According to the PMBOK® Guide, specifically within the Control Procurements process of the Project Procurement Management knowledge area, Claims Administration is the formal tool and technique used to handle contested changes and potential constructive changes.

Definition of Claims: A claim is a request, demand, or assertion of rights by a seller against a buyer, or vice versa, for consideration, compensation, or payment under the terms of a legally binding contract.

Alternative Dispute Resolution (ADR): When the buyer and seller cannot reach an agreement on a claim (a " disputed change " ), it is handled through the claims administration process. The preferred method of settling all claims is through negotiation. If negotiation fails, the parties may use Alternative Dispute Resolution (ADR), such as mediation or arbitration, as defined in the contract ' s terms and conditions.

Hierarchy of Resolution: The PMBOK® emphasizes a specific order: 1. Negotiation (Preferred), 2. ADR (Mediation/Arbitration), and 3. Litigation (Legal action in court, the least desirable).

Why the other options are incorrect:

A. Interactive communication: This is a Communication Method used in Project Communications Management. While it involves multidirectional exchange of information, it is not the formal legal/contractual framework used for settling procurement disputes.

C. Conflict management: This is a Tool and Technique used in Manage Team and Manage Stakeholder Engagement. While ADR is a form of resolving conflict, " Conflict Management " in PMI terms refers to the general interpersonal skills (e.g., Withdraw/Avoid, Smooth/Accommodate, Collaborate/Problem Solve) used with team members and stakeholders, not the specific contractual administration of claims.

D. Performance reporting: This is a process (or part of Manage Communications) that involves collecting and distributing performance information. It provides the data that might lead to a claim, but it is not the technique used to resolve the dispute.