Construction Claim And Payment Recovery Under the CIPAA 2012 In Malaysia

Construction Claim And Payment Recovery Under the CIPAA 2012 In Malaysia

Over the years, Construction Industry has always shown significant and positive impact to the economic growth in Malaysia. In fact, Construction Industry has partially contributed to our gross national income yearly for the nation. The growth of this industry is like any other industries, which has often resulted in disputes. Without any doubts, the constant cash-flow problems faced by the contractors spur the concern in delaying the projects especially during Covid-19 pandemic. We will explain more on the construction claim and payment recovery under the CIPAA 2012 in Malaysia in this article.

In 2012, Parliament passed the Construction Industry Payment & Adjudication Act (CIPAA) 2012 and this act came into operation from 15^th of April 2014. The rationale behind this act is intended to provide a mechanism for much speedy dispute resolution and to reduce and resolve the progress of late payment dispute in respect of construction contracts. In this regard, this prevents from any short-term cash flow problems during the delivery of the respective projects in Malaysia, as enunciated by the former Director of Asian International Arbitration Centre (AIAC), Datuk Professor Sundra Rajoo.

According to Quarterly Construction Statistics, First Quarter 2021, Construction sector declined by 10.5% (- 10.5%) in the first quarter 2021, an improvement shown from -14.2% recorded in the previous quarter. The value of the construction work done in the first quarter 2021 grew -10.5% (Q4 2020: -14.2%) year-on-year basis amounting to RM31.4 billion (Q4 2020: RM31.7 billion).

In this article, we serve the purpose to highlight the scope of CIPAA 2013.

The scope of CIPAA 2012

• The commencement of the adjudication proceeding can be done at any time during or after the project completion.
• CIPAA provides that the proceeding shall be conducted privately to ensure its confidentiality.
• CIPAA applies every construction contract made on or after 15.4.2014 and hence CIPAA is retrospective.
• The only disputes are referred to the payment for work done and services rendered as provided under the express terms of a construction contract, which may be referred to adjudication under CIPAA 2013. However, the adjudicator has the discretion to decide on any other matters arising from the construction contract, provided with a mutual agreement by both parties.
• Parties are entitled to choose their own adjudicator by mutual agreement. If a party is not able to choose their own adjudicator, this matter can be referred to Asian International Arbitration Centre (AIAC) to appoint an adjudicator to adjudicate the dispute arising under the construction contract.
• CIPAA applies to every ‘construction contract’ made in writing relating to construction work carried out wholly or partly in Malaysia, including a construction contract entered into by the Government. This act applies to both local and international contracts, provided the subject construction work is carried out wholly or partly in Malaysia.
• CIPAA defines ‘construction contract’ as construction work contracts & consultancy services contracts. The contracts made must be wholly “in writing”. However, no provisions or further elaboration is provided in this act on what ‘construction contract made in writing’ means. AIAC interpreted the ‘construction contract in writing’ as-

~ if the contract is made in writing (whether or not it is signed by the parties);
~ if the contract is made by exchange of communications in writing; or
~ if the contract is evidenced in writing.

• Where parties agree otherwise than in writing by reference to terms which are in writing, they make a contract in writing. A contract is evidenced in writing if a contract made otherwise than in writing is recorded by one of the parties, or by a third party, with the authority of the parties to the contract.
• CIPAA covers building industry, the oil and gas industry, the petrochemical industry, telecommunication, utilities, infrastructure, supply contracts and consultancy contracts.
• CIPAA applies equally to the Government of Malaysia and Private Sector. However, two categories of Government construction contracts are exempted by virtue of the Construction Industry Payment and Adjudication (Exemption) Order 2014:-

1. Any construction works that is carried out urgently and without any delay that involve natural disaster, flood, landslide, ground subsidence and other emergency, unforeseen circumstances and that relate to national security or security related facilities;
2. Construction contracts with the Government of the contract sum of RM20,000,000.00 and below.

• However, CIPAA does not apply to an individual owner i.e. resident, who erects a building not more than four-storeys high which is wholly intended for his own occupation.

More often than not, pursuing construction claim and payment recovery under the CIPAA 2012 in Malaysia is complicated. That is why, it is best to engage experienced lawyers to claim on your behalf at a professional and affordable rate.

Get Free Consultation And Quotation From Our CIPAA Lawyers Now In Less Than 2 Working Hours