OTTAWA - The federal government has named former Supreme Court justice Frank Iacobucci as its chief negotiator to hammer out a historic deal to compensate 86,000 former students of Indian residential schools.

Iacobucci, who retired last year from the high court, will work with the Assembly of First Nations, former students and their lawyers, as well as lawyers for the churches who ran most of the 130 residential schools as a joint venture with the federal government between 1870 and the mid-1970s. The plan is to draft a settlement proposal by March 31, 2006.

He is to recommend whether lump-sum payments should be made to all former students, and how much.

He will also consider a truth and reconciliation forum, new healing programs, an official apology and improvements to a bogged-down federal process that's meant to speed settlements out of court.

After making the announcement Monday with AFN national chief Phil Fontaine by her side, Deputy Prime Minister Anne McLellan declined to comment on how much an ultimate settlement might cost.

But the political accord signed by Ottawa and AFN indicates the starting point for discussions is an AFN lump sum compensation proposal which has been estimated to cost more than $4 billion.

McLellan stressed that Ottawa wants legal "finality," namely, a solution that will derail class-action lawsuits claiming billions of dollars in damages.

Iacobucci will negotiate to that end before any universal lump-sum payments are offered, she said.

More than 11,000 individual abuse lawsuits, plus a handful of class-action claims, are moving slowly through the courts, with federal liabilities estimated between $2 billion and $10 billion. Any effort to resolve the claims through a single, out-of-court payment system will require similar amounts of money, say lawyers for native plaintiffs.

If a large compensation package isn't put in place, the government may succeed in appeasing the majority of former students who were not seriously harmed in the schools, but it'll still face claims from a substantial minority with abuse claims, determined to continue their lawsuits in the courts.

"There is the potential problem of thousands of plaintiffs deciding not to join any compensation framework," says Darcy Merkur, one of the Toronto lawyers shepherding a national class-action claim through the courts. "Any system has to have real financial incentives to be successful (and) even if it does, there may still be a few thousand lawsuits remaining."

The AFN says each student or their descendants should get $10,000 plus $3,000 for each year spent in the schools.