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Alternative Dispute Resolution– Part 2
Using ADR in Supply Chain Disputes
Incorporating ADR into your Purchasing Management Best Practices
4. Carrying out ADR
As ADR becomes more commonplace, some companies are not only instructing counsel to increase their use of ADR but training their contract managers on how to take a case through mediation, particularly where the dispute relates to questions of fact, such as why the goods were damaged, rather than questions of law. While litigation tends to be used only when the contract has come to an end, and tends to be inconsistent with an ongoing relationship with a supplier, ADR can be used at different stages of the “contract continuum” and can be used to take an issue ‘off-side’ while keeping the supply relationship in place.
5. Savings and benefits
While there are no clear industry statistics, U.S. figures suggest that parties spend $50,700 per claim (approximately $25,000 per party) on litigation and about $7500 ($3750 per party ) for ADR services - a savings of approximately 85 per cent. Time to resolution through ADR tends to be measured in weeks or months, rather than years. In Canada, fewer than four per cent of cases ever proceed to trial. Therefore, most litigation costs are incurred during the preliminary stages, prior to a trial. Committing to ADR in advance of filing a defence, or at another early stage in the litigation process, will optimize opportunities for savings.
Some businesses negotiate preferred rates or flat fees with law firms while others in-source work to in-house legal departments. Now many businesses are using ADR to avoid litigation altogether, using mandatory ADR clauses that state, in their simplest form, that all disputes will be resolved through mediation or arbitration - in short, there will be no litigation initiated by either party associated with resolving disputes under this contract. Where a mandatory ADR clause has not been included in the contract, parties may seek agreement to use ADR in any event, although this is often very difficult as the aggrieved party tends to favour early resolution whereas the “defendant” may benefit from deferring resolution and payment of damages under the contract. Accordingly, it is much more effective to reach agreement on the issue up-front and build a mandatory ADR clause into the contract.
Other benefits are confidentiality and compliance. Commercial disputes are seldom a company’s finest hour, and keeping such disputes out of public courthouses is a real incentive to use ADR. When disputes are resolved quickly and by using less adversarial processes, compliance rates tend to go up.
6. Challenges and pitfalls
ADR is an unregulated profession. Many service providers tend to function in small or solo practices without the supervision, resources and quality controls associated with larger professional firms. Settlements and decisions are usually confidential, which may be of real benefit to the parties but also leads to an inability to track and compare resolutions against industry norms. Private settlements can also give rise to questions of quality control, and consistency in the drafting of such settlements – or of individual clauses such as mutual releases – and in the results achieved. Many of these concerns may be addressed by using a specialized ADR service that has invested in model forms and templates, quality control measures, model rules of procedure, time standards, fees policy, tracking of settlements results, and continuous improvement measures, to ensure high quality and consistent standards across a significant volume and range of claims.
7. Service providers
Many litigators have received training as ADR professionals and offer mediation or arbitration services. In addition, there are several large not-for-profit associations in most jurisdictions that assist parties by making referrals to an arbitrator or mediator drawn from their list of professionals who have joined the association. Specialty ADR firms are also arising to respond to the increasing demand for ADR services. Recently the federal government, through Industry Canada, provided funding to assist in the development of advanced ADR tools and solutions. This federal initiative resulted in the establishment of NovaForum Dispute Resolution Services Group (www.novaforum.com). NovaForum’s ADR services are included as part of the Member Service Program of the Canadian Bar Association. The service incorporates tools such as model forms, corporate credit reports, model Minutes of Settlement, translation services, and a database of commonly asked legal questions. b2b
Teri Kirk is a lawyer, ADR professional, and president of NovaForum Dispute Resolution Services Group. Ms Kirk was a guest speaker on “Purchasing Managers’ Best Practices in Dispute Resolution” at the PMAC AGM in Halifax, 2004. For more information contact Andrew Putman at aputman@novaforum.com or toll-free at (866) 682-6682.
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