Improving Security of Payment Building and Construction Industry

5. Proof of Payment Page 70National Public Works Council IncImproving Security of Payment in the Building and Construction IndustryClearly a proper alternative dispute resolution mechanism is required in order tohandle disputes at the earliest opportunity.5.8.5 The ramifications of being seen to interfere in the contractual relationshipbetween a Head Contractor and SubcontractorIf a Principal was to interfere in the contractual relationship between a HeadContractor and Subcontractor, an important issue that arises is the ramification thatmight flow from such an interference. An interference in this context is perceivedby the Head Contractor as reducing his contractual negotiability with theSubcontractors.If a proper alternative dispute resolution mechanism is instituted pursuant to acontract, then it is submitted that there should not be any significant ramificationsdue to interference by the Principal with any contractual relationship between theHead Contractor and the Subcontractor. Indeed, if a trust is set up pursuant to acontract or other direction, an interference with that contractual relationship hasalready taken place. It would seem necessary that some interference by thePrincipal or some other third-party to the dispute would be preferable, rather than nointerference at all, if the dispute is not resolved. To leave it to the parties themselvesto resolve the dispute may not provide a quick dispute resolution mechanism.Interference connotes some form of disruptive or unwarranted influence whereas, inactual fact, interference may have the reverse effect and perhaps is better phrased asbeing a "constructive involvement" in the dispute resolving process.5.8.6 How is a Principal to know if a dispute between a Head Contractor andSubcontractor has been settled satisfactorily without interfering ?The simple answer to this question may be that the Principal finds out that thedispute was in existence and has settled simply by the Subcontractor or the HeadContractor requesting payment.Contracts between the Principal and the Head Contractor and the Head Contractorand the Subcontractor, could provide that where there are disputes between theparties, those disputes must firstly be notified to the Principal and secondly,resolution of the dispute must also be notified to the Principal. There could also bea contractual term that the Principal be involved directly in the dispute resolutionprocess himself.It would seem to be in the Principal's interest to be involved with a dispute at theearliest opportunity, so that the dispute resolution process could be put in placeexpeditiously and with the least amount of cost. Otherwise, the construction time onthe project may be blown out and deadlines not reached.Further, disputes between Head Contractors and Subcontractors may create somecashflow difficulties or budget difficulties for the Principal during the constructionprocess, as deadlines and construction targets are not met. Indeed, cashflow andbudget difficulties may also fall upon Subcontractors lower down the contractual