Alternative Dispute Resolution Effective Solutions for Disputes

1. Alternative Dispute Resolution Effective Solutions for Disputes World Congress 2007 Brenda Patton, Boeing, CFCM, Certified in ADR Whitney Taylor, WellPoint, Inc., M.A. Certified in ADR

2. Alternative Dispute Resolution “ADR” • Concept • Process • Value/Benefits • Integration • Policy Considerations • Case Studies • Keys to Success

3. “I was never ruined but twice: once when I lost a lawsuit, and once when I won.” Voltaire

4. ADR Concept • Neutral third party • Variety of approaches that may or may not be binding • Includes negotiation, mediation, arbitration, mini trial, summary jury trial, moderated settlement conference

5. Hypothesis • ADR is a growing trend that will rapidly prove its value to corporations worldwide

6. Trends • 1980’s - ADR adopted by 600 large corporations; achieved considerable savings • Litigation “look alike” process negatively impacted success • Companies committed to ADR and to an ADR process • Increasing costs of litigation • Legal expertise in demand, expensive and limited access • Most states across US have instituted Ethical Guidelines for Mediators and State ADR Acts • 1987 Senate Bill 1436 passed enabling ADR in Texas – primarily for family disputes

7. Trends (Continued) • 1999 US Air Force adopted “ADR First Policy” • Judges referring cases to mediation • 10% or less of lawsuits filed are resolved by judge or jury verdict • Organizations’ contracts are incorporating arbitration clauses • Escalation clauses & processes adopted to ensure resolution at appropriate management levels • Even when “you know you’re RIGHT,” ADR still proves beneficial • Beneficial for value-based relationships • High level of receptivity due to time and cost savings

8. Mediation “Mediation is a decision-making process in which the parties are assisted by a third party, the mediator, who attempts to improve the process and assist the parties in reaching an outcome to which all can assent.” Laurence Boulle, Mediation: Principles, Process, Practice (1996)

9. Process • Expands conversation • Focuses on interests • Identifies common interests • Results in mutually satisfactory solutions • Maintains control of outcomes • Documents results in writing; signed by parties involved

10. Value/Benefits • No perfect contracts • Defines and facilitates mutual agreement for dispute resolution process • Reduces court cases and related costs • Saves time and anguish • Enables parties to maintain control of outcomes • Maintains/Improves relationships • Results are in writing and requires agreement by parties involved

11. Reduces Court Cases $20 Billion annually in attorney fees FMCS – 2006 statistics • 5,484 Collective Bargaining Contract Negotiations • 2,473 Labor Arbitration Cases • 1,625 Grievance Mediation Cases • 1,022 Employment Cases Importance when Disputes Arise with Customers/ Suppliers1 • Cost: 72% • Winning: 72% • Predictability: 65%

12. Integration Escalation Process • Escalate through leadership levels • Establish Mediation triggers, process and timeframes • If unresolved at VP or SVP level, then • Prior to any lawsuits being filed and termination • Parties select a 3rd party mediator • Parties agree to sign Mediation Settlement Agreement on or before 90 days following Mediation Trigger • Define next steps – include timeframes • Mandatory Non-Binding Arbitration • Binding Arbitration - Commercial Arbitration Rules of the American Arbitration Association

13. Policy Considerations • ADR clause included in both purchase and sale contracts • Informal Dispute Resolution • Mediation • Mandatory Non-Binding Arbitration • Binding Arbitration in accordance with the Arbitration Rules of the American Arbitration Association • Justification required for omission

14. Boeing ADR Case Study • “Getting To Yes” • Apache Program Case Study • 1994 – had 12 or more cases in litigation with US Army • 2004 – 0 cases in litigation • Adopted informal form of ADR we called “joint self mediation” with Army Fisher, Roger and Ury, William Getting to Yes, New York: Penguin Books, 1991 Hepworth, Joseph M., Joint Self Mediation, Arizona ADR Forum Winter 2004 Issue, January 2004

15. Process Used Negotiated process to be used • Explore respective interests • Generate options for mutual gain • Identify appropriate standards • Discuss risks associated with alternatives to agreement • Decision makers & their attorneys meet to reach agreement • Document agreement Hepworth, Joseph M., Joint Self Mediation, Arizona ADR Forum Winter 2004 Issue, January 2004

16. Future of Process • Every dispute introduced to process solved • New disputes are managed primarily by contracts & program personnel • Record the process so that it isn’t personality-based

17. U.S. Air Force Case Study Scenario prior to ADR • $1B in contract claims resolved at trial • Years to resolution Goals • Foster better business relationships • Increase remedy options • Reduce time necessary to resolve disputes Policy • Use ADR to maximum extent practicable to resolve disputes at earliest stage Douglas, Karen (Major, U.S. Air Force JAG). “ADR for Air Force Contracts: Precision-Guided Solutions Right on Target.” Contract Management. December 2005

18. U.S. Air Force (Cont’d) Outcome • 18 largest contractors use ADR first (i.e. Boeing, DynCorp, GE Aircraft Engines, Lockheed Martin Corp, Northrop Grumman Corp., Raytheon, etc.) • Offers ADR in 85% of contract appeal cases based on ADR selection criteria; 40-50% choose to participate • $1B in contract claims • Resolved in months, not years

19. NCR/AT&T Global Information Solutions Dispute Resolution Evolution • Committed to ADR Process including immediate action • Implemented ADR System • Hired ADR expert to manage process • Prohibited use of court system in future • Tracked dispute avoidance and savings Outcomes • Reduced lawsuits from 263 in 1984 to 9 incurring outside legal fees <$1M in 1994 • Resolved 60% of filed cases within one year • Eliminated need for court resolutions • Achieved substantial cost savings Carver, Todd B. and Vondra, Albert A., “Alternative Dispute Resolution: Why It Doesn’t Work and Why It Does”in Harvard Business Review on Negotiation and Conflict Resolution, ed (Boston: 2000)

20. Other Case Studies • Chevron - $25,000 for ADR-based mediation VS an estimated $700,000 for external legal council facilitated mediation VS $2.5M for court case and 3-5 years for resolution Carver, Todd B. and Vondra, Albert A., “Alternative Dispute Resolution: Why It Doesn’t Work and Why It Does”in Harvard Business Review on Negotiation and Conflict Resolution, ed (Boston: 2000)

21. FAR Disputes Clause 33 Part 33.1 Protests, Subpart 33.2 Disputes, & Appeals 52.225-11 Long process FAR ADR Clause 33.214 Can be used anytime KO has authority to resolve issue If contractor rejects… If KO rejects… 3rd Party Neutral Confidentiality Binding Arbitration Compare dispute clause to ADR

22. Keys to Success • Commitment • Immediate action • Persistence • Thoroughness • Analysis & process improvements

23. ADR Resources • Association for Conflict Resolution • Alternative Dispute Resolution of the State Bar of TX • Bond University, Australia • Center for Public Resources • Harvard University • Pepperdine University • Southern Methodist University

24. Bibliography • Boulle, Laurence, Mediation Skills and Techniques, Chatswood: 2006, Butterworths • Carver, Todd B. and Vondra, Albert A., “Alternative Dispute Resolution: Why It Doesn’t Work and Why It Does”in Harvard Business Review on Negotiation and Conflict Resolution, ed (Boston: 2000), 189 • Cialdini, Robert B., Influence, the Psychology of Persuasion, New York: William Morrow and Company, 1993 • Douglas, Karen (Major, U.S. Air Force JAG). “ADR for Air Force Contracts: Precision-Guided Solutions Right on Target.” Contract Management. December 2005 • Fisher, Roger and Ury, William Getting to Yes, New York: Penguin Books, 1991 • Hepworth, Joseph M., Joint Self Mediation: How the Apache Program Avoids Litigation, Arizona ADR Forum, January 2004 • Ury, William L, Brett, Jeanne M., and Goldberg, Stephen B., Getting Disputes Resolved, Designing Systems To Cut The Costs of Conflict, San Francisco: Jossey-Bass, 1988

25. Q&A

26. Brenda Patton, Boeing Brenda.g.patton@boeing.com Whitney Taylor, WellPoint, Inc. Whitney.taylor2@wellpoint.com