Taken from The Star @Putik Lada series
The proposed Construction Industry Payment and Adjudication Bill 2011 (CIPA) has the primary objective of addressing critical cash flow issues and reducing payment defaults by establishing a cheaper, speedier system of dispute resolution in the form of adjudication.
RECENTLY, there has been much interest in the construction industry in relation to the proposed Construction Industry Payment and Adjudication Bill 2011 (CIPA).
Many professional bodies are offering courses and seminars to key construction industry officials to explain CIPA, and how it will affect them once it is passed in Parliament, which is expected to be in April.
The imminent passing of CIPA means that construction companies need to be prepared for the new regime of statutory adjudication.
Construction industry players have themselves been pushing the Government to enact a CIPA-type legislation since 2003 to address the industry’s cash flow problems.
CIPA’s primary objective is to address these critical cash flow issues – removing the practice of conditional payments (“pay when paid” and “pay if paid”) and reducing payment defaults by establishing a cheaper, speedier system of dispute resolution in the form of adjudication.
Under CIPA, every construction contract made in writing that relates to construction work carried out in Malaysia would be affected by the regime of adjudication.
This means that if you have entered into a construction contract and there is a problem with payment, an adjudication process can be commenced either by or against you.
From a quick reading of the Bill, the Kuala Lumpur Regional Centre of Arbitration (KLRCA) will be the mainstay of the entire process.
KLRCA is already conducting a nationwide roadshow to educate people on CIPA.
However, the Bill also suggests that parties who wish to adjudicate matters would have to take an active role in pursuing their claims.
Parties will be subjected to compulsory adjudication or statutory adjudication –meaning both parties will be dragged into the adjudication process which is dictated by CIPA.
This does not mean that adjudication will block your right to arbitration or to go to court to litigate matters.
The purpose of adjudication is to hurry along cash flow and facilitate payment in the construction industry.
Parties are free to opt for arbitration or court litigation to deal with the legal matters.
CIPA simply provides a statutory right for the parties to demand payment for work done and to create a simple process to ensure that a decision and payment is made – via the process of adjudication.
Parties can commence adjudication and concurrently arbitrate or litigate the matter. Of course, the adjudication process will be terminated if the dispute is decided by arbitration or the court before the adjudication decision can be made. If however, the adjudication decision comes first then it is a binding decision and payment must be made.
In short, statutory adjudication has the following characteristics:
> It is a mandatory and statutory process that does not require the agreement of the parties to commence the process;
> It offers a faster process compared to arbitration and court litigation because the time frame is as prescribed by CIPA. It is the only form of dispute resolution that has a statutory time period in which the dispute must be resolved in 45 working days; and
> It provides a binding decision on a payment dispute.
The parties can choose their own adjudicator or request for KLRCA to choose an adjudicator on their behalf.
There are many procedures to be complied with by the parties and the time frame is dictated by the provisions of CIPA.
The entire adjudication process, including the time required to decide the case, would be approximately 100 working days. The adjudication process can be summarised by the following steps:
> Payment Claim: The unpaid party serves a Payment Claim on the non-paying party. The non-paying party would then serve the Payment Response on the unpaid party in reply to the claim within 10 working days. (Either party has a right to refer the dispute to adjudication)
> Initiation of Adjudication: The adjudication proceeding is initiated by the serving of a Notice of Adjudication by the claimant on the respondent.
> Nomination of Adjudicator: An adjudicator is nominated by the agreement of both parties in the dispute within 10 working days from the service of the notice or to request for the adjudicator to be nominated by the director of the KLRCA. The KLRCA has five working days to nominate the same.
> Adjudication Claim: Once the adjudicator is nominated and has accepted the terms and conditions and relevant fees, the claimant is to serve the Adjudication Claim on the respondent within 10 working days upon receipt of the acceptance by the adjudicator whereupon the respondent is to then serve the Adjudication Response on the claimant within 10 working days; the claimant may then serve a further Adjudication Reply within five working days.
> Commencement of Adjudication: The adjudication would then begin. KLRCA shall be informed of the commencement. The adjudicator shall direct that reasonable proportion of the adjudicator’s fees in equal shares be deposited in advance to the Director of KLRCA as security. Parties can represent themselves or choose to be represented by a lawyer.
> Decision: The Adjudicator has to reach a decision not later than 45 working days from the service of the Adjudication Response or Adjudication Reply, whichever is later. An adjudication decision which is not made within the specified period is void.
The adjudicator may also direct full payment of the fees and expenses to be deposited with the Director of KLRCA prior to the release of the adjudication decision to the parties.
A copy of the decision shall be provided not only to the parties but a copy must be served on the Director of KLRCA as well.
It is not clear whether CIPA would effectively address the cash flow problems in the construction industry but Malaysia is one of five countries who have opted to adopt this form of legislation.
The other countries are Britain, some States and Territories in Australia, New Zealand and Singapore. We can only wait and see.
■ The writer is the chairman of the National Young Lawyers Committee. Putik Lada, or pepper buds in Malay, captures the spirit and intention of this column – a platform for young lawyers to articulate their views and aspirations about the law, justice and a civil society. For more information about the young lawyers, visit www.malaysianbar.org.my.