The Construction Industry Payment and Adjudication Act (CIPAA) was enacted by the government of Malaysia in 2012. It came into effect in April 2014. The Act aims at providing cost-effective, quick and efficient resolution to the cash flow issues being faced by the construction industry.
CIPAA introduced a statutory adjudication process to alleviate disputes in the construction industry. It is applicable only for written contracts. when a dispute arises between the contracting parties, the unpaid party can initiate the adjudication process.
In the case of an adjudication process, the unpaid party is represented as the Claimant and the non-paying party as the Respondent.
Making And Responding To A Payment Claim For Adjudication
- The unpaid party serves a PAYMENT CLAIM on the non-paying party. The unpaid party waits for the PAYMENT RESPONSE from the non-paying party for a period of 10 days.
- If the payment response is received over the interval of 10 days and agreed by the non-paying party, no further proceedings are made. The dispute is termed as resolved.
- If NO PAYMENT RESPONSE received from the non-paying party after 10 days then the claimed amount is deemed disputed. The claimant (unpaid party) may proceed for step 2.
Initiation Of Adjudication
The process of adjudication initiates by a notice by the claimant. The non-paying party against whom the adjudication notice is served will become the respondent.
- The Claimant serves NOTICE OF ADJUDICATION on Respondent
- After 7 working days, the claimant serves notice on the director of KLRCA (Kuala Lumpur Regional Centre for arbitration) to register the ADJUDICATION MATTER.
Nomination Of An Adjudicator
- The claimant (unpaid party) serves notice of adjudication on the respondent (non-paying party). After 10 working days, parties either jointly or one of the party request the director of KLRCA to appoint/nominate an ADJUDICATOR.
- NOTIFICATION OF THE APPOINTMENT on nominated Adjudicator is served by the director of KLRCA after 5 working days. It is done regardless of whether parties jointly agree on the choice of an Adjudicator or not.
Appointment Of The Adjudicator
- Next, Adjudicator serves NOTICE OF ACCEPTANCE on parties after 10 working days.
- After 14 working days, the Adjudicator serves the request on parties to pay the KLRCA administration fee and deposit the adjudicator’s fee to KLRCA. Also, Adjudicator serves a copy of his terms of appointment (including fees) on the Director of KLRCA.
Adjudication Claim, Response And Reply
- The Adjudicator serves notice of acceptance on the parties.
- After 10 working days, the Claimant serves ADJUDICATION CLAIM on Respondent and Adjudicator. Within 7 working days, the Claimant serves a copy of the ADJUDICATION CLAIM to KLRCA.
- The Respondent has the option to serve the ADJUDICATION RESPONSE on the Claimant and Adjudicator within 10 working days. In this case, the Respondent serves a copy of the ADJUDICATION RESPONSE to KLRCA within 7 working days.
- If no response from respondents then after 5 working days the Claimant has the option to serve ADJUDICATION REPLY on Respondent and Adjudicator. In this case, the Claimant serves a copy of the ADJUDICATION REPLY to KLRCA within 7 working days.
Conduct Of Decision Making By The Adjudicator
- The Adjudicator makes a decision on the matter by considering all the facts. The Adjudicator may also call for a site visit or meeting/hearing to arrive at the decision.
- The Claimant may withdraw his adjudication claim at any time before the ADJUDICATION DECISION.
- This step involves the decision making by the Adjudicator. Within 45 working days, the Adjudicator serves ADJUDICATION DECISION on parties and the Director of KLRCA.
- If the decision favors the Respondent then no further proceedings are made. If the decisions favor the Claimant then the Respondent is asked to initiate the payment.
- The dispute is considered settled when the payment is received by the Claimant from the Respondent.
Enforcement Of Adjudication Decision
- In the case of non-payment by the Respondent to the Claimant even after the adjudication decision, the claimant has three options to proceed with:
- The Claimant may serve NOTICE OF SUSPENSION or REDUCTION IN PROGRESS OF PERFORMANCE on the Respondent.
- The Claimant can apply to impose ADJUDICATION DECISION AS JUDGMENT to the High Court.
- The Claimant serves a written REQUEST FOR PAYMENT directly from the principal. The principal serves written notice on the Respondent to show proof of payment.
- If the Claimant proceeds with option 1 then after 14 days upon receiving the payment the Claimant shall resume the work within 10 working days. If no payment received then the unpaid party may suspend the construction project.
- If the Claimant proceeds with option 3 then within 10 working days, the winning party may make a written request for payment of the adjudicated amount. The payment shall be directly made from the principal of the losing party. This will only be possible in case there is money payable by the principal to the losing party.
Generally, the adjudication process will take approximately 90 days to complete. It starts with the issuance of a notice of adjudication and ends with the delivery of adjudication decision by the Adjudicator.
Figure: Infographic Showing The Process Of Adjudication Under CIPAA.
Implications of CIPAA on the Construction Industry
CIPAA changes the way of payment culture in the construction industry in Malaysia. The Act intends to provide a fairer allocation of risk between the employers and the contractors. It enforces the initiation of payment due to the contractor.
With the implementation of CIPAA 2012, it will encourage a system of record-keeping which will be helpful in case of adjudication between the contracting parties in case of a dispute. In addition, parties are advised to have the payment terms in the construction contract in a written form. The terms of the contract must be clear and in a workable manner as the lack of such payment terms will trigger the operation of the default payment provisions under CIPAA 2012.
The adjudication process under the construction industry payment and adjudication act, 2012 aims at resolving disputes in the construction industry in a time-bound period. This has been brought about by the government of Malaysia with the intent of minimizing conflicts and maximizing work.
CIPAA 2012 is a step forward towards strengthening the business of the construction industry. It will also encourage the small contractors and subcontractors to undertake written contracts before entering into a contract with clients.