Construction Law Department @RWY

Over the years, RWY had the opportunity to assist a few clients on matters related to construction. With the support of Messrs Steve Chan, a Construction Consultant, RWY are able to offer services for this are of Construction Law; which includes claims via Arbitration and under the Construction Industry Payment Adjudication Act 2012 (CIPAA). 

For a perusal of some of our earlier articles related to CIPAA, here is the link. 

Don't hesitate to contact us for any assistance. 

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

Making a Claim under the CIPA Act 2012

We had in an earlier posting commented about the CIPA Bill, and made observations on the claim process of that Law. 

Some comparative studies with other Jurisdictions would be a good guide on how to make claims. 

We draw a link to the website of Messrs Evershed, an International Law firm based in UK. Their website has provided an insight of how the UK version of CIPA works vis' a vis the claim process. 

See these links :-

https://www.eversheds.com/documents/services/construction/adjudication-construction-disputes-malaysia.pdf

http://www.eversheds.com/documents/services/construction/Construction-Adjudicationcap.pdf

CIPA Bill 2011

The Kuala Lumpur Regional Centre of Arbitration [KLRCA] will be holding a series of Forums and Talks to educate the people about the CIPA Bill. 

The Forums/Talks will be held all over Malaysia from Penang to Miri; between the dates of 18th February to 28th March 2012. Do attend. 

A link to a PDF brochure on the same is appended below:-

http://klrca.org.my/userfiles/File/KLRCA_CIPA_Nationwide_eFlyer_FINAL.pdf

The Construction Industry Payment and Adjudication Bill 2011 (CIPA): What is the fuss?

There is much interest generated in the construction industry of late what with the proposed Construction Industry Payment and Adjudication Bill 2011 (CIPA). Many professional bodies have jumped on the bandwagon in offering courses and seminars to key construction industry officials to try to explain the Bill of Parliament and how the Bill when passed in Parliament will affect them. It has been hinted that the Bill will be passed this March 2012. This would mean that companies in the construction industry should arm itself and be ready for the new regime of statutory adjudication. This is the era of adjudication in the construction industry.

Why CIPA? The construction industry themselves have been pushing the government to enact this piece of legislation since 2003 to address the cash flow problems plagued by the industry. The primary objective of the proposed Act is to address critical cash flow issues in the construction industry. It aims to remove the practice of conditional payments (‘pay when paid’ and ‘pay if paid’) and reduce payment default by establishing a cheaper, speedier system of dispute resolution in the form of adjudication. According to the provisions of 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 would essentially mean that if you have entered into a construction contract and there is a problem with regards to payment, an adjudication process can be commenced either by you or against you. A construction contract can be a construction work contract and or a construction consultancy contract.

To this extent, the parties will be subjected to compulsory adjudication or statutory adjudication. This would mean that both parties will be dragged into the adjudication process which is dictated by the provisions of CIPA. The provisions of CIPA does not however affect natural persons entering into a construction contract in respect of a building wholly intended for his own occupation and is four storeys and below.

Be that as it may, would adjudication stop your right to arbitration or to go to court to litigate matters? The answer is No. 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 concerning the same. 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. This of course is in the form of adjudication as a process.  In fact, the parties can commence adjudication and concurrently arbitrate or litigate the matter as well. Of course, common sense would dictate that 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 summary, the statutory adjudication has the following characteristics - 

1.     It is a mandatory and statutory process that does not require the agreement of the parties’ to commence the process.

2.     It offers a much faster process compared to arbitration and court litigation because the time frame is as prescribed by the proposed CIPA itself. It is the only form of dispute resolution that has a statutory time period in which the dispute must be resolved in forty five (45) working days.

3.     It provides a binding decision on a payment dispute.

4.  The parties can choose their own adjudicator or request for Kuala Lumpur Regional Centre of Arbitration [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 take approximately one hundred (100) working days.  So how do you go about starting the adjudication process? The adjudication process can be summarised by the following steps -

1.     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)

2.     Initiation of Adjudication - The adjudication proceeding is thereby initiated by the serving of a Notice of Adjudication served by the claimant on the respondent.

3.     Nomination of Adjudicator - An adjudicator is thereby 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 5 working days to nominate the same.

4.     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 5 working days.

5.     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 namely by a lawyer.

6.     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.

Hence it is important to nominate the correct adjudicator and if in doubt, reliance should be placed on the KLRCA to appoint one on your behalf. The KLRCA has been appointed the adjudication authority in Malaysia by virtue of Part V of CIPA, thus setting the standard terms of appointment, fees for adjudicators and setting the competency standards and criteria for adjudicators.

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 the United Kingdom, some States and Territories in Australia, New Zealand and Singapore. We can only wait and see.