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Construction Disputes – Construction Industry Payment and Adjudication Act 2012

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The Construction Industry Payment and Adjudication Act (CIPAA) 2012 is an act that resolves cash flow problems in the construction industry by providing a remedy for debt recovery from the non-paying party. CIPAA applies only when the following four requirements are fulfilled: (i) a contractual relationship; (ii) via written construction contract; (iii) relating to a construction of a building of 4-storeys and above; and (iv) a construction work carried out wholly or partly in Malaysia.  CIPAA does not apply to contracts entered into by individuals for any building less than 4-storeys high, which is wholly intended for the individual’s occupation.

(I) CONCEPT

The prescribed procedure under CIPAA is called “adjudication” – a means of dispute resolution that allows the claimant to obtain prompt payment from the respondent (non-paying party) on monies owed under a written construction contract, with an assessment of the claim conducted by a qualified and independent industry expert (adjudicator). As adjudication is a mandatory and statutory process, either party of a construction contract can commence the process without agreement from the other; however, the four requirements mentioned above must first be satisfied. The process itself is private and confidential.

As adjudication under CIPAA only deals with construction disputes regarding the payment for work done and services rendered as stipulated under the terms and conditions of a construction contract, the jurisdiction of an adjudicator is limited solely to the recovery of payment. The decision made by the adjudicator is binding on the parties in dispute subject to arbitration proceedings or litigation in court if the parties desire to bring the matter further.

(II)  PROCESS

The adjudication process under CIPAA takes a total time of 5.5 months to reach a decision, which is relatively simpler and faster than arbitration or court proceedings. Before the process of adjudication, the claimant should first have the following documents in place: (i) the written construction contract; (ii) the duly served letter or notice of demand; (iii) any payment certificates; (iv) any invoices; and (v) any other supporting documents, to support his claim against the non-paying party.

With all documents prepared, the claimant can proceed to serve a payment claim to the non-paying party (the respondent). The respondent, upon receiving the payment claim must respond within 10 working days, either by making payment or serving a payment response to the claimant. The entire payment claim is deemed to be disputed if the respondent fails to respond within the stipulated time. 

The adjudication proceeding is initiated by serving the notice of adjudication on the respondent. Subsequently, an adjudicator will be selected. The appointment can be done (i) by agreement of the parties in dispute; or (ii) by the Director of Asian International Arbitration Centre (AIAC). Once the appointment is done, the terms of appointment and fees acquired can be negotiated between the adjudicator and the parties.

After that, the claimant shall serve the adjudication claim on the respondent. Upon receipt of adjudication claim, respondent is to serve an adjudication response to both claimant and adjudicator within 10 working days. Claimant shall serve an adjudication reply if he desires within 5 working days on receiving the adjudication response.

The adjudicator must deliver a decision within 45 working days from the service of the adjudication response or the adjudication reply, if any. The outcome of adjudication proceeding is binding, unless it is set aside by the High Court. In a situation where either party does not agree with the adjudication decision, the case can be reopened through arbitration or litigation at the conclusion or termination of the construction contract.

The claimant can be remedied with recovery of payment upon the conclusion of adjudication process in addition to a host of other remedies, such as a right to reduce the rate of work progress, to suspend work, or to secure direct payment from the principal

III) REMUNERATION OF ADJUDICATOR

            The fees for an adjudicator is shared equally between the parties and should be deposited in advance as security. However, on the conclusion of adjudication process, the losing party will have to reimburse the successful party as well as the amounts decided by the adjudicator with regard to the payment dispute.            

The standard fees for the service of an adjudicator is stipulated in Regulation 6 Construction Industry Payment & Adjudication Regulations 2014, as shown below in Table 1. The fees shall include all taxes as may be imposed by the Government on the fees earned by an adjudicator. Remuneration can be higher than the standard fee as stated in Table 1 if the parties agree.

The adjudicator is also eligible to claim for expenses as stated below in Table 2. These claims are subject to the submission of actual invoice, receipt or such evidence acceptable to the parties in dispute.


(IV) CONCLUSION

Adjudication offers a simpler and faster process compared to arbitration or court proceedings. The enforcement of CIPAA has promoted and ensured prompt payment, reduced issues of cash flow shortage, and aided players in the construction industry such as consultants, contractors, sub-contractors and building material suppliers in completing their tasks efficiently. In conclusion, we view CIPAA as a step in the right direction for the construction industry as a whole. In conclusion, we view CIPAA as a step in the right direction for the construction industry as a whole.


This article was contributed by Alicia Lee and Hynn Choo of C.C.Choo, Hazila & Teong. If you have any queries concerning the contents of this article, please feel free to contact us at:

Email: ccchtkl.c@gmail.com

Tel: 03-27752175