decision;

4. An appeal stage if necessary (usually for less than 5% of all cases).

Different agencies such as EEOC and GAO have broken down the stages as follows to grapple with the various costs associated with each step of the processes: pre complaint; counseling; formal filing; investigation; post investigation with resolution; proposed disposition; final agency decision (FAD) without hearing; hearing; FAD after an EEOC hearing; settlements; and then an appeal. We will use these stage distinctions as appropriate in order to use the cost analysis literature already present.

1V. COST ASSOCIATED WITH LITIGATION

A. Determinable Costs By Type of Dispute

1. Equal Employment Opportunity Complaints (EEOC)

From the various sources of historical data and prior analysis, we will assign a monetary amount to each stage. The different sources are listed in Appendix A.

Stage……………………………………….Cost to the Government…………………………1999 Dollars

Pre Complaint……………………………………………822.78*

Counseling……………………………………………..1,360.03*

Filed Formal……………………………………………..787.08*

Investigation……………………………………….…..3,213.44*

Post Investigation with Resolution…………………….2,231.12*

Proposed Disposition…………………………………..2,854.90*

Final Agency Decision Without Hearing………………1,521.00*

Hearing…………………………………………………6,041.20*

Final Agency Decision After EEOC Hearing………….2,281.50*

SUBTOTAL………………………………………….21,113.05*…………………………………28,872

Settlements……………………………………………15,537.00**……………………………….21,264

SUBTOTAL……………………………………………………………………………………..… 50,136

Appeal……………………………………………………………………………………………..136,083

Indirect Costs of Final Processing of a Case $8,000.00***……………………………………….$14,390

Total Potential

Cost…………………………………………………………………………………………$200,609****

It may be helpful to note that AFLSA/CLLO estimated that, depending on the circumstances of a complaint, the cost of each complaint that goes through the process up to a final agency decision is between $40,000 an $80,000. AFLSA also notes that the agency involved cannot “turn off” the process if no discrimination is found at any or all these stages. The complainant has the right to continue the process onto the next stage. Applying the same cost ratio to these estimates as we did for the one above, the Total Potential Cost range is between $162,390 and $310,390.

2. Unfair Labor Practices Claims (ULP)

A Federal Labor Relations Agency report on Unfair Practice Costs used 1981 data to determine the cost incurred by cases at various stages of the process. The results follow, See TAB 6.

Stage…………………………..% of cases…………………….Costs……………………………….Costs

…………………………………………………………(1981 dollars)………………………(1996 dollars)

Counseling……………………………49.3…………..$2,062……………………………………...$3,732

Review………………………………..13.2…………..$2,842…………………………………… $4,144

Pre complaint settlement……………..21.2…………...$2,589……………………………………..$4,686

Pre ALJ settlement……………………2.8……………$4,771…………………………………….$8,636

ALJ settlement………………………..8.3…………..$10,108……………………………………$18,295

AJL litigation…………………………5.2…………..$21,276……………………………………$38,510

TOTAL………………………………………………$43,648……………………………………$79,003

The number of cases considered in this study were 6,448. Even though data has not been collected to capture precise costs in individual cases, the data above clearly indicates that each step along the way costs twice as much as the previous one. The last two stages, the most litigative in nature, more than double the costs of each case that advances that fat. The exponential increase drives home the point that the earlier the resolution, the greater the savings.

3. TORT CLAIMS

On October 29, 1993, American Bar Association At Large Council Member Jack H. Watson appeared before the U.S. Senate Subcommittee on Courts and Administrative Practice. Mr. Watson presented testimony demonstrating that arbitrated tort disputes cost 41% of a litigated tort claim. See TAB 5.

…………………………………...(Median Cost)……………………………………………...(Median Cost)

Type of Dispute………..Non Arbitrated………..(1996 dollars)……………Arbitrated………(1996 dollars)

Tort…………………..$18,210………………$20,484…………….$7,485………………………...($8,419)

4. CONTRACT DISPUTES

In the same testimony cited above, Mr. Watson also presented testimony that arbitrated contract disputes cost 30% of a litigated contract dispute. See TAB 5.

…………………………………………..(Median Cost)…………………………………….(Median Cost)

Type of Dispute…………..Non Arbitrated………..(1996 dollars)…………Arbitrated…….(1996 dollars)

Contract………………………….$20,000………..$22,497…………….$6,000…………………($7,750)

The Federal Judicial Center study “Court Annexed Arbitration in Ten District Courts,” written by

Barbara S. Meierhoefer, found that 62% of judges and lawyers agreed that arbitration lowers costs that would have been incurred in litigation, and 60% reported that arbitration definitely saved them time. Moreover, the Meierhoefer survey found that even attorneys who lost at mediation nonetheless agreed that the hearing was fair.

B. Indeterminable Costs of Litigation

1. TIME

The dictum that “time is money” applies in the legal arena as well as in the business world, especially when the delay on one creates a work stoppage or similar consequences in the other. Though government attorneys are responsible for protecting the public interest, they are morally obligated to do so in as cost effective manner as the situation allows. Instead of maximizing monetary receipts, public legal agencies must minimize their operational costs. Thus, public attorneys discover that their legal duty to protect the public interest often conflicts with their moral duty to control expenses.

One of the few ways of meeting both objectives is increased productivity. What this amounts to is that the same number of attorneys (or less) must resolve more cases in the same amount of time (or even sooner). This demands less time spent per case on average. This does not, however, mean that all cases simply receive less attention. This is a simple matter of case management. Cases must be matched more effectively with the resources necessary (experience, money, and the best legal course of action) to achieve equitable outcomes in a time efficient manner. Litigating for the sake of litigating or in pursuit of marginal gains should not be permitted. The public is not served by litigating dead-horse disputes or prolonging case disposition for muscle gain. ADR, properly applied, can offer quicker satisfaction to complainants not made whole, increase attorney productivity, reduce their operational expenses and better serve the public interest. In addition, ADR has shown great adaptability and could offer similar results in other categories of dispute.

The Federal Judicial Center Report of 1990 found that “Arbitration programs provide more timely case resolutions, two of eighteen months sooner than cases resolved by trial.” In 1995, the Army Contract Appeals Division estimated that in nine case alone, ADR processes spared their lawyers 2,190 days of work.

2. INTANGIBLES

As in most any dispute, the cost to either side involved is not always expressed in court fees, lawyers’ time, or final settlements. There are many “intangibles” at stake. These include trust, respect, cooperation, good will, pleasant working environment, efficiency and productivity, satisfaction, desire to work with the government again, and good public reputation/image. There are many other human elements that could be listed, but, those included there are ample to make the point. A vast array of human costs are paid in the litigative process. Though we could assign an arbitrary cost of each, we opt not to enter such a contentious quagmire here. Suffice it to say, beyond the demonstrable monetary savings, the ADR program avoids considerable human suffering as well.

ADR performance in these matters is stellar. Evidence of ADR’s superlative achievement is provided in surveys of participants who have experienced the techniques. In FY 1994, 84% of all EEO discrimination complaints that entered into an ADR process achieved a complete settlement; partial settlements pushed this amazing success rate to nearly 90% with a 100% compliance rate. Perhaps a more important indicator of ADR’s success is customer satisfaction. Of those who used ADR techniques to settle their dispute most were either very satisfied or satisfied. Another measure of how well ADR serves the needs of Air Force people is how many who have tried it once, would try it again (should the need arise). In FY 1994, 99.6% of the complainants who used ADR and settled their case within 30 days, reported that they would use it again; 98.3% who settled their cases through ADR between 30 and 60 days reported that they would use it again, and 100% of all the other participants who settled their cases in over 60 days reported that they would try ADR again.

V. THE VALUE ADDED SAVINGS OF THE ADR PROCESS

One of ADR’s most valuable attributes is its unique ability to resolve disputes whose greater obstacles proved to be personalities, egos, and ill will between entrenched people. Unlike its formal process strict litigative counterparts, ADR tailors the general process to meet the individual needs of the parties in conflict. In so doing, the ADR approach has proven to be one of the rare methods capable of overcoming the human emotional or obstinance that stood in the way of progress and resolution. In such instances, the savings received can not be precisely accounted for, nor fully appreciated. ADR has succeeded where the traditional procedures and processes remained at an impasse. By tailoring the process to go around the personalities, egos, and entrenched positions, ADR has been able to reconcile some of the most contentious disputants.

Another aspect of this emotion based dispute type that can not be objectively approximated is cases involving the morale, well being, and good working relationships between Air Force personnel both military and civilian. Where the old ways of litigating allowed their limitations, ADR showed its resourcefulness and adaptability to reconcile both sides amicably. Simply stated, not every disagreement has its core and issue of law or a dollar amount due. In such instances, ADR has bridged the gap.

VI. CONCLUSION

The goal of the Administrative Dispute Resolution Act of 1990 is hard to argue with. Resolving disputes and making injured parties whole again in a quick and cost efficient process simply makes sense. The task at hand was to demonstrate that the program works and the taxpayers’ money has been well spent. We believe that the information presented has done so. Without relying on the logic of the ADR concept, we have drawn upon pertinent studies to demonstrate that:

1. Litigated Equal Employment Opportunity claims can cost between $162,390 and $310,390.

2. Unfair Labor Practice dispute can cost $79,003.

3. Tort claims median Non Arbitrated cases can cost $20,484.

4. ADR saves time and increases productivity.

5. Contract disputes median Non Arbitrated costs run $22,497.

6. ADR participants overwhelming approve of the process.

7. ADR settles 84% of all its cases completely and almost 90% partially.

8. ADR can settle disputes that the traditional procedurally strict processes cannot.

Taken together, or separately, where ADR techniques are appropriately used, they resolve disputes, satisfy participants, cost less, and thus serve the public interest. The tax dollars spent on ADR in the Air Force reap superlative rewards for the taxpayers.

Though we would prefer to be in a position to present extensive data to nail down a precise cost savings amount in each case, such data is not available. We therefore have presented what we believe is reasonable and credible information to demonstrate that the litigative route is a very costly road to travel. Where it can be avoided, we should do so. ADR offers a viable alternative. Though only in operation for a few years, all surveys, reports, and indicators lead to the same conclusion ADR saves considerable time, millions of dollars and fulfills, its mission.

We concede that any or all of these savings amounts are the best approximations only and every monetary amount could be challenged on various grounds, but based upon the data currently available, these figures seem sufficiently supported by information collected and the existing expertise of practitioners to provide every reasonable cost approximations. In the future, a more focused collection of all pertinent costs incurred will be gathered and analyzed. We are confident that that research will further demonstrate to the interested American taxpayer that their investment in ADR has been well spent on their behalf.

APPENDIX A

*Source of Data: U.S. Department of the Interior Office of the Secretary and Other Departmental Offices A Report on Development and Implementation of a Cost Savings Analysis Model for Processing Discrimination Complaints” NOTE: These are 1988 dollars. A modest 4% annual increase is applied to arrive at an adjusted amount of $28,872 for 1996.

**Source of Data: GOA Model Average Cost Per Case For Settlements (Awards), NOTE: The $15,537 figure is based upon data from 1987-88. A modest 4% annual increase is applied to arrive at an adjusted amount of $21,264 for 1996.

***Source of Data: OMB indicate Costs Per Case for the processing staff to close a case presented via GOA report Problems Persist in the EEO Complaint Processing System for Federal Employees, GOA/FPSCP 83-21 dated April 7, 1983 that was based on 1981 data. A modest 4% annual increase is applied to arrive at the adjusted amount of $14,390 for 1996.

****Source of Data: GAO data provided in its March 1992 report, “Federal Workforce: Agencies’ Estimated Costs for Counseling and Processing Discrimination Complaints” indicated that 1/7 of the aggregate amount of money the Air Force spent to resolve discrimination complaints in FY 1991 was expended in the appeals process. This 14% of the money addressed approximately 5% of the claims. The resulting ratio of 2:7:1 (20 * 1/7) was applied to the costs incurred in the complaints process up to the appeal stage (i.e. $50,136). The result comes to almost three times the average spent per case up to that point 2.7 * $50,136 = $136,083.

TAB 5. * Statement of Jack H. Watson, Jr., At Large Council Member, Section of Dispute Resolution American Bar Association, before the Subcommittee on Courts and Administrative Practice, Committee on the Judiciary, United States Senate in support of HR 1102 the Court Arbitration Authorization Act of 1993, October 29, 1993.

TAB 6 * As reported in Statement of Jack H. Watson, Jr., At Large Council Member, Section of Dispute Resolution American Bar Association, before the Subcommittee on Courts and Administrative Practice, Committee on the Judiciary, United States Senate in support of HR 1102 the Court Arbitration Authorization Act of 1993, October 29, 1993.



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