TABLE CONTENT

PAGE NO.

1.0 Introduction.

2.0 The Objective of the Construction Industry Payment and Adjudication

Act 2012 (CIPAA).

3.0 Scopes and coverage of the CIPAA.

4.0 Facilitate regular and timely payment.

5.0 Mechanism for Speedy Dispute Resolution through Adjudication.

6.0 Remedies for Recovery of Payment.

7.0 Contracting Out.

8.0 The Statutory Adjudication.

9.0 The Important of Statutory Adjudication.

10.0 The Role of the Kuala Lumpur Regional Centre for Arbitration (KLRCA).

11.0 The Best Practice for Adjudication.

12.0 The Procedures Involved In Adjudication.

13.0 Conclusion.

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14.0 References.

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1.0 Introduction.
In Malaysia, the construction industry will be the important segment for the Malaysian
economy. It was contributes randomly 6% of the Gross Domestic Product (GDP) for our
country. Through the contributing of the 6% GDP, it was generating the wealth of country,
improves our quality of life and creates more work opportunities to the citizen. Besides that, it
also influence the way of thinking to other outsides countries based on our development for
the maturity of construction industry. So, it has an indirect multiplier effect on other segments
of the Malaysian economy.
In the improvement of our industry modes, there are some problem and difficulty that
must be faces to parties that involved in our construction industry fields. The problem that
must be faces by other construction industry bodies is the problem of payment. The payment
is important aspect that surely must be concerned to the construction industry bodies. It is
because if any problem relating with the payment will effect to the growth of the projects.
Moreover, the problems in payment at the higher end of the hierarchy will lead to a serious
knock on cash flow problems down the chain of contracts.
Then, Malaysian construction industry payment problems have been identified to be
caused by several factors such as project finance, unfair contract terms, under-certification,
withholding of payment and inadequate dispute resolution procedures and security of
payment. By identifying of this several causes, there some discussion and resolution have
done by the Malaysian Construction Industry Development Board (CIDB) to solve this
problem. There are some indictor that used in order solves this problem such as research,
consult and examine this problem through the experiences and solutions of other countries.
Finally, the Construction Industry Payment and Adjudication Act 2012 (CIPAA) (Act
746) was recently gazetted on 22nd June 2012. So, the Construction Industry Development
Board (CIDB) and Master Builders Association Malaysia (MBAM) and other related
promoters have been instrumental in getting the government to enact this piece of legislation
since 2003 to address the cash flow problems plagued by the industry. The enactment of the
CIPAA is a significant milestone in the transformation of the construction justice in Malaysia.

2.0 The Objective of the Construction Industry Payment and Adjudication Act 2012 (CIPAA).
There are several objectives of established the Construction Industry Payment and
Adjudication Act 2012 (CIPAA) such as:

It removes the pervasive and prevalent practice of conditional payment (pay when
paid pay if paid) and reduces payment default by establishing a cheaper and speedier
system of dispute resolution in the form of adjudication.

The Act also provides for the recovery of payment upon the conclusion of the
adjudication process in addition to a host of other remedies such as a right to reduce
the rate of work progress or to suspend work or even to secure direct payment from
the principal.

It further provides default payment terms in the absence of provisions to that effect in
the construction contract.

Facilities regular and timely payment.

Provide a mechanism for speedy dispute resolution through adjudication.

Provide remedies for the recovery of payment in the construction industry.

3.0 Scopes and coverage of the CIPAA.

Basically, the CIPAA applies to all construction contracts relating to construction
work. The scope and coverage can be gauged from four interrelated perspectives that
known in terms of geography, parties, type of work and contracts. In respect of geography,
the work must be carried out wholly or partly within Malaysian territory. This provision
is adequate to deal with marine structures in oil and gas extraction that may be anchored in
joint operating areas between Malaysia and another country.
Besides that, as to parties, all construction contracting parties that can relate such as
natural individuals, body corporates and statutory bodies are covered by the CIPAA. Both the
Federal and State Governments are also included. As for type of work, it is plain that all
construction works are captured by the CIPAA. The sole exemption is only a residential
building less than four storeys high wholly intended for occupation by a natural person who
entered into the construction contract. With regard to construction contracts, it is clear that all
work contracts, supply contracts and consultancy services contracts relating to Construction
Works are covered by the CIPAA.

4.0 Facilitate regular and timely payment.

Generally, the CIPAA only prohibits two modes of conditional payment that inhibit
cash flow, to wit, payment conditional upon a party having received payment from a third
party and upon availability of funds or financing facility drawdown. If there is however no
payment terms agreed in the construction contract, the CIPAA provides for default
payment terms on a periodic basis. This provision benefits construction consultancy
contracts where professional services are often long rendered without agreement reached on
the fee payable. In such instance, it is now clear that the fee would be that as prescribed by
the relevant regulatory board and payable monthly within 30 days from the receipt of
invoice provided there is a contract in writing evidencing at least the scope of the
professional services.
5.0 Mechanism for Speedy Dispute Resolution through Adjudication.
The CIPAA introduces statutory adjudication. In comparison with arbitration and
court litigation, adjudication is a swift and cheaper process that is binding but not final. In
other words it is a pay first and argue later rough justice procedure. The total duration of the
adjudication process under the CIPAA is 95 working days, which by comparison is the
longest amongst the countries. It is said to be a mini arbitration. The CIPAA gives the
parties and adjudicator a realistic and reasonable time frame to present and determine the
dispute on the merits rather than on technicalities.
In respect of the appointment of the adjudicator, the disputing parties are only at
liberty to agree on the adjudicator after the dispute has arisen. By this provision, the parties
are clearly not permitted to name an adjudicator or an appointing authority upfront in the
construction contract. The parties may conduct the adjudication process themselves or
through representatives, such as Advocates & Solicitors.
6.0 Remedies for Recovery of Payment.
The twin objects in the CIPAA on remedies are both to permit the recovery of monies
found to be due pursuant to an adjudication decision as well as to prevent further financial
exposure until the adjudicated amount has been paid. As to the former on recovery, the
adjudication decision can be enforced as a High Court judgment or order by modes of
execution available under the Rules of Court 2012. There is also the provision for direct
payment to the successful party by the principal of the unsuccessful party in the
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adjudication which is targeted for the benefit of unpaid sub-contractors and suppliers
. It is however unclear as to whether the direct payment is discretionary or mandatory on the
part of the principal particularly when the principal alleges a set off against the
unsuccessful party.
7.0 Contracting Out.
There is no express provision in the CIPAA stipulating that the parties cannot contract
out of its provisions unlike the Singapore SOPA. Nevertheless, it is submitted that the oblique
intention is that there can be no consensual contracting out otherwise the exemption provision
is redundant.
8.0 The Statutory Adjudication.
Generally, adjudication is a means of dispute resolution that allows a party (the
claimant) who is owed monies under a construction contract to promptly obtain payment from
the non-paying party (the respondent), based on an assessment of the merits of the claim by an
appropriately qualified and independent industry expert such as the adjudicator. Statutory
adjudication is essentially an adjudication process prescribed by CIPAA. It was conducted
privately and ensures confidentiality. It was also mandatory and statutory process that does
not require the agreement of the parties' to commence the process and prevails over any
contractual agreements to the contrary between the parties.
Besides that, it also offers a relatively simpler, cheaper and faster process compared to
arbitration and/or court proceedings by virtue of express provisions prescribed by the
proposed Act itself. The adjudicator must make a decision within forty five (45) working days
from the completion of the reference by the parties to him failing which his decision is
regarded as void and that he cannot recover his payment. The decision is temporarily binding
in that it can still be subjected to an arbitration or litigation in court i.e. if either or both the
parties so desire. In the interim, the parties need to still comply with the adjudicator& decision
and pay the disputed amount unless the decision is stayed (by application made to High
Court).

9.0 The Important of Statutory Adjudication.

There are some advantages through the use of the statutory adjudication to the parties
that involves in the construction industry such as:

CIPAA applies to every "construction contract" (as defined by the Act) relating to
construction work carried out wholly or partly in Malaysia. It therefore affects both
local and international contracts that fall within the ambit of the Act.

CIPAA identifies the particular construction contracts which are included within its
scope. Generally, these encompass construction work contracts and consultancy
services contracts.

More importantly, CIPAA only applies to contracts which are made "in writing.

The Act applies equally to the Government of Malaysia as well as the Private Sector.

CIPAA is wide ranging and covers inter alia, the building industry, the oil and gas
industry, the petrochemical industry, telecommunication, utilities, infrastructure,
supply contracts and consultancy contracts.

CIPAA does not apply to an individual owner such as resident, who is building a
house not more than four-storeys high which are wholly intended for his own
occupation.

Statutory adjudication is compulsory in that any party to a construction contract who is

neither excluded nor exempted under the Act has the right to resort to adjudication.
There is no contracting out of the Act permitted so as to defeat the application of its
provisions and/or the objectives of the Act.

Only payment disputes for work done and services rendered under the express terms
of a construction contract may be referred and be subjected to adjudication.

10.0 The Role of the Kuala Lumpur Regional Centre for Arbitration (KLRCA).
There are some roles that can be relate to the Kuala Lumpur Regional Centre for
Arbitration (KLRCA) such as:

Set the competency standard and criteria of an adjudicator. This is done by providing
the relevant training courses to parties who are interested to become certified
adjudicators.

Certifying qualified adjudicators and listing them on KLRCAs panel of adjudicators.

Determine the standard terms of appointment of an adjudicator and fees for his
services.

Provide administrative support for the conduct of adjudication under CIPAA.

Undertake any other duties and functions as may be required for the efficient conduct
of adjudication under this Act.
Besides that, KLRCA also will maintain a copy of each and every adjudication

decision undertaken under CIPAA as the adjudicator is required to serve the same on the
Director of KLRCA upon the conclusion of the matter referred to him. It was also act as a
stakeholder for the adjudication fees payable to the adjudicators, and for any adjudicated
amount ordered by the court to be deposited with KLRCA by any party pursuant to an
application for a stay. So, for KLRCA to play the above role, the adjudicator will direct the
parties to pay the adjudicator's fees to the Director of KLRCA as advance security.

11.0 The Best Practice for Adjudication.

There is some practice for adjudication must be follow to ensure the proper of the
adjudication enforcement. Basically, a good system of contemporaneous record keeping is
essential. It will become vital should a party intend to pursue an adjudication action or to
defend a claim.
Besides that, the payment terms in the construction contract must be adhered to as
strictly as possible. The absence of payment terms would automatically trigger the operation
of the default provisions under CIPAA meaning, amongst others, that the fees prescribed by
the relevant regulatory board under any written law will apply or if there are no prescribed
fees then a fair and reasonable price would be awarded for the work and services done.
Moreover, an adjudication under the Act can only commence when a dispute" has
arisen. An opportunity must be given to the other party to respond to the payment claim
before adjudication should be considered. If the other party denies the claim, disputes the
claim or simply fails to respond to the claim, only then should adjudication be triggered.
The process flow.

12.0 The Procedures Involved In Adjudication.

There are several steps can be relate to the procedures involved in adjudication
enforcements. All of the procedures steps must be followed through their arrangement to
ensure the effectiveness and quality of the adjudication enforcement. Besides that, all the
adjudication process can be summarized by the following principle steps.
Step 1: Making the Payment Claim
The unpaid party may serve a Payment Claim on the non-paying party. The non-paying party
may then respond by making payment or by serving a Payment Response on the unpaid party
in reply to the claim within 10 working days. If there is a failure to respond within this time, it
is deemed that the entire payment claim is disputed. Either party may then refer the dispute to
adjudication.

Step 2: Initiation of Adjudication

The adjudication proceeding is initiated by the serving of a Notice of Adjudication by the
Claimant on the Respondent.

Step 3: Nomination of Adjudicator

An adjudicator is thereafter nominated by the agreement of both parties in the dispute within
10 working days from the service of the notice. Upon any disagreement or if the parties so
desire, a request can be made to KLRCA for the adjudicator to be nominated by the Director
of the KLRCA who has 5 working days to undertake the same.

Step 4: Making of Adjudication Claim & Response

Once the adjudicator is nominated and has negotiated and accepted the terms and conditions
and the relevant fees, the Claimant has to serve the Adjudication Claim on the Respondent
within 10 working days upon receipt of the acceptance by the adjudicator. The Respondent
has to then serve the Adjudication Response on the Claimant within 10 working days
particularizing his defense and response following which the Claimant may then serve a
further Adjudication Reply within 5 working days.
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Step 5: The Adjudicator

The adjudicator would then start with the review of the documents submitted and the making
of his decision. He may call for meetings, require interrogatories to be answered by the
parties, call for clarifications and further documents, if necessary to help him with his task. In
doing so, the adjudicator has to abide by the rules of natural justice and the relevant provision
of CIPAA.

Step 6: Adjudication Decision

The Adjudicator has to reach a decision, formulate it and deliver the decision not later than 45
working days from the service of the Adjudication Response or Adjudication Reply,
whichever is later unless the parties agree otherwise expressly. An adjudication decision
which is not made within the specified period is statutorily void. The adjudicator may also
direct full payment of the fees and expenses to be deposited with the Director of KLRCA
prior to the release of the adjudication decision to the parties. A copy of the decision must be
provided not only to the parties but a copy must be served on the Director of KLRCA as well.

13.0 Conclusion.
The CIPAA is aimed to resolve the Malaysian construction industry payment
problems.

However, no statute can be drafted perfectly envisaging all eventualities. The

success of the CIPAA is critically dependent on the competency and integrity of the
adjudicators as well as the efficient and effective implementation of the CIPAA by both the
KLRCA and the High Court. The eventual decisions of the High Court will steer and
illuminate the obscurities found in the CIPAA.

14.0 References.

What is CIPAA? (2012). Retrieved November 14, 2013, from Kuala Lumpur Regional Centre
for Abtration : http://www.klcra.org.my/scripts/view-anchor.asp?cat=9
Fong, L. C. (2007). THE LEGAL IMPLICATION OF CIPAA. The Malaysian Construction
Industry. The Present Dilemma of the Unpaid Contractors: Inadequacy of Present
Laws & the Need for the Proposal CIPAA, 1-20.

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