The Construction Industry Payment and Adjudication Act 2012 (“CIPAA”) has come into force on 15 April 2014. The Act has introduced Statutory Adjudication as a means of dispute resolution under construction contracts performed wholly or partly within the jurisdiction of Malaysia. The adjudication mechanism under the Act is speedier and more cost effective as compared to arbitration or court proceedings. The usual turnaround time for a matter to be resolved under the Act is less than 95 working days.
Section 4 of the Act defines “construction work” widely. Apart from conventional construction works, construction works as defined by the Act also includes “construction, extension, installation, repair, maintenance, renewal, removal, renovation, alteration, dismantling, or demolition of any electrical, mechanical, water, gas, oil, petrochemical works or telecommunication works”. It also expressly includes works such as site clearance, soil investigation and improvement, earth-moving excavation, laying of foundation, site restoration and landscaping.
From the above, it is suggested that the scope of the Act is wide enough to cover all aspects of works in the construction industry. Nevertheless, Section 3 of the Act specifically provides that it is not applicable to contract entered into by a natural person for construction of building which is less than 4 storey and which is intended for his own occupation. Hence, the Act will likely affects large scale construction projects.
One unique feature of the adjudication under the Act is that it is mandatory and the agreement of the parties is not required. The Act does not allow for parties to contract out of the Statutory Adjudication, which makes the adjudication process effective.
Construction Industry Payment and Adjudication Act 2012
(CIPAA 2012 )
CIPAA is a newly enacted act in 2012 and came into operation in 2014 to help ease the cash flow problems in the construction industry. The legislator want to ensure that the party who owes you money has to pay first and in any event if they have any disputes they would be the one who have to initiate a proceeding to dispute about the claim in the High Court of Malaya after you have collected your money through the award by the adjudicator under CIPAA2012.
- To improve payment process in which it encourage regular and timely payment.
- To provide default payment mechanism whereby in the absence of express payment provisions in the construction contract, S.36 of CIPAA will apply.
- To make recovery of payment effect, whereby the unpaid party can choose to reduce or suspend work, request direct payment from principal be there a contractual relationship or not and to enforce decision award by adjudicator.
- To improve cash flow whereby conditional payment terms such as back to back payment clause will be prohibited.
- Expedite dispute resolution whereby it’s the fastest process in recovering construction payment disputes in an economic way.
- Main contractor
- Sub contractor
- Construction supplier
- Professional Services such as Engineers, Architects, Project managers, Quantity surveyor and any other relevant professional governed by the Act.
- Adjudication Award will be obtained within 95 working days.
No Hefty fees:
- Cheapest among Litigation and Arbitration.
- Adjudication up until 2016 hits 1.4billion ringgit Malaysia. This shows the confident construction industry players have towards CIPAA 2012.