CONSTRUCTION INDUSTRY

PAYMENT AND ADJUDICATION ACT

(CIPAA 2012 )

By : Ir.M.Ramuseren, CIDB
13-11-2014, Johor

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 WHAT IS CIPAA 2012
Construction Industry
An acronym for
Payment and Adjudication Act ( Act 746 )
It is an Act to recover payment which is due
and havent paid for construction works done
or services rendered
It was gezzetted in 2012 and came into
operation on 15-04-2014
The Act divided into 7 parts
It has 41 Sections
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The CIPAA
Journey
2003
Initial discussions
2004 Forums
2005 Conference and Industry Consultations
2006 Key Recommendation on CIPAA in CIMP
2007 Roadshows and Awareness

2008 Cabinet Paper

2009 Approval in Principle from Cabinet

2010 Briefing to AG and more consultations

2011 1st CIPAA draft from AG (March)

1 DEC 2011 2 APR 2012 3 MAY 2012 4 JUNE 2012 5 JUNE 2012 6 15 April 2014
1stReading 2nd Reading Reading Royal Act 746
In Dewan In Dewan In Dewan Assent Gazzetted ENFORCED
Rakyat Rakyat Negara
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WHY CIPAA WAS INTRODUCED ?

1 To facilitate regular and timely payment

2 To provide a mechanism for speedy dispute

resolution through adjudication

3 To provide remedies for the recovery of

payment in the construction industry

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 CIPAA 2012
Who can use CIPAA 2012 to recover payment
which already became due and havent paid ?
- contractor , sub-contractor, sub-sub-
contractor
- consultants ( Engineers, Architects, Project
Managers, QS etc )
- suppliers

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 CIPAA 2012
What types of payment that allow one to
initiate adjudication under CIPAA ?

- NO PAYMENT
- UNDER PAYMENT
- LATE PAYMENT

Ramus

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 WHAT CIPAA DOEST NOT COVER ?
Construction Contract entered outside the
territory of Malaysia
Government Construction Contract that are
carried out urgently due to natural disaster, flood,
landslide, fire and other emergency and
unforeseen circumstances
Construction contract entered by an
individual/person for any building which is less
than 4 storeys high and intended for own
occupation
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 WHAT CIPAA DOEST NOT COVER ?
Government construction contracts related to
national security or security related facilities
Military base & Camp
Military facilities
Police facilities
Prison
Detention Camp
Power plant; and
Water Treatment Plant
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 SALIENT POINTS OF CIPAA AND ITS
REGULATIONS
It covers all Construction Contracts both
Government ( except the one mentioned
earlier ) & all Privates Jobs
Construction Contract has to be in writing
Parties to the dispute can appoint their own
Adjudicator or request KLRCA to appoint one.

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 SALIENT POINTS OF CIPAA AND ITS
REGULATIONS
Adjudicator must make decision within 45
days after receiving adjudication response or
reply to adjudication response , whichever is
later
Adjudication decision must include
adjudicated amount, the time and manner the
adjudicated amount to be paid
The decision has to be in writing and reasons
for such decision has to be included

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 SALIENT POINTS OF CIPAA AND ITS
REGULATIONS
Adjudication decision is binding unless it is set aside by
High Court
Limited Grounds Only
- due to fraud or bribery,
- denial of natural justice (right to fair hearing & rule against bias)
- adjudicator did not act independently or impartially
- acted beyond his jurisdiction
Adjudication decision is NOT binding if parties to
adjudication settled the subject matter through
written agreement

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 SALIENT POINTS OF CIPAA AND ITS
REGULATIONS
Adjudication decision is also NOT binding if
the disputes matter finally decided by
arbitration or the court

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 SALIENT POINTS OF CIPAA AND ITS
REGULATIONS

Conditional payment provisions in

construction contract NOT ALLOWED.
Back to back payment
Pay When Paid
Pay after availability of fund
Pay after drawdown of financial facilities

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 ADJUDICATION PROCESS &
RELATED SECTIONS
Claimant serves notice of adjudication on respondent
Section 5

Adjudicator is appointed Section 8

Claimant serves claim on respondent Section 9

Respondent serves adjudication response Section 10

Claimant may serve reply Section 11

Adjudicator commence Adjudication

Adjudicator delivers decision Section 12

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 ADJUDICATION PROCESS
Approx. 105 days
Payment Disputes
Non-paying
EXCHANGE OF
party serves DOCUMENTS Adjudicator
Payment
KLRCA
Response to
unpaid party
Claimant appoints Respondent Claimant
to deliver
serves Notice adjudicator Claimant
( Sec. 6)
of upon serves
serves
Adjudication
serves
Adjudication
Adjudication
Adjudication request of Adjudication
to parties in Claim to the
Response to
the claimant
Reply to the
respondent
Decision
1d 10d respondent
( Sec. 8)
dispute
( Sec. 21)
respondent
(Sec. 9)
( Sec. 10) ( Sec. 11)
( Sec. 12)

Unpaid Party
serves Payment
Claim to non- 10d 5d 10d 10d 5d 45days
paying party
( Sec. 5)
Appointment of Acceptance of
adjudicator upon appointment by
receipt of Notice adjudicator
of Adjudication (C Sec. 22 (2) or
( Sec. 8) 23(2))
Unpaid
Claimant/
party Non-paying 15
Adjudicator KLRCA Claimant Respondent Claimant Adjudicator
party
 GOVERNMENT CONSTRUCTION
CONTRACTS < RM20 MILLION
Government construction contracts with
contract sum below RM20 million are given
longer time to response on payment claims
and adjudication claims ( 30 days )
Unpaid party can only commence adjudication
after the expiry of the above response time .
From 15/4/2014 to 31/12/2015

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 ADJUDICATION PROCESSES
Approx. 105 days
GOVERNMENT CONSTRUCTION CONTRACTS BELOW
Payment Disputes
RM20 MILLION (until 31/12/15)
Non-paying
party serves EXCHANGE OF
Payment
KLRCA DOCUMENTS Adjudicator
Response to
Claimant
unpaid party
serves Notice
appoints
adjudicator Claimant
Respondent
serves
Claimant to deliver
( Sec. 6) serves
serves
of
Adjudication
upon
request of Adjudication
Adjudication
Response to
Adjudication Adjudication
Reply to the
parties in Claim to the
1d 30d
to
respondent dispute respondent
the claimant
( Sec. 10)
respondent Decision
( Sec. 11) ( Sec. 12)
( Sec. 8) ( Sec. 21) (Sec. 9)

Unpaid Party
serves Payment
Claim to non- 10d 5d 10d 30d 30d 45days
paying party
( Sec. 5)
Appointment of Acceptance of
adjudicator upon appointment by
receipt of Notice adjudicator
of Adjudication (C Sec. 22 (2) or
( Sec. 8) 23(2))
Unpaid Claimant/
party Non-paying Adjudicator KLRCA Claimant Respondent Claimant Adjudicator 17
party
 REMEDIES AVAILABLE UNDER CIPAA
3 immediate remedies available after an
adjudication decision is made; -
- Suspend
- go slow / reduce work progress
- Can ask the principal/client to pay directly

Note : For Suspend and go-slow options, the

unpaid party is entitle for extension of time
and L & E .

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HIGH COURT ORDER
Upon obtaining the adjudication decision, the
unpaid party may also apply to High Court for
an order to enforce the adjudication decision
as if it is a JUDGEMENT or ORDER OF HIGH
COURT

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 ROLE OF KLRCA
The Kuala Lumpur Regional Center for
Arbitration ( KLRCA ) is the ADJUDICATION
AUTHORITY in Malaysia
- Set out competency standard and criteria
of an adjudicator
- Provide administrative support,
determination of standard terms of
appointment and fees for the service of an
adjudicator

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 ROLE OF KLRCA
- maintaining register panel of adjudicators
- determine the code of conduct
- provide training & Examination
- determining fees for the services and expenses of an
adjudicator
- to receive and hold any fees and expenses deposited
by parties in dispute
- Appoint Adjudicator
- make recommendation on exemption under Sec. 40

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 KLRCA CIRCULARS
4 Circulars were issued (after 15/4/2014 )
- Circular No. 1 is on Section 41.
Nothing in this Act shall affect any proceedings which
had been commenced in any court or arbitration before
the coming into operational of this act
KLRCA taking stand that CIPAA applies only to payment
disputes which arose under a construction contract on or
after 15-4-2014
Note : Recent Case Law ( Construction Court ) : CIPAA
applies Retrospectively
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 KLRCAs CIRCULARS
Circular No. 2 ( amended 1/8/14) on KLRCAs
Recommended Adjudicators fees
Minimum Fees is RM8,400 ( dispute amount below RM150,000 )
Maximum Fees is RM89,615 (dispute amount RM 15Million and > )
( Administration fees of 10% and Taxes Not Included )

Note :-
CIPAA Regulation 2014 (KLRCAs Standard Fees) are :-
Minimum Fees is RM2,760 ( dispute amount less than
RM50,000 )
Maximum Fees is RM50,000 ( RM5 Million and above )
Inclusive of taxes impose by Government
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 KLRCAs CIRCULARS
- Circular No. 3 explanation on Construction
Contract Made in Writing

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 KLRCAS CIRCULARS
Circular No. 4 on Exemption, Section 40.
- Application for exemption under Section
40 of CIPAA shall be made in writing to
Director of KLRCA
- Non- Refundable fees of RM20,000 to be
paid to KLRCA ( and exemption may be
given or NOT )

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 ADJUDICATION STATISTICS IN
SINGAPORE
April 2005 to December 2013 (updated Nov. 14)

Main Contractor VS Client -16%

Sub-Contractor VS Main Contractor -64.4%
Sub-Subcontractor VS Sub-Contractor -14.1%
Consultant VS Owner - 4.5%
Suppliers -1%

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 CONSTRUCTION HIGH COURT
Two Construction High Courts were
established on 1st April 2013
Kuala Lumpur & Shah Alam

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What it can hear ? CONSTRUCTION HIGH COURT
1. Claims related to building, engineering or other construction related
disputes including:-

i. Claims under CIPAA (Act 746) as well as judicial review

ii. Claims in respect of performance bonds, and insurance
guarantee
iii. Claims related to the quality of goods sold, work done or
services rendered
iv. Claims related to the environment (eg pollution)

2. Claims by or against the Engineers, architects, surveyors,

accountants, consultants and other specialized advisors in respect of
services provided;

3. Claims by and against local authorities in respect of its statutory

responsibilities regarding land development and building
construction;

4. Claims related to arbitration proceedings including challenging the

decision of an arbitrator;

5. Appeals from the Subordinate Courts 28

 Statistics on Construction Cases in
Malaysia
(April 2013 to June 2014 )
Total Cases ( Both High & Lower Court ) = 860
Type of Courts No. of Cases No. of Disposed
Cases
High Court 236 (27.44% ) 136 ( 57.6%)
(Inc. Const. Court)
Construction High 205 (23.84% ) 124 ( 60.5%)
Court
Session Court 324 (37.67% ) 214 (66.1%)

Magistrate Court 300 (34.88 %) 254 (84.7%) 29

 Statistics Construction Cases
( April 2013 to June 2014)
KL, Selangor, Johor (693/830 cases)
No. of No. of Cases
Court Construction
Cases
Disposed

High Court ( Including KL - 164 104

Construction Court ) SEL - 41 20
JHR - 14 8
Session Court KL - 142 115
SEL - 60 41
JHR - 33 21
Magistrate Court KL - 74 64
SEL - 116 102
JHR - 49 46 30
THANK YOU

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