CONSTRUCTION INDUSTRY PAYMENT AND ADJUDICATION ACT 2012 (CIPAA): AN OVERVIEW

Purpose of the Act

An Act to facilitate regular and timely payment, to provide a mechanism for speedy dispute resolution through adjudication, to provide remedies for the recovery of payment in construction industry to provide for connected and incidental matters.

Application of the Act

• Applies to every construction contract made writing relating to construction work carried out wholly or partly within the territory of Malaysia including a construction contract entered into by the Government.
• In summary, applicable to construction contracts (including contract entered into by the Government) that is:

1. Made in writing;
2. Relating to construction work; and
3. Carried out wholly or partly in the territory of Malaysia.

• Construction work contract means the construction, extension, installation, repair, maintenance, renewal, removal, renovation, alteration, dismantling or demolition of: –

1. any building, erection, edifice, structure, wall, fence or chimney
2. bany road, harbour works, railway, cableway, canal or aerodrome
3. any drainage, irrigation or river control work
4. any electrical, mechanical, water, gas, oil, petrochemical or telecommunication wor
5. any bridge, viaduct, dam, reservoir, earthworks, pipeline, sewer, aqueduct, culvert, drive, shaft, tunnel or reclamation work

• It also includes:

1. any work which forms an integral part of/preparatory to/temporary for the works aforementioned (including site clearance, soil investigation and improvement, earth-moving, excavation, laying of foundation, site restoration and landscaping)
2. procurement of construction materials, equipment or workers, as necessarily required for any works aforementioned.

• Construction consultancy contract means a contract to carry out consultancy services in relation to construction work and includes planning and feasibility study, architectural work, engineering, surveying, exterior and interior decoration, landscaping and project management services.

Non-Application of the Act

• This Act does not apply to a construction contract:

1. entered into by a natural person;
2. Contract for any construction work in respect of any building which is less than four storeys high; and
3. and which is wholly intended for his occupation.

• This Act does not apply as well to construction work done or services rendered under:

– implied term

-Settlement agreement

-Extra contractual, common law, ex gratia and loss and expenses

Adjudication authority under CIPAA

Asian International Arbitration Centre (AIAC) formerly known as Kuala Lumpur Regional Centre for Arbitration (KLRCA). AIAC is responsible to set the competency standard and criteria of adjudicator, standard terms of appointment and fees and other related matters.

Matters that can be adjudicated by the Adjudicator

Matter arising under the Payment Claim (by unpaid party) and Payment Response (by nonpaying party). Parties may extend the Adjudicator’s jurisdiction by agreement in writing after the adjudication proceedings has commenced.

Fees

• There are 2 types of Adjudicator’s fees: Standard Fees and Recommended Fees. Kindly refer to the link below:

https://www.aiac.world/adjudication/adjudication-fee-schedule

• The parties need to pay administrative fees as well.

Adjudication Process in summary

1. Payment Dispute – There must be payment issue regardless whether it is for full amount of partly.
2. Claim of Payment–to be served by the unpaid party on the non-paying party – under suggested form – Form 1
3. Payment Response– to be served by the non-paying party to the unpaid party (within 10 working days from receipt of payment claim). A party who admits to the claim shall state the whole amount claimed or any amount as admitted while one who disputes the claim shall state the amount disputed and the reason for the dispute. – Form 2
4. Adjudication Notice–to be served together with any supporting document by the claimant on the respondent (within 5 working days from the expiry of 10days period for the Respondent to file payment response) – Form 3 to Respondent and a copy to director AIAC. Serve to Director AIAC Form 3A with registration fee RM250
5. Appointment of Adjudicator: – may be by agreement of the parties in dispute (within 10 working days from the service of the notice of adjudication) – Form 4

or

by the Director of the AIAC upon the request of both parties or by either party in dispute if there is no agreement by both parties in the appointment (within 5 working days upon the receipt of a request) – Form 5 and Form 6 with fee RM400

6. Terms of appointment– to be negotiated and agreed with the adjudicator (within 10 working days, after which the parties or the Director of the AIAC may proceed to appoint a new adjudicator)
7. Adjudication Claim–to be served together with any supporting documents by the claimant on the respondent and the adjudicator (within 10 working days after acceptance of appointment of adjudicator) – Form 7
8. Adjudication Response–to be served together with any supporting documents by the respondent on the claimant and the adjudicator (within 10 working days of receipt of adjudication claim). – Form 8
9. Adjudication Reply– to be served with any supporting documents by the claimant on the respondent and the adjudicator (within 5 working days of the receipt of adjudication response) -Form 9
10. Representation–parties may be self-represented or be represented by any party appointed by them, including solicitors
11. Adjudication proceedings– Sec. 25, CIPAA – to be conducted according to the directions of the adjudicator, which may or may not involve oral evidence
12. Decision– Sec. 12, CIPAA – to be delivered within 45 working days from the service of adjudication response or reply, whichever later; or if no adjudication response is received, 45 working days from the expiry of the prescribed period for the adjudication response; or such further time as agreed to by the parties. – Form 16

Enforcement of adjudication decision

A party may enforce the decision by applying to High Court for order to enforce the decision. The order then may be enforced in accordance with execution proceedings.

Grounds to set aside adjudication decision

Aggrieved party cannot appeal against the decision but may apply to High Court to set aside the adjudication decision based on the following grounds:

1. The decision is improperly procured through fraud or bribery;
2. Denial of natural justice;
3. Adjudicator has not acted independently or impartially; and
4. Adjudicator has acted in excess of his jurisdiction.