CONSTRUCTION INDUSTRY PAYMENT AND ADJUDICATION ACT 2012 (CIPAA)

By:

Bryan Lui (Co-Managing Partner) [bryanlui@luibhullar.com]

Harneshpal Karamjit Singh (Co-Managing Partner) [harnesh@luibhullar.com]

CIPAA Act 2012 enhances cash flow, resolves disputes, reducing project delays, delivering better properties. Applies retroactively to Malaysian contracts.

The real estate market and the construction industry share a symbiotic relationship, where advancements in one sector positively influence the other. The enactment of the Construction Industry Payment and Adjudication Act 2012 (CIPAA) marks a significant milestone in the construction realm. Both government authorities and industry stakeholders anticipate that the Act's provisions aimed at enhancing cash flow and resolving payment disputes will lead to fewer project delays and abandonments, as well as the delivery of higher-quality properties at more affordable prices.

Effective from 15th April 2014, the CIPAA aims to streamline payment processes, expedite dispute resolution through adjudication, and provide avenues for payment recovery within the construction industry, along with addressing related matters.

Retrospective Application of the CIPAA:

The Act applies retroactively to all construction contracts, regardless of their date, that pertain to construction work conducted wholly or partly within Malaysia, including those involving governmental entities. However, it does not extend to contracts initiated by individuals for the construction of buildings less than four storeys high intended for personal occupation. The Act's application to contracts and payment disputes preceding 15th April 2014 was contested in court, resulting in a ruling affirming its retrospective effect, a stance supported by a circular issued by the Kuala Lumpur Regional Centre for Arbitration (KLRCA).

Types of Applicable Contracts:

The Act's scope encompasses various contracts, including those for construction work, consultancy services, and labor and material procurement. It is not restricted to written agreements, as the definition of "made in writing" adopted by the KLRCA covers a broad spectrum of contractual arrangements.

Certain government contracts, such as those for power and water treatment plants, are exempt from the Act's provisions under the Construction Industry Payment & Adjudication (Exemption Order) 2014. However, these exemptions are narrowly construed and primarily apply to contracts involving federal or state governments, excluding those awarded by government-linked companies (GLCs).

Adjudication Process:

The adjudication process under the CIPAA Act offers a faster alternative to traditional litigation or arbitration, potentially concluding within 100 working days from initiation. Before commencing adjudication proceedings, an unpaid party must issue a payment claim, which can cover interim payments, final payments, and retention sums due under the construction contract. The non-paying party has ten working days to respond to the payment claim, either admitting or disputing its validity. Failure to respond deems the entire claim disputed.

Upon referral to adjudication, parties must agree on an adjudicator or request the KLRCA to appoint one from its register. Adjudicators must meet specific qualifications and experience criteria set by the KLRCA. The adjudication process proceeds swiftly, primarily based on written submissions, thereby saving time and costs.

Adjudication Decision:

The adjudicator's decision, delivered within 45 working days, carries temporary finality and is binding unless challenged on grounds such as fraud, denial of natural justice, lack of independence, or exceeding jurisdiction. In cases of non-compliance, the successful party can enforce the decision through various means, including suspension of work, direct payment demands, or court enforcement proceedings.

Confidentiality and Incidental Matters:

Adjudication proceedings are deemed confidential under Section 20 of the CIPAA, with limited exceptions. Additionally, the Act voids conditional payment provisions in construction contracts and mandates fair and reasonable progress payments in the absence of express terms.

Statistics and Conclusion:

Statistics indicate a substantial number of adjudication matters registered, with a majority decided in favor of claimants, reflecting the Act's pro-claimant nature. Since its inception, construction adjudication under the Act has gained momentum, promising improved project delivery and construction quality. The long-term impact of the CIPAA on the real estate market is eagerly anticipated, heralding positive transformations in the construction industry.

Please contact us for a free consultation via WhatsApp (+60143000960) or E-mail (admin2@luibhullar.com) for any queries regarding CIPAA or construction matters.