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



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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