[Senate Report 104-245]
[From the U.S. Government Publishing Office]



104th Congress                                                   Report
                                SENATE                                 
  2d Session                                                    104-245
_______________________________________________________________________

                                     

                                                       Calendar No. 350


 
             ADMINISTRATIVE DISPUTE RESOLUTION ACT OF 1995

                               __________

                              R E P O R T

                                 of the

         COMMITTEE ON GOVERNMENTAL AFFAIRS UNITED STATES SENATE

                              to accompany

                                S. 1224

  TO AMEND SUBCHAPTER IV OF CHAPTER 5 OF TITLE 5, UNITED STATES CODE, 
      RELATING TO ALTERNATIVE MEANS OF DISPUTE RESOLUTION IN THE 
             ADMINISTRATIVE PROCESS, AND FOR OTHER PURPOSES




   March 27 (legislative day, March 26), 1996.--Ordered to be printed
                   COMMITTEE ON GOVERNMENTAL AFFAIRS

   TED STEVENS, Alaska, Chairman
JOHN GLENN, Ohio                     WILLIAM V. ROTH, Jr., Delaware
SAM NUNN, Georgia                    WILLIAM S. COHEN, Maine
CARL LEVIN, Michigan                 FRED THOMPSON, Tennessee
DAVID PRYOR, Arkansas                THAD COCHRAN, Mississippi
JOSEPH I. LIEBERMAN, Connecticut     JOHN McCAIN, Arizona
DANIEL K. AKAKA, Hawaii              BOB SMITH, New Hampshire
BYRON L. DORGAN, North Dakota        HANK BROWN, Colorado
    Albert L. McDermott, Staff 
             Director
  Leonard Weiss, Minority Staff 
             Director
  Michal Sue Prosser, Chief Clerk
                                 ------                                

SUBCOMMITTEE ON OVERSIGHT OF GOVERNMENT MANAGEMENT AND THE DISTRICT OF 
                                COLUMBIA

 WILLIAM S. COHEN, Maine, Chairman
CARL LEVIN, Michigan                 FRED THOMPSON, Tennessee
DAVID PRYOR, Arkansas                THAD COCHRAN, Mississippi
JOSEPH I. LIEBERMAN, Connecticut     JOHN McCAIN, Arizona
DANIEL K. AKAKA, Hawaii              HANK BROWN, Colorado
   Kim Corthell, Staff Director
 David H. Schanzer, Chief Counsel
Linda J. Gustitus, Minority Staff 
Director and Chief Counsel to the 
             Minority
  Frankie de Vergie, Chief Clerk


                            C O N T E N T S

                              ----------                              
                                                                   Page
  I. Purpose..........................................................1
 II. Background.......................................................1
III. Legislative History..............................................3
 IV. Summary of Legislation...........................................3
  V. Section-By-Section Analysis......................................9
 VI. Estimated Cost of the Legislation...............................11
VII. Evaluation of Regulatory Impact.................................12
VIII.Committee Vote..................................................12

 IX. Changes to Existing Law.........................................12
                                                       Calendar No. 350
104th Congress                                                   Report
                                 SENATE

 2d Session                                                     104-245
_______________________________________________________________________


 REAUTHORIZING ALTERNATIVE MEANS OF DISPUTE RESOLUTION IN THE FEDERAL 
             ADMINISTRATIVE PROCESS AND FOR OTHER PURPOSES

                                _______


   March 27 (legislative day, March 26), 1996.--Ordered to be printed

_______________________________________________________________________


Mr. Stevens, from the Committee on Governmental Affairs, submitted the 
                               following

                              R E P O R T

                         [To accompany S. 1224]

    The Committee on Governmental Affairs, to which was 
referred the bill (S. 1224) to reauthorize alternative means of 
dispute resolution in the Federal administrative process and 
for other purposes, reports favorably thereon and recommends 
the bill as amended do pass.

                               I. Purpose

    The purpose of S. 1224 is to reauthorize permanently the 
Administrative Dispute Resolution Act of 1990 (``the ADR 
Act''). That legislation has succeeded in promoting the use of 
cost-saving alternative dispute resolution (``ADR'') techniques 
in the federal administrative process. This reauthorization 
bill will improve the ADR Act by broadening its confidentiality 
protections, promoting use of binding arbitration to settle 
disputes, streamlining the process for hiring neutrals to 
participate in alternative dispute resolution, and making a 
number of other minor adjustments to the Act.

                             II. Background

    Over the past decades, a consensus has emerged that 
traditional litigation is an inefficient way to resolve 
disputes. Not only is litigation costly, but due to its 
adversarial, contentious nature, litigation often deteriorates 
working relationships and fails to produce long-term solutions 
to problems.
    Congress enacted the Administrative Dispute Resolution Act 
in 1990 to encourage federal agencies to use consensual dispute 
resolution techniques, otherwise known as alternative dispute 
resolution or ``ADR'' in lieu of litigation. It has been proven 
that ADR saves money and helps preserve working relationships 
between federal agencies and parties that have matters before 
them. In addition, since ADR is based on reaching a consensus 
among parties instead of deciding which party ``wins'' the 
dispute, ADR helps to build relationships and construct lasting 
solutions to conflict. The ADR Act was based on the premise 
that the government should take advantage of these beneficial 
methods of conflict resolution.
    By all accounts, the ADR Act has enjoyed a successful five 
years. Agencies are using ADR to resolve contracting disputes, 
discrimination and other employment claims, and regulatory 
enforcement matters. By reducing contracting delays and 
litigation costs, ADR improves the way government functions and 
provides tangible savings to the American taxpayer.
    The Administrative Conference of the United States (ACUS) 
issued a comprehensive report on the ADR Act in February, 1995. 
Although the Conference could not estimate the total 
government-wide savings that have been achieved due to ADR, the 
report is replete with examples of large, multimillion dollar 
disputes that were resolved more quickly and with far less 
acrimony than in the past due to ADR.

                        A. Contracting Disputes

    According to ACUS, nineteen agencies are using ADR to 
resolve contracting disputes. The Army Corps of Engineers, for 
example, used ADR in 55 contract disputes from 1989-1994 and 
resolved 53 of them successfully. In one case, a $55.6 million 
claim was settled for $17.3 million in four days. The 
Department of Defense reported that it is beginning to use ADR 
earlier in the contracting process to avoid the development of 
disputes. This ADR method, known as partnering, focuses on 
creating cooperative working relationships and maintaining open 
communications between the contracting parties.

                         B. Employment Disputes

    Agencies' use of ADR in resolving discrimination claims and 
labor-management disputes has grown rapidly in recent years. 
The Department of Interior attempts to mediate equal employment 
opportunity cases at an early stage and the Secretary credits 
this policy for a 43 percent reduction in formal case filings 
between fiscal years 1992 and 1993. The Equal Employment 
Opportunity Commission intends to use mediation to relieve its 
backlog of discrimination complaints.

                   c. regulatory enforcement disputes

    The Environmental Protection Agency has been the leading 
agency in using ADR to resolve regulatory enforcement actions. 
Pilot programs have been instituted to test the use of 
mediation in civil actions under the Superfund program for 
cleanup of hazardous waste sites. Mediation has been used in 
over 30 cases under the Clean Water Act. In addition, the 
Federal Deposit Insurance Corporation estimates that it saved 
$9.3 million in legal fees and expenses using ADR to resolve 
disputes over loan workouts and creditor claims against failed 
financial institutions.
    The Governmental Affairs Committee's 1990 report on the ADR 
Act noted that the government was a party in 55,000 of the 
220,000 civil cases filed in federal court in 1989. While the 
number of cases filed rose to approximately 239,000 in fiscal 
year 1994, the federal government was a party in only 44,531. 
Although it is not known if this decrease in government 
litigation has been caused by increased use of ADR, this is a 
positive trend that will hopefully continue.

                        III. Legislative History

    The ADR Act expired on October 1, 1995. On September 8, 
Senators Grassley and Levin introduced S. 1224, a bill to 
provide for permanent reauthorization of the Act. A hearing on 
the bill was held by the Subcommittee on Oversight of 
Government Management and the District of Columbia on November 
29. On December 12, the Committee on Governmental Affairs 
unanimously reported S. 1224 with an amendment in the nature of 
a substitute.

                     IV. Summary of the Legislation

    The primary purpose of S. 1224 is to reauthorize the ADR 
Act. All the government agencies and private groups that have 
contacted the Subcommittee on Oversight of Government 
Management have strongly endorsed reauthorization. Likewise, 
all the witnesses testifying at the Senate hearing supported 
permanent reauthorization. As Marshall Breger, former Chair of 
ACUS, stated: ``The ADR Act of 1990 laid the foundation for 
change by forcing agencies to focus on the opportunities 
inherent in ADR. The ADR Act should be reauthorized without a 
sunset provision so that the efficiencies and flexibility 
inherent in non-litigation resolutions can be better 
realized.'' Permanent reauthorization of the Act is warranted 
to continue the progress government agencies have made over the 
past five years incorporating ADR into their normal operating 
procedures.
    S. 1224 also makes a number of necessary adjustments to the 
ADR Act in order to promote the increased use of ADR.

                           a. confidentiality

    Concerns have been voiced by both federal agencies and 
private parties that the original ADR Act did not provide 
sufficient confidentiality protections to ADR participants. For 
ADR to operate effectively, a party must have complete 
confidence that its confidential communications with the 
mediator or other neutral will not be revealed to the other 
party or the general public. As Dr. Steve Kelman, Administrator 
of the Office of Federal Procurement Policy, testified, 
``without adequate assurances of confidentiality, contractors 
are understandably reluctant to engage in the kind of open 
discussions necessary for a successful mediation.''
    The original ADR Act attempted to create an environment 
conducive to successful ADR by prohibiting parties and neutrals 
from disclosing confidential ADR communications unless the 
communications had already been made public, a statute required 
disclosure, or a court ordered the disclosure to promote law 
enforcement or avoid a threat to public health or safety.
    The effectiveness of these confidentiality provisions was 
partially undermined, however, by section 574(j) of the Act, 
which provided that confidential ADR communications did not 
qualify for an automatic exemption from the Freedom of 
Information Act (FOIA). Due to section 574(j), documents 
provided to or generated by an agency in the course of an ADR 
proceeding could be subject to public disclosure through the 
FOIA. Likewise, under the original Act, the notes and records 
of government employees serving as ADR neutrals could be 
subject to a FOIA request. According to Philip Harter of the 
American Bar Association, ``the insecurity section 574(j) 
produces inhibits the use of mediation in situations where it 
would clearly be helpful.''
    S. 1224 would close this gap in the ADR Act's 
confidentiality provisions by exempting confidential ADR 
communications from the FOIA. The bill makes clear that this 
exemption applies not only to communications generated by or 
provided to an agency, but also to communications generated by 
or provided to an ADR neutral, regardless of whether the 
neutral works for a federal agency, private company, or other 
third-party.
    This is a narrow exemption. First, it would apply only to 
``dispute resolution communications,'' which are defined in the 
Act as communications that are ``prepared for the purposes of'' 
ADR proceedings other than final agreements reached as a result 
of ADR. Documents that are created for other purposes do not 
qualify for the FOIA exemption. Second, the FOIA exemption 
would apply only to communications that qualify for 
confidential treatment under the Act. This change in the ADR 
Act, the Department of Justice concluded, would be ``an 
important and beneficial step toward encouraging greater use of 
ADR by administrative agencies.''
    S. 1224 improves the Act's confidentiality provisions in 
two other ways. First, it clarifies that the Act's 
confidentiality protections apply only to communications 
prepared for use in a dispute resolution proceeding. The 
original Act extended these protections to ``information 
concerning'' such communications. By deleting the phrase 
``information concerning,'' S. 1224 eliminates a vague and 
unjustified extension of the Act's confidentiality provisions. 
Second, S. 1224 eliminates section 574(b)(7), which removed all 
confidentiality protection from documents that were provided to 
all parties to an ADR proceeding. There appears to be no sound 
reason why the Act's confidentiality provisions should not 
apply to such documents. By eliminating this exception, S. 1224 
will promote open communication between the parties to a 
dispute, which is often necessary to resolve contentious 
issues.
    The Department of justice strongly supports the bill's 
confidentiality provisions, testifying that they ``strike 
exactly the right balance . . . between the inherent needs of 
confidentiality in an ADR process, and the desires and entirely 
appropriate needs for freedom and openness in Government.''

                    b. arbitration ``escape clause''

    The original ADR Act authorized agencies to refer 
administrative disputes to binding arbitration. However, to 
accommodate a constitutional concern raised by the Department 
of Justice (DOJ) when the legislation was under consideration, 
it included an ``escape clause'' permitting the head of an 
agency to vacate unilaterally the results of an arbitration. 
The Act did not give such powers to private parties.
    DOJ's view was that giving arbitrators the power to issue 
binding decisions on the executive branch of the government 
would violate the Appointments Clause of the Constitution 
because arbitrators are not appointed or subject to removal by 
the President. This was a minority view at the time and 
contrary to the testimony of ACUS, the American Bar 
Association, and a leading legal scholar. Nevertheless, to 
accommodate DOJ's concern, the legislation was amended to give 
the head of an agency unilateral authority to vacate arbitral 
awards, which deprived arbitrators of the power to issue 
binding decisions on the government.
    On September 7, 1995, DOJ's Office of Legal Counsel (OLC) 
reversed DOJ's position and issued a detailed opinion 
concluding that federal agencies could submit to binding 
arbitration without violating the Constitution. OLC determined 
that arbitrators are not ``officers of the United States'' that 
must be appointed by the President and confirmed by the Senate 
because they do not occupy a ``position of employment within 
the federal government.'' OLC concluded that arbitrators are 
``private actors who are, at most, independent contractors to, 
rather than employees of, the federal government.''
    Since the constitutional objection to binding arbitration 
has been removed, there is no longer any reason to reauthorize 
the agency ``escape'' clause. Over the past five years, the 
clause has never been invoked. More importantly, its unilateral 
nature has, understandably, deterred private parties from 
entering into binding arbitration with the government. As 
Charles Pou, Jr., the former Director of ACUS' ADR Program 
concluded, unless the ``escape clause'' is eliminated, 
``arbitration likely will never become a viable alternative for 
the federal government.''
    This would be unfortunate. Throughout the private sector, 
companies are saving money and reducing litigation costs by 
using arbitration to resolve commercial disputes instead of 
resorting to litigation. If we want the government to enjoy the 
efficiencies of the private sector, it must have the 
flexibility to operate as a private business, especially when 
the government is acting as a commercial entity. Indeed, the 
government achieves a double benefit when a case is resolved 
through arbitration rather than litigation because not only are 
agency litigation costs and attorneys fees reduced, but 
judicial resources are freed to pursue criminal cases or other 
civil matters.
    The ADR Act ensures that the government's interest in 
controlling policymaking and protecting the federal budget are 
not compromised when matters are referred to arbitration. 
First, the Act is permissive--it authorizes agencies to use 
binding arbitration, but does not require them to do so. 
Consequently, as Marshall Breger testified in the 1989 hearing, 
``arbitration can in no way be said to reduce accountability in 
agency decisionmaking because it can only be invoked with the 
prior, knowing agreement of responsible agency officials, who 
are subject to presidential supervision. Arbitration, in other 
words, would be employed only if the appropriate government 
official wants it.'' Second, the Act enables the parties to 
choose the precise issues that are submitted to arbitration and 
enter into pre-arbitral agreements requiring that the award 
must be within a range of possible outcomes. Thus, the Act 
gives the government discretion to limit both the types of 
issues an arbitrator will decide and the amount of any award 
that might be imposed by the arbitrator. These are powers that 
the government does not enjoy when cases are decided by the 
federal courts.
    In sum, the ``escape clause'' included in the original ADR 
Act has effectively precluded federal agencies from using 
arbitration to resolve administrative disputes and prevented 
substantial cost savings. In order to resurrect binding 
arbitration as a viable means of resolving administrative 
disputes, S. 1224 repeals the escape clause and all the 
provisions in the ADR Act related to it.
    An agency's decision to use ADR methods, including binding 
arbitration, to resolve disputes is not intended to impact the 
current operation of the judgment fund established by 31 U.S.C. 
1304. The Committee understands that under current agency 
practice the nature of a claim determines whether it is 
eligible to be paid from the judgment fund, regardless of the 
procedures used to resolve it. The Committee intends that 
claims qualifying for payment from the judgment fund, such as 
claims decided by the Board of Contract Appeals, still qualify 
for payment from that fund even if they are settled through 
mediation or another ADR method, or decided pursuant to binding 
arbitration.

                       c. procurement of neutrals

    The dynamics for hiring mediators or other third-party 
neutrals for ADR is different from typical government 
procurement. Unlike ordinary government purchases, agencies 
choose the neutral together with a private party and then share 
the cost.
    There is some evidence that the process for procuring 
neutral services from the private sector is not working. Philip 
Harter testified that he has waited over six months to be hired 
as a mediator by an agency. Indeed, it appears that the 
cumbersome federal procurement process has caused agencies to 
use government employees as neutrals instead of procuring 
mediators from the private sector.
    One of the purposes of the Federal Acquisition Streamlining 
Act (FASA) of 1994 was to give agencies relief from competitive 
bidding procedures under certain circumstances, including the 
procurement of expert witnesses for use in ADR. S. 1224 amends 
FASA to clarify that this exemption includes the hiring of 
neutrals for use in ADR. This clarification is intended to 
encourage contracting agents in federal agencies to take 
advantage of the flexibility that FASA provides to expedite the 
process for contracting for neutrals. In addition, S. 1224 
instructs the Federal Mediation and Conciliation Service (FMCS) 
to work with appropriate agencies, which should include the 
Office of Federal Procurement Policy in the Office of 
Management and Budget, to develop procedures for hiring 
neutrals on an expedited basis. Improvements can and should be 
made to facilitate ADR. The governmental savings that can be 
accomplished through increased use of ADR should not be 
hindered by unnecessary reliance on federal procurement 
policies intended for more complex contracts.

                d. reassignment of implementation duties

    ACUS, the agency that was primarily responsible for 
implementing the ADR Act, did not receive funding in fiscal 
year 1996 to continue its operations. Consequently, S. 1224 
eliminates or reassigns ACUS' ADR responsibilities.
    The bill charges FMCS with the role of encouraging and 
facilitating agency use of ADR. FMCS will operate a library of 
ADR materials and serve as a clearinghouse for dispute 
resolution specialists. FMCS will also continue ACUS' role in 
federal-sector policy development by initiating and continuing 
inter-agency working groups and conducting training seminars. 
S. 1224 authorizes such appropriations as may be necessary to 
accomplish these important functions.
    The ADR Act had directed ACUS to establish qualification 
standards for neutrals and maintain a roster of neutrals 
eligible to participate in ADR with the federal government. 
Neither of these projects was successful. ACUS determined that 
it was more useful to train agencies how to evaluate mediators 
instead of establishing a set of standards. In addition, the 
centralized roster of neutrals was used infrequently and many 
agencies chose instead to establish their own rosters. 
Consequently, S. 1224 does not reassign to another agency ACUS' 
standard-setting or roster responsibilities.
    The responsibility for filing annual reports to Congress on 
agency use of ADR has also been eliminated. Since ADR programs 
have now been established in the covered agencies, the 
Committee believes annual reports would consume limited 
resources better spent elsewhere. Congress can play a more 
effective role in promoting ADR by conducting meaningful 
oversight than requiring agencies to file reports.

                        e. employment grievances

    The original ADR Act did not authorize federal agencies to 
use ADR methods to resolve certain claims and grievances by 
federal employees, apparently to avoid complicating the multi-
layered federal employee appeal process.
    As John Calhoun Wells, Director of the Federal Mediation 
and Conciliation Service, testified, this exclusion 
``discouraged the use of ADR in some disputes where it might 
have been effective.'' ``Access to ADR for these disputes,'' he 
concluded, ``should be available, particularly if it can reduce 
the number of disputes or resolve them at an early stage.'' For 
this reason, S. 1224 repeals the provision that excluded 
federal employee complaints from the scope of the Act. ADR has 
been a highly effective tool for handling employment related 
claims in both the private and public sectors. Application of 
the ADR Act to employment decisions in the federal workforce 
would provide agencies the opportunity to stem the tide and 
cost of employment litigation in the federal government. This 
change in the law will not prejudice the interests of federal 
employees or unnecessarily complicate the employee appeal 
process because ADR may be utilized only with the consent of 
both the agency and the employee. Those who wish to use the 
standard procedures may continue to do so.
    Since the Act has not applied to this area in the past, 
leadership from the highest levels in each agency will be 
necessary to reap the benefits of ADR. This will involve 
direction and support from the agency head and all senior 
managers who supervise employees, especially directors of 
personnel and general counsels. It will also require planning, 
training, the identification and budgeting of needed funds, and 
a commitment to make the program work. Programs established 
under the Act for covered personnel actions and grievances must 
be implemented quickly and ensure neutrality, objectivity, and 
trust in the dispute resolution process.

                        F. Contract Disputes Act

    The Contract Disputes Act requires contractors that file 
claims against the government in excess of $100,000 to certify 
that the claims are made in good faith, the supporting data is 
accurate, and the amount requested accurately reflects the 
amount for which the government is liable. Smaller claims are 
exempted from the certification requirement to reduce the 
paperwork burden on contractors.
    The original ADR Act required that any claim referred to an 
ADR proceeding must be certified, regardless of the amount of 
the claim. This requirement imposed significant paperwork 
burdens on small claims and discouraged use of ADR in these 
matters. S. 1224 would correct this inequity by providing that 
claims referred to ADR are subject to the same certification 
requirements as all other claims subject to the Contract 
Disputes Act.

                          G. Scope of Coverage

    S. 1224 amends the definition of ``alternative means of 
dispute resolution'' to include ``the use of ombuds.'' Ombuds 
are agency employees designed to serve as neutral arbiters of 
agency disputes. To increase the effectiveness of the work of 
ombuds, the bill would extend the protections of the ADR Act's 
confidentiality provisions to disputes in which they serve as 
neutral parties.
    S. 1224 also deletes the phrase ``settlement negotiations'' 
from the statutory list of ADR procedures. This deletion is 
necessary to clarify that agencies cannot fulfill the mandate 
of the ADR Act by merely engaging in conventional settlement 
negotiations to resolve disputes. Rather, the Act requires 
agencies to take affirmative steps to incorporate ADR 
techniques such as mediation, arbitration, partnering, and 
minitrials into their customary operations. As Philip Harter 
testified, ``settlement negotiations do not fit that model.''

                 H. Performance Standards and Budgeting

    A number of witnesses at the Senate hearing suggested that 
a change in the ``litigation culture'' of agencies would be 
necessary to realize the full potential of the ADR Act. In 
other words, the incentive system for federal employees needs 
to be adjusted so that government lawyers and managers are 
rewarded for resolving disputes consensually instead of 
``winning'' them through an adjudicatory process.
    One way that has been suggested to alter the ``litigation 
culture'' of many agencies would be to include ADR skills in 
the performance evaluations of agency managers and attorneys. 
As Marshal Breger commented: ``Only when attorneys know that 
ADR skills are part of their job description will they include 
it as part of their dispute settlement armorarium. Otherwise, 
they will naturally view it as supplementary to their `main' 
job--litigation.''
    The Committee supports this suggestion, but declines to 
impose a statutory mandate in recognition of the need for 
agency flexibility in managing employees. Nonetheless, it is 
expected that agencies will modify their employee performance 
evaluation systems to reflect that timely and inexpensive 
resolution of conflicts, whether through conventional 
settlement negotiations or ADR, has an equal or greater value 
to the federal government than victories in litigation. 
Likewise, performance evaluations should reflect the failure of 
appropriate agency officials to use ADR when appropriate to 
avoid unnecessary litigation.
    The Committee also urges agencies to take further 
administrative steps to integrate ADR into their normal 
operating procedures. In conjunction with the Office of 
Management and Budget, agencies should include ADR in their 
annual performance plans and budget for ADR training, hiring of 
neutrals, and other ADR related expenses. Use of ADR will 
result in cost-savings for agencies in the long run. Thus, 
agencies should be encouraged to incorporate ADR into their 
annual budgets, even though so doing may reflect increased 
short-run expenditures.

                     V. Section-by-Section Analysis

                         section 1. short title

    The section states that the title of the bill shall be the 
``Administrative Dispute Resolution Act of 1995.''

                  section 2. amendments to definitions

    Section 2 amends Section 571 of Title 5 of the United 
States Code, which establishes the definition of terms used in 
the ADR Act. The definition of ``alternative means of dispute 
resolution'' is altered to include ``the use of ombuds'' as 
well as ``binding and non-binding arbitration,'' but exclude 
``settlement negotiations.'' The definition of ``issue in 
controversy'' is amended to delete the provision excluding 
employee grievance proceedings specified under section 2302 or 
7121(c) of Title 5 from the ADR Act. This change would permit 
parties to use ADR to resolve these employment related 
disputes.

           section 3. amendments to confidentiality provision

    Section 3 amends Section 574 of Title 5 of the United 
States Code, the confidentiality provisions of the ADR Act.
    Subsection (a) deletes the provision that disqualifies from 
confidentiality protection documents exchanged between all 
parties to an ADR proceeding. Subsection (b) clarifies that the 
ADR Act's confidentiality provisions apply only to 
communications prepared for purposes of a dispute resolution 
proceeding by deleting provisions that had extended the scope 
of the confidentiality protections to ``any information 
concerning'' such communications. Subsection (c) provides that 
alternative confidentiality procedures established by the 
parties to an ADR proceeding can qualify for the Act's new 
exemption from the Freedom of Information Act only if these 
procedures provide for the same or less disclosure than the ADR 
Act itself.
    Subsection (d) deletes the provision stating that 
confidential ADR documents do not qualify for the exemption 
from the Freedom of Information Act established by section 
552(b)(3) of Title 5. A new subsection makes it clear that 
confidential dispute resolution communications generated by or 
provided to an agency or neutral are exempt from the Freedom of 
Information Act.

   section 4. amendment to reflect the closure of the administrative 
                               conference

    Section 4 contains amendments reflecting that the 
Administrative Conference of the United States (ACUS) has not 
received funding to continue its operations and its ADR 
responsibilities must be eliminated or reassigned. Subsection 
(a) eliminates the requirement that agencies must consult with 
ACUS in developing policies to promote the use of ADR. 
Subsection (b) repeals the provision requiring ACUS to compile 
information concerning agency use of ADR. Subsection (c) 
deletes the reference to ACUS in the Labor Management Relations 
Act.

           section 5. amendments to support service provision

    This section amends section 583 of Title 5 to authorize 
agencies to use the services and facilities of State, local, 
and tribal governments for the purposes of implementing the ADR 
Act.

           section 6. amendments to the contract disputes act

    Subsection 1 amends the Contract Disputes Act to authorize 
contractors using ADR methods to resolve a claim against the 
federal government to follow the same certification procedures 
that are applicable to any other claim subject to that Act.
    Subsection 2 amends the Contract Disputes Act to reflect 
the permanent reauthorization of the ADR Act.

              section 7. amendments on acquiring neutrals

    Section 7 amends the sections of the ADR Act concerning 
neutrals. Subsection (a) amends the Federal Property and 
Administrative Services Act and section 2304(c)(3)(C) of Title 
10, to clarify that agencies may use expedited procurement 
procedures when hiring neutrals for ADR proceedings. Subsection 
(b) amends section 573 of Title 5, which authorizes the 
government to use neutrals in ADR proceedings. This section now 
requires the Federal Mediation and Conciliation Service to take 
on the responsibilities formerly performed by ACUS of 
encouraging and promoting the use of ADR in the federal 
agencies and developing procedures for agencies to hire 
neutrals on an expedited basis. The statutory requirements for 
the government to establish professional standards for neutrals 
and maintain a roster of eligible neutrals are repealed.

           section 8. arbitration awards and judicial review

    Section 8 repeals the provision of the ADR Act which had 
authorized agency heads to vacate unilaterally the results of 
an arbitration, and related provisions.

     Section 9. Permanent Authorization of the Alternative Dispute 
          Resolution Provision of Title 5, United States Code

    Section 9 deletes the ADR Act's sunset provision, thereby 
permanently reauthorizing the Act.

              section 10. authorization of appropriations

    Section 10 creates a new section 584 in Title 5 of the 
United States Code authorizing such funds as may be necessary 
to carry out the purposes of the ADR Act.

                 VI. Estimated Cost of the Legislation

                                     U.S. Congress,
                               Congressional budget Office,
                                  Washington, DC, February 6, 1996.
Hon. Ted Stevens,
Chairman, Committee on Governmental Affairs,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
reviewed S. 1224, the Administrative Dispute Resolution Act of 
1995, as ordered reported by the Senate Committee on 
Governmental Affairs on December 12, 1995. Enacting S. 1224 
could result in some net savings to the federal government from 
increased use of alternative means of dispute resolution (ADR), 
but we cannot estimate the amount of any savings. Any 
improvement in the dispute resolution process would allow 
agencies to make more efficient use of their appropriated 
funds, but would affect total spending only if appropriations 
were reduced correspondingly. Enacting S. 1224 would not affect 
direct spending or receipts. Therefore, pay-as-you-go 
procedures would not apply to the bill.
    S. 1224 would make many changes and additions to the 
current laws relating to the application of ADR to conflicts 
involving the federal government. The bill would change the 
definition of ADR to include the use of ombudsmen and non-
binding arbitration. It would also exclude the use of 
settlement negotiations--that is, negotiations of a complaint 
by an employee and his or her agency without involving a 
neutral party--as a form of ADR. In addition, S. 1224 would 
permit parties to use ADR to resolve employment-related 
disputes and would increase the responsibilities of the Federal 
Mediation and Conciliation Service (FMCS).
    Federal Budgetary Impact. Currently, many executive branch 
agencies utilize various methods of ADR. Data complied by the 
General Accounting Office (GAO) indicates that the use of ADR 
tends to result in more efficient resolutions of disputes, 
although such conclusions are based mainly on anecdotal 
evidence. Implementation of this bill likely would result in 
increased use of ADR by federal agencies. If greater use of ADR 
leads to more efficient dispute resolution, then agencies could 
realize some savings, and such savings could more than offset 
any increased spending by the FMCS in support of ADR. However, 
CBO does not have sufficient information to estimate the 
likelihood or magnitude of such potential savings.
    The bill would require the FMCS to take on some of the 
responsibilities formerly performed by the Administrative 
Conference of the United States (ACUS), which received $1.8 
million in appropriations for fiscal year 1995. Any increase in 
federal spending by the FMCS, however, would be subject to 
annual appropriations actions. Furthermore, as noted above, any 
additional costs from this provision could be offset by savings 
from enhanced use of alternative means of dispute resolution by 
federal agencies.
    Impact on State, Local, and Tribal Governments. S. 1224 
contains no intergovernmental mandates as defined in Public Law 
104-4 and would impose no direct costs on state, local, or 
tribal governments. Such governments currently may resolve 
disputes with the Federal Government through the use of certain 
forms of ADR. S. 1224 would broaden the forms of ADR that are 
available and would eliminate the federal government's ability 
to nullify the results of arbitration proceedings.
    State, local, and tribal governments could decide to 
resolve disputes with the federal government through the use of 
these additional forms of ADR. However, instances where ADR is 
used are rare and usually involve highly complex legal and 
regulatory issues. In those cases, savings may accrue; however, 
the magnitude of any savings resulting from the changes in S. 
1224, in all likelihood, would be relatively small.
    Private Sector Mandates. This bill would impose no new 
private sector mandates, as defined in Public law 104-4.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Mark 
Grabowicz and John Righter, who can be reached at 226-2860, 
Christi Hawley, who can be reached at 226-2820, and, for state 
and local impacts, Leo Lex, who can be reached at 225-3220.
            Sincerely,
                                          June E. O'Neil, Director.

                  VII. Evaluation of Regulatory Impact

    The statute is not expected to require the issuance of 
additional regulations by any federal agency.

                          VIII. Committee Vote

    The Committee ordered S. 1224, as amended, to be reported 
to the full Senate by a unanimous voice vote of the Senators 
then present.

                      IX. Changes to Existing Law

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, changes in existing law made by 
S. 349, as reported, are shown as follows: (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

                 ADMINISTRATIVE DISPUTE RESOLUTION ACT

           Pub. L. No. 101-552, as amended by Pub. L. 102-354

          * * * * * * *

SEC. 3. [5 U.S.C. 581 note] PROMOTION OF ALTERNATIVE MEANS OF DISPUTE 
                    RESOLUTION.

    (a) Promulgation of Agency Policy.--Each agency shall adopt 
a policy that addresses the use of alternative means of dispute 
resolution and case management. In developing such a policy, 
each agency shall--
          (1) consult with [the Administrative Conference of 
        the United States and] the Federal Mediation and 
        Conciliation Service; and
          (2) examine alternative means of resolving disputes 
        in connection with--
                  (A) formal and informal adjudications;
                  (B) rulemakings;
                  (C) enforcement actions;
                  (D) issuing and revoking licenses or permits;
                  (E) contract administration;
                  (F) litigation brought by or against the 
                agency; and
                  (G) other agency actions.
          * * * * * * *

[SEC. 11. [5 U.S.C. 581 note] SUNSET PROVISION.

    The authority of agencies to use dispute resolution 
proceedings under this Act and the amendments made by this Act 
shall terminate on October 1, 1995, except that such authority 
shall continue in effect with respect to then pending 
proceedings which, in the judgment of the agencies that are 
parties to the dispute resolution proceedings, require such 
continuation, until such proceedings terminate.]
          * * * * * * *

   TITLE 5, UNITED STATES CODE: GOVERNMENT ORGANIZATION AND EMPLOYEES

          * * * * * * *

                  CHAPTER 5--ADMINISTRATIVE PROCEDURE

          * * * * * * *

     Subchapter IV--Alternative Means of Dispute Resolution in the 
                         Administrative Process

Sec. 571. Definitions

    For the purposes of this subchapter, the term--
          * * * * * * *
          (3) ``alternative means of dispute resolution'' means 
        any procedure that is used, in lieu of an adjudication 
        as defined in section 551(7) of this title, to resolve 
        issues in controversy, including, but not limited to, 
        [settlement negotiations,] conciliation, facilitation, 
        mediation, factfinding, minitrials, [and arbitration,] 
        use of ombuds, and binding or nonbinding arbitration, 
        or any combination thereof;
          * * * * * * *
          (8) ``issue in controversy'' means an issue which is 
        material to a decision concerning an administrative 
        program of an agency, and with which there is 
        disagreement--
                  ``(A) between an agency and persons who would 
                be substantially affected by the decision; or
                  ``(B) between persons who would be 
                substantially affected by the [decision,] 
                decision;
        [except that such term shall not include any matter 
        specified under section 2302 or 7121(c) of this title;]
          * * * * * * *

Sec. 573. Neutrals

          * * * * * * *
    [(c) In consultation with the Federal Mediation and 
Conciliation Service, other appropriate Federal agencies, and 
professional organizations experienced in matters concerning 
dispute resolution, the Administrative Conference of the United 
States shall--
          (1) establish standards for neutrals (including 
        experience, training, affiliations, diligence, actual 
        or potential conflicts of interest, and other 
        qualifications) to which agencies may refer;
          (2) maintain a roster of individuals who meet such 
        standards and are otherwise qualified to act as 
        neutrals, which shall be made available upon request;
          (3) enter into contracts for the services of neutrals 
        that may be used by agencies or an elective basis in 
        dispute resolution proceedings; and
          (4) develop procedures that permit agencies to obtain 
        the services of neutrals on an expedited basis.]
    (c) In consultation with other appropriate Federal agencies 
and professional organizations experienced in matters 
concerning dispute resolution, the Federal Mediation and 
Conciliation Service shall--
          (1) encourage and facilitate agency use of 
        alternative means of dispute resolution; and
          (2) develop procedures that permit agencies to obtain 
        the services of neutrals on an expedited basis.
          * * * * * * *
    (e) Any agency may enter into a contract with any person 
[on a roster established under subsection (c)(2) or a roster 
maintained by other public or private organizations, or 
individual] for services as a neutral, or for training in 
connection with alternative means of dispute resolution. The 
parties in a dispute resolution proceeding shall agree on 
compensation for the neutral that is fair and reasonable to the 
Government.

Sec. 574. Confidentiality

    (a) Except as provided in subsections (d) and (e), a 
neutral in a dispute resolution proceeding shall not 
voluntarily disclose or through discovery or compulsory process 
be required to disclose [any information concerning] any 
dispute resolution communication or any communication provided 
in confidence to the neutral, unless--
          * * * * * * *
    (b) A party to a dispute resolution proceeding shall not 
voluntarily disclose or through discovery or compulsory process 
be required to disclose [any information concerning] any 
dispute resolution communication, unless--
          * * * * * * *
          (5) a court determines that such testimony or 
        disclosure is necessary to--
                  (A) prevent a manifest injustice;
                  (B) help establish a violation of law; or
                  (C) prevent harm to the public health and 
                safety, of sufficient magnitude in the 
                particular case to outweigh the integrity of 
                dispute resolution proceedings in general by 
                reducing the confidence of parties in future 
                cases that their communications will remain 
                confidential; or
          (6) the dispute resolution communication is relevant 
        to determining the existence or meaning of an agreement 
        or award that resulted from the dispute resolution 
        proceeding or to the enforcement of such an agreement 
        or award[; or].
          [(7) the dispute resolution communication was 
        provided to or was available to all parties to the 
        dispute resolution proceeding.]
          * * * * * * *
    (d)(1) The parties may agree to alternative confidential 
procedures for disclosures by a neutral. Upon such agreement 
the parties inform the neutral before the commencement of the 
dispute resolution proceeding of any modifications to the 
provisions of subsection (a) that will govern the 
confidentiality of the dispute resolution proceeding. If the 
parties do not so inform the neutral, subsection (a) shall 
apply.
    (2) To qualify for the exemption established under 
subsection (j), an alternative confidential procedure under 
this subsection may not provide for less disclosure than the 
confidential procedures otherwise provided under this section.
          * * * * * * *
    [(j) This section shall not be considered a statute 
specifically exempting disclosure under section 552(b)(3) of 
this title.]
    (j) A dispute resolution communication which is generated 
by or provided to an agency or neutral, and which may not be 
disclosed under this section, shall also be exempt from 
disclosure under section 52(b)(3).
          * * * * * * *

Sec. 580. Arbitration awards

          * * * * * * *
    [(c) The head of any agency that is a party to an 
arbitration proceeding conducted under this subchapter is 
authorized to terminate the arbitration proceeding or vacate 
any award issued pursuant to the proceeding before the award 
becomes final by serving on all other parties a written notice 
to that effect, in which case the award shall be null and void. 
Notice shall be provided to all parties to the arbitration 
proceeding of any request by a party, nonparty participant or 
other person that the agency head terminate the arbitration 
proceeding or vacate the award. An employee or agent engaged in 
the performance of investigative or prosecuting functions for 
an agency may not, in that or a factually related case, advise 
in a decision under this subsection to terminate an arbitration 
proceeding or to vacate an arbitral award, except as witness or 
counsel in public proceedings.]
    [(d)] (c) A final award is binding on the parties to the 
arbitration proceeding, and may be enforced pursuant to 
sections 9 through 13 of title 9. No action brought to enforce 
such an award shall be dismissed nor shall relief therein be 
denied on the grounds that it is against the United States or 
that the United States is an indispensable party.
    [(e)] (d) An award entered under this subchapter in an 
arbitration proceeding may not serve as an estoppel in any 
other proceeding for any issue that was resolved in the 
proceeding. Such an award also may not be used as precedent or 
otherwise be considered in any factually unrelated proceeding, 
whether conducted under this subchapter, by an agency, or in a 
court, or in any other arbitration proceeding.
    [(f) An arbitral award that is vacated under subsection (c) 
shall not be admissible in any proceeding relating to the 
issues in controversy with respect to which the award was 
made.]
    [(g) If an agency head vacates an award under subsection 
(c), a party to the arbitration (other than the United States) 
may within 30 days of such action petition the agency head for 
an award of attorney fees and expenses (as defined in section 
504(b)(1)(A) of this tile) incurred in connection with the 
arbitration proceeding. The agency head shall award the 
petitioning party those fees and expenses that would not have 
been incurred in the absence of such arbitration proceeding, 
unless the agency head or his or her designee finds that 
special circumstances make such an award unjust. The procedures 
for reviewing applications for awards shall, where appropriate, 
be consistent with those set forth in subsection (a) (2) and 
(3) of section 504 of this title. Such fees and expenses shall 
be paid from the funds of the agency that vacated the award.]

Sec. 581. Judicial review

          * * * * * * *
    (b)[(1)] A decision by an agency to use or not to use a 
dispute resolution proceeding under this subchapter shall be 
committed to the discretion of the agency and shall not be 
subject to judicial review, except that arbitration shall be 
subject to judicial review under section 10(b) of title 9.
    [(2) A decision by the head of an agency under section 590 
to terminate an arbitration proceeding or vacate an arbitral 
award shall be committed to the discretion of the agency and 
shall not be subject to judicial review.]

[Sec. 582. Compilation of information

    The Chairman of the Administrative Conference of the United 
States shall compile and maintain data on the use of 
alternative means of dispute resolution in conducting agency 
proceedings. Agencies shall, upon the request of the Chairman 
of the Administrative Conference of the United States, supply 
such information as is required to enable the Chairman to 
comply with this section.]

Sec. 583. Support services

    For the purposes of this subchapter, an agency may 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. An agency may accept voluntary and uncompensated 
services for purposes of this subchapter without regard to the 
provisions of section 1342 of title 31.

Sec. 584. Authorization of Appropriations

    There are authorized to be appropriated such sums as may be 
necessary to carry out the purposes of this subchapter.
          * * * * * * *

               TITLE 10, UNITED STATES CODE: ARMED FORCES

          * * * * * * *

Sec. 2304. Contracts: competition requirements

          * * * * * * *
    (c) The head of an agency may use procedures other than 
competitive procedures only when--
          * * * * * * *
          (3) it is necessary to award the contract to a 
        particular source or sources in order (A) to maintain a 
        facility, producer, manufacturer, or other supplier 
        available for furnishing property or services in case 
        of a national emergency or to achieve or to achieve 
        industrial mobilization, (B) to establish or maintain 
        an essential engineering, research, or development 
        capability to be provided by an educational or other 
        nonprofit institution or a federally funded research 
        and development center, or (c) to procure the services 
        of an expert for use, in any litigation or dispute 
        (including any reasonably foreseeable litigation or 
        dispute) involving the Federal Government, in any 
        trial, hearing, or proceeding before any court, 
        administrative tribunal, or [agency, or] agency, or to 
        procure the services of an expert or neutral for use in 
        any part of an alternative dispute resolution process, 
        whether or not the expert is expected to testify;
          * * * * * * *

                  TITLE 29, UNITED STATES CODE: LABOR

          * * * * * * *

Sec. 173. Functions of service

          * * * * * * *
    (f) The Service may make its services available to Federal 
agencies to aid in the resolution of disputes under the 
provisions of subchapter IV of chapter 5 of title 5, United 
States Code. Functions performed by the Service may include 
assisting parties to disputes related to administrative 
programs, training persons in skills and procedures employed in 
alternative means of dispute resolution, and furnishing 
officers and employees of the Service to act as neutrals. Only 
officers and employees who are qualified in accordance with 
section 583 of title 5, United States Code, may be assigned to 
act as neutrals. The Service shall consult with [the 
Administrative Conference of the United States and] other 
agencies in maintaining rosters of neutrals and arbitrators, 
and to adopt such procedures and rules as are necessary to 
carry out the services authorized in this subsection.
          * * * * * * *

             TITLE 41, UNITED STATES CODE: PUBLIC CONTRACTS

          * * * * * * *

                   CHAPTER 4--PROCUREMENT PROCEDURES

          * * * * * * *

Sec. 253. Competition requirements

          * * * * * * *
    (c) An executive agency may use procedures other than 
competitive procedures only when--
          * * * * * * *
          (3) it is necessary to award the contract to a 
        particular source or sources in order (A) to maintain a 
        facility, producer, manufacturer, or other supplier 
        available for furnishing property or services in case 
        of a national emergency or to achieve or to achieve 
        industrial mobilization, (B) to establish or maintain 
        an essential engineering, research, or development 
        capability to be provided by an educational or other 
        nonprofit institution or a federally funded research 
        and development center, or (C) to procure the services 
        of an expert for use, in any litigation or dispute 
        (including any reasonably foreseeable litigation or 
        dispute) involving the Federal Government, in any 
        trial, hearing, or proceeding before any court, 
        administrative tribunal, or [agency, or] agency, or to 
        procure the services of an expert or neutral for use in 
        any part of an alternative dispute resolution process, 
        whether or not the expert is expected to testify;
          * * * * * * *

                      CHAPTER 9--CONTRACT DISPUTES

          * * * * * * *

Sec. 605. Decision by contracting officer

          * * * * * * *
    (d) Notwithstanding any other provision of this Act, a 
contractor and a contracting officer may use any alternative 
means of dispute resolution under subchapter IV of chapter 5 of 
title 5, United States Code, or other mutually agreeable 
procedures, for resolving claims. [In a case in which such 
alternative means of dispute resolution or other mutually 
agreeable procedures are used, the contractor shall certify 
that the claim is made in good faith, that the supporting data 
are accurate and complete to the best of his or her knowledge 
and belief, and that amount requested accurately reflects the 
contract adjustment for which the contractor believes the 
Government is liable.] The contractor shall certify the claim 
when required to do so as provided under subsection (c)(1) or 
otherwise required by law. All provisions of subchapter IV of 
chapter 5 of title 5, United States Code, shall apply to such 
alternative means of dispute resolution.
    (e) [The authority of agencies to engage in alternative 
means of dispute resolution proceedings under subsection (d) 
shall cease to be effective on October 1, 1995, except that 
such authority shall continue in effect with respect to then 
pending dispute resolution proceedings which, in the judgment 
of the agencies that are parties to such proceedings, require 
such continuation, until such proceedings terminate.] In any 
case in which the contracting officer rejects a contractor's 
request for alternative dispute resolution proceedings, the 
contracting officer shall provide the contractor with a written 
explanation, citing one or more of the conditions in section 
572(b) of Title 5, or such other specific reasons that 
alternative dispute resolution procedures are inappropriate for 
the resolution of the dispute. In any case in which a 
contractor rejects a request of an agency for alternative 
dispute resolution proceedings, the contractor shall inform the 
agency in writing of the contractor's specific reasons for 
rejecting the request.

                                
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