APPLICABILITY AND BENEFITS OF CIPAA

Effective 14.04.2014, the Construction Industry Payment and Adjudication Act 2012 (CIPAA) came into force. The introduction of CIPAA provides an alternative and expeditious recourse to unpaid parties in the construction sector compared to the slower and costly processes of litigation or arbitration. The adjudication process is private and would usually take approximately 90-100 days from its commencement until the date that the Adjudication Decision is delivered.

Applicability — Who and What It Covers

CIPAA applies to every construction contract made in writing relating to construction works that have been carried out in Malaysia. It applies to all parties within the construction supply chain and would include contractors, subcontractors, consultants and suppliers. However, CIPAA does not apply to a construction contract entered by a natural person for any construction work of a building less than 4 storeys high and is wholly intended for his occupation.

In that regard, an expansive interpretation is given by the courts as to what constitutes a ‘written contract’. As such, a construction consultancy contract or a letter of acceptance is also capable of constituting a valid and binding contract covered under CIPAA.

The central principle of “pay now, argue later” under CIPAA allows the contractors, subcontractors, consultants and suppliers of a construction project to speedily recover monies that are due and payable for works done under a written contract. The primary purpose of CIPAA is to facilitate cash flow and to give ‘life’ back to the underlying contract which had reached an impasse or stalemate. As such, it is the in the very nature of the CIPAA mechanism that the substantive issues relating to the disputed payment can still be argued at a later point or taken concurrently at separate proceedings initiated in court or at arbitration.

The definition of “construction work” under CIPAA is very wide and would cover works related from the procurement of construction materials, equipment or workers to any works which forms part of the building, roads or drainage of the project.

An Overview of the Adjudication Process

The unpaid party serves a Payment Claim to the non-paying party of which the non-paying party shall reply to the Payment Claim by serving a Payment Response within 10 workings days of receipt of the Payment Claim.

After the expiry of the time limited to serve the Payment Response, an unpaid party may then refer the dispute to adjudication by serving a Notice of Adjudication containing the nature of the dispute and the remedies sought together with any supporting documents upon the non-paying party (respondent).

After the appointment of the Adjudicator, the unpaid party (now referred to as the claimant) shall within 10 working days serve an Adjudication Claim upon the respondent. The respondent thereafter shall within 10 working days serve its Adjudication Response. Subsequently, the claimant may within 5 working days from the receipt of the adjudication response, serve an Adjudication Reply to the respondent.

Once parties have exhausted the process of exchanging the Adjudication Claim, Adjudication Response and Adjudication Reply, the Adjudicator shall then within 45 working days from service of the Adjudication Response or Adjudication Reply (which ever is later), deliver his Adjudication Decision in writing.

Benefits of Adjudication

1. Expeditious, the Adjudication Decision can be obtained within 90-100 days.
2. Cheaper than Court Litigation or Arbitration.
3. Safe for the claimant, the respondent cannot obtain a positive award. Cross-claims or set-offs are made by the respondent can only reduce or zerorise the claimant’s claim and not turn a payment claim into a payment due from the claimant.
4. Private and confidential, the adjudicator and any party to the proceedings are prohibited from disclosing any statement, admission or document made or produced during the proceedings.
5. Binding and enforceable, the Adjudication Decision remains binding unless it is set aside by the High Court or the dispute is finally decided by Arbitration or the Court.

This article is written by

Ng Ken Yong
Senior Associate, Low & Partners