Dispute Resolution Guide

June 1995
Update November 2003

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Contracting Directive (Archived Document)

MEMORANDUM
Security Classification
File number
Date 1995.06.16
Telephone/FAX 957-4997/941-2279
TO: Management Committee / Comité de gestion

FROM: Deputy Minister / Sous-ministre

SUBJECT: Directive Concerning the Use of Dispute Resolution Clauses in Contracts
Comments
In March, 1994, the Honourable Allan Rock, Minister of Justice and Attorney General of Canada, indicated that it was the intention of the Department of Justice "... to play a leadership role in promoting alternatives to courtroom litigation". He stated that "... the development of mechanisms for alternative dispute resolution are not simply options - they are an imperative".

In making known our Department's intention to play this leadership role, the Minister specifically committed to working with our clients to introduce ADR clauses into the various contracts to which the Government is a party.

The term "contract" has the meaning as set-out in the Treasury Board Manual on contracting and pertains to provision of goods, performance of services, construction of a work or leasing of real property for appropriate consideration. "Contract" also covers agreements entered into pursuant to the Government Contracts Regulations and grants, contributions and financial agreements if they are of a commercial nature.

Where appropriate, employees involved in the preparation of contracts must make every effort to insert dispute resolution clauses into contracts drafted by them to which the department is a party. These clauses may range from provisions for resolution of disputes, as they arise, by way of structured negotiations to other alternatives such as mediation and arbitration. To assist you in this regard, Dispute Resolution Services has made available the Dispute Resolution Reference Guide which contains material on drafting contract clauses, practice modules, criteria to help in selection of the appropriate dispute resolution approach as well as other reference material, including relevant Treasury Board policies/guidelines. Counsel in Dispute Resolution Services are available to assist with advice in particular cases.

Justice legal practitioners involved in advising client departments and in the preparation of contracts for client departments, must also make every effort in this regard. Justice legal practitioners must work in close cooperation with our client departments to make them aware of dispute resolution options that may be included in contracts to which the government is a party and that will serve the client department's needs.

As you know, the Client Driven Service Initiative (CDS), which is currently underway, will play a major role in defining the future direction of the Department of Justice. As I said in the State of the Department message, the CDS exercise "... is intended to give concrete meaning to our commitment to client service and to finding cuts in a policy - driven, planned way". I referred to the creative use of alternative dispute resolution as one way, of many, to find savings. The creative use of alternative dispute resolution approaches in government contracting is consistent with the CDS approach to meet client needs with a flexible, efficient and optimum delivery of services.

I will soon be writing to client Deputy Ministers to inform them of this directive and other ADR initiatives underway with a view to making them aware of the options open to them and the services we, as their legal advisers, can offer. As the Minister said when he spoke at the Legal Services Sector Conference on May 16, the role of legal services lawyers "... is crucial to the success of the ADR initiative. You must take ownership and show leadership". This is equally true for all other justice legal practitioners and employees of the Department.

This move to anticipating the disputes that may arise in a contractual relationship and making provision for their resolution in the terms of the contract, is part of the overall trend toward greater use of alternatives to litigation. Not every contract to which the government is a party will be appropriate for a dispute resolution clause. Counsel will need to assess the nature of the disputes that may arise. Other factors to be taken into account may include the nature of the relationship between the parties, their needs and their desire to control the outcome and the process. There may be cases where negotiation of such provisions with other parties to the contract may prove difficult, and we must recognize the consensual nature of both the contracting process itself and of the ADR processes that may be included. Yet, we are continuing to move in the same direction as the private sector. Courts and law societies are increasingly encouraging counsel to make better use of the range of dispute resolution options available.

In the federal public sector, the trend towards greater emphasis on alternative dispute resolution has also been apparent. Treasury Board's contracting policy notice of January, 1993, on the expanded use of arbitration for contract dispute resolution, followed by the Board's guideline on contract administration of May, 1993, that deals with dispute resolution, are evidence of this, as are the Board's October 1994 guidelines on settling disputes in real property transactions by arbitration. These guidelines and policy notice are available to provide direction for your work. Government officials and Justice counsel have also increasingly been gaining experience with dispute resolution alternatives.

With respect to the cost of use of ADR processes such as mediation and arbitration, Treasury Board has provided in its guideline, dated May 31, 1993, Information and Administrative Management Component, chapter 12, an indication that process costs should be shared equally by the parties and each party bears its own costs of preparation and participation.

In cases where dispute resolution clauses are not included in the terms of a contract, it will be important to know why that is the case. Dispute Resolution Services will be making available a form, developed in conjunction with the Research and Statistics Section of the Department, in which to report usage of dispute resolution clauses and through which we will be able to track reasons for not using such clauses in contracts. This will be invaluable in letting us know whether we are achieving our objectives and will also help in identifying any barriers to the use of alternative dispute resolution which could be addressed.

I look forward to your cooperation in this initiative. This is a significant step in helping us to play a leadership role in promoting alternatives to litigation.

George Thomson

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