Prompt, punctual and paid (the Construction Industry Payment & Adjudication Act)

One of the most glaring issues is the fact that the construction industry has been constantly plagued with the chronic problem of delayed and non-payments to contractors and sub-contractors for construction works and services provided. As a result, it has caused tremendous hardship to the industry, evident by the amount of delayed or abandoned development projects over the years.

To provide significant remedy associated with protracted resolution of construction debt disputes and cash flow-related problems, and to ensure fairness, integrity and justice to the industry, the Construction Industry Development Board (CIDB) spearheaded a CIMP-compliant initiative which led to the enforcement of the Construction Industry Payment and Adjudication Act 2012 (CIPA Act), with effect from April 15, 2014.

The CIPA Act
The CIPA Act encompasses a wide range of industries as the words “construction works” have been interpreted to include the construction of buildings, roads, railways and even oil and gas infrastructures. In addition, the CIPA Act also encompasses consultancy contracts in which architects, engineers and quantity surveyors are employed, and where such contracts relate to construction works. In such cases, those architects, engineers and quantity surveyors may refer their payment disputes to the Kuala Lumpur Regional Centre of Arbitration (KLRCA), in accordance with the CIPA Act.

The CIPA Act addresses several stages of the dispute, including payment claim, payment response, notice of adjudication, appointment of adjudicator and the terms of such appointment, the adjudication claim, response and reply, representation, adjudication proceedings and the decision.

The KLRCA has been appointed as the adjudication authority, giving the centre a key role as the default appointing, administrative and training authority for statutory adjudication.

The order and regulations
Complementing the CIPA Act are the Construction Industry Payment and Adjudication (Exemption) Order 2014 (the Order) and the Construction Industry Payment and Adjudication Regulations 2014 (the Regulations), both of which came into force on April 15, 2014.

The Order exempts specified government construction contracts from the provisions of the CIPA Act. The rationale for the exemptions provided under the First Schedule of the Order appears to be justified as it covers construction works that involve emergency, unforeseen circumstances and which relate to national security or security related facilities. However, the temporary exemptions which were extended to construction contracts with the Government, of the contract sum of not more than MYR20 million, received numerous objections from several sectors, most notably from the Malaysian Bar.

The Regulations, on the other hand, provide for detailed information pertaining to the responsibility of the KLRCA as the statutory adjudicator, some of which include the appointment of adjudicators, and the cost of adjudication proceedings. The Regulations were passed to complement the CIPA Act in ensuring that its provisions are strictly adhered to.

Conclusion
The implementation of the CIPA Act looks to provide a platform for the introduction of adjudication proceedings and various methods of resolving payment disputes under construction contracts, to enable construction projects to run smoothly without unduly delay.

Companies however should be mindful of the provisions of the CIPA Act regarding the need to stipulate specific terms in their construction contracts in order to avoid the imposition of the default payment terms. Conditional payment clauses should also be reconsidered following the restrictions under the CIPA Act.