CIPAA 2012 - How does it work? - by Wong Jyh Ling

You may visit the link below for RWY's Powerpoint Slides on CIPAA 2012:-
http://www.slideshare.net/jyhling/rwy-cipaa-2012-scope-and-applicability

Construction Industry Payment and Adjudication Act 2012 (“CIPAA”)

Part I. An Introduction

I.               Introduction – What is CIPAA?

One of the biggest issues faced by contractors in the construction industry is the delay, if not non-payment by their employers in the construction project. In order to remedy their position in such a predicament, contractors were forced to resort to either civil litigation or arbitration to recover their monies. Unfortunately, the litigation/arbitration processes are usually tedious, slow, and involves professional fees that would poise as an obstacle for contractors who lack the requisite monetary funds.

Hence, on 15th April 2014, the Construction Industry Payment and Adjudication Act 2012 (“CIPAA”), which was gazetted 22^nd June 2012, finally came into operation to address and hopefully alleviate this problem. 

CIPAA introduces an intervening provisional stage in the dispute resolution process vide the concept of “pay first, argue later”. In a nutshell, CIPAA aims to ensure that all employers of contractors in the construction industry (including the Government) pay their contractors promptly so that the contractors are not starved for cash.  

The application of CIPAA effectively removes conditional payment provisions of “pay when paid” or “pay if paid” which contributes to cash flow problems. However, it is to be noted that CIPAA is only applicable to construction disputes which arises on/after 15^th April 2014.

The governing rules and procedure of CIPAA include:-

a)   Construction Industry Payment and Adjudication Act 2012;

b)   Construction Industry Payment and Adjudication Regulations 2014;

c)   Construction Industry Payment and Adjudication (Exemption) Order 2014; and

d)   KLRCA Adjudication Rules and Procedure.

II.             Why CIPAA?

First of all, the adjudication proceedings under CIPAA are private in nature, which provides parties confidentiality in the contents of the dispute.

Secondly, many construction companies (the appointed contractors) are able to rely on this statutory solution to specifically deal with the following prevailing cash flow issues:-

a)   Defaults in payment;

b)   Conditional payments; and

c)   Non-payments.

III.           Comparison

No.		Litigation	Arbitration	Adjudication
1.	Venue	Court	Anywhere	Anywhere
2.	Parties	Plaintiff & Defendant	Applicant & Respondent	Claimant & Respondent
3.	Representation	Lawyers	Lawyers/ Self-Representation	Lawyers/ Self-Representation
4.	Decision-Maker	Judge	Arbitrator	Adjudicator
5.	Effect of Solutions	Binding (Judgment in Law)	Binding (Arbitral Decision)	Temporarily Binding (Pay first, argue later)
6.	Costs	High	Medium	Lower
7.	Time	Slower	Slower	Faster

IV.           Scope and Applicability

Under Section 2 of CIPAA, CIPAA is applicable to every construction contract made in writing relating to construction work which is carried out wholly or partly within the territory of Malaysia. It is worthy to note that the construction contracts also include contracts entered into by the Government of Malaysia. It is to be noted that CIPAA does not apply to construction contracts entered into by a natural person for any construction work in respect of any building which is less than four storeys high and which is wholly intended for his personal occupation.

V.             How Does It Work?

        TIMELINE OF ADJUDICATION PROCESS
     The timeline of the Adjudication Process is, briefly, as follows:-

1.    The Contractor/Unpaid Party will firstly serve a Payment Claim to the Employer/Non-Paying Party (Section 5 CIPAA).

2.    Thereafter, there are four possibilities:-

a)   If the Non-Paying Party fails to respond, the Payment Claim is deemed to be disputed wholly (Section 6(4) CIPAA);

b)   If the Non-Paying Party admits to the Payment Claim wholly, then both parties may proceed to arrange for settlement of claim;

c)   If the Non-Paying Party responds to the Payment Claim by disputing the claim wholly, then the Unpaid Party may initiate an Adjudication Proceeding (Section 7 CIPAA);

d)   If the Non-Paying Party admits to the Payment Claim in part, then the Unpaid Party may initiate an Adjudication Proceeding based on the disputed portion of the claim.

3.    The Unpaid Party/Claimant initiates the Adjudication Proceeding by serving a written notice of adjudication on the Non-Paying Party/Respondent (Section 8 CIPAA).

4.    An Adjudicator will then be appointed either by the Director of KLRCA or by agreement of parties within 10 working days after the Respondent receives the written notice (Section 21 CIPAA).

5.    Thereafter, the Adjudicator who accepts the appointment would propose his terms and fees to be agreed upon by both parties (Section 22(2) CIPAA).

6.    Once the appointment of the Adjudicator is finalised, the Claimant will serve his Adjudication Claim on the Respondent within 10 working days from the receipt of the acceptance of appointment by the Adjudicator (Section 9 CIPAA).

7.    The Respondent will be required to answer and serve his Adjudication Response within 10 working days from the receipt of the Adjudication Claim (Section 10 CIPAA).

8.    If the Claimant wishes to respond further, then his Adjudication Reply must be served within 5 working days from the receipt of the Adjudication Response (Section 11 CIPAA).

9.    The Adjudicator then has 45 working days from the service of Adjudication Response or the Adjudication Reply, whichever later, to arrive at his decision (Section 12 CIPAA).

VI.           Conclusion

The introduction of CIPAA is an important stepping stone in the construction industry to alleviate and hopefully prevent the issue of cash flow shortage by construction contractors. While CIPAA may not be able to guarantee a permanent solution, it is a quick and handy tool for contractors to obtain regular and timely payment. 

By Wong Jyh Ling