Construction Industry Payment

and Adjudication Act 2012

(Act 746) CIPAA

A Short Briefing for Sunway Group

(05 August 2014)

Acknowledgements:
Chow Kok Fong, Chartered Arbitrator and Chartered Quantity Surveyor
Kuala Lumpur Regional Centre for Arbitration
Construction Industry Development Board, Malaysia
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 THIS BRIEFING

OBJECTIVES PROGRAMME

Background
 Provide an overview of
CIPAA, and an awareness of
Overview of CIPAA
the responsibilities and
possible liabilities under the
Act.
Impact on Construction
Industry

Some CIPAA Details

 A quick look at some of the
lessons learnt from other
jurisdictions
Lessons learnt

Rules, Procedures & Forms

Q&A
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Background

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 BACKGROUND
Statutory Adjudication
An alternative dispute resolution
c.f. arbitration, litigation.

Not ad hoc or contractual

Mandated by law (e.g. CIPAA 2012)
Applicable Act and Regulations stipulate
Scope and nature of disputes covered
Procedural issues
Effects of decision / determination
Miscellaneous matters

Generally meant to prevail over any ad hoc and/or contractual

adjudication arrangement between the parties.

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 Historical BACKGROUND
1994 Latham Report
Review of procurement and contractual arrangements in the UK construction industry cascade system making
insolvency a particular serious problem recommendations for outlawing unfair payment practices such as pay-
when-paid clauses; proposed adjudication.
Housing Grants, Construction And Regeneration Act 1996 (UK) in force 1998
Various statutory adjudication legislation relating to construction industry follows, e.g.
NSW (1999), NZ (2002), Queensland (2004), Singapore (2004), Victoria (2006), Malaysia (2012)

Malaysia
2004 Working Group on Payment (WG10) led by ISM was formed to look into chronic problem of
delayed and non-payment in the Malaysian Construction Industry
2005 international forum held in Kuala Lumpur
2006 consultative forum was held in Putra World Trade Center
Various industry consultative forums & road shows
2009 Cabinet agreed for CIPAA to be enacted
November 2011 Final draft
01 December 2011 CIPA Bill first reading in Parliament
02 April 2012 Second Reading
07 May 2012 Third Reading
18 June 2012 Royal Assent
22 June 2012 Publication in the Gazette

CIPAA 2012 came into force in on 12 APRIL 2014

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 IMPACT OF CIPAA
CIPAA Be prepared for the impact on
Construction industry
Employers
Contractors
Sub-contractors
Construction professionals
Claims consultants / lawyers
Adjudicators
Courts
Contract documentation
Contract administration
Miscellaneous issues

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The Overview
(CIDB)

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Adjudication
Decision
Adjudication
Notice
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 Potential Impact on
Construction Industry

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 POTENTIAL IMPACT ON CONSTRUCTION INDUSTRY & CONTRACTNG PARTIES

CONSTRUCTION SUB-CONTRACTORS,
EMPLOYERS CONTRACTORS
INDUSTRY ETC.

Change the payment culture

Permit a more even allocation of
payment risk

Curb unfair and pervasive
practice of constructing cash flow
in the supply line

Improve quality of work and
professionalism

Minimise payment disputes from
proceeding to arbitration, litigation
etc.

Change attitude towards payment
issues

Compel a more fairer allocation of
risk despite dominant position

Compel mandatory payment of
the amount due to the contractor
with effective sanctions

Improve professional and good
governance in administering
payments

Weed out the delinquent and
recalcitrant employers

Ameliorate the harsh and
pervasive risk allocation imposed
on them by employers

Allow receipt of regular and timely
payment

Improve their cash-flow

Enable speedy resolution of
payment disputes cheaply
through adjudication

Allow statutory mandated
recovery of payment after
adjudication

Generally as for contractors

Allow enforcement of payment in
the absence of express
provisions in the sub-contract

Develop a healthy and
professional body / corpus of
downstream suppliers / sub-
contractors effectively supporting
the upstream players / parties.

Improve quality of work / finished
As for the employers in regard to

product their obligations to their sub-
contractors

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CONSTRUCTION
PROFESSIONAL

Payment for consultancy work
undertaken:
1. Easier to receive; and
2. In time
3. Remedies for default available
through CIPAA

For valuation and certification role
1. Need to improve professionalism
and good practice
2. Default possible claims in:
 Breach of contract
 Tort of negligence

Necessity to get P.I. Insurance

Opportunity to:
1. Become adjudicators
2. Do adjudication support work
POTENTIAL IMPACT OF CIPAA ON THIRD PARTIES
CLAIMS CONSULTANTS
/ LAWYERS

New / increased opportunities
1. For adjudication support
work
2. To become adjudicator

For lawyers:
1. New / increased
opportunities
2. For consequential litigation
work e.g. application for
stays, enforcement, etc.

Liability for default possible
claims for:
1. Breach of contract
2. Tort of negligence
ADJUDICATORS

New opportunities for increase in
volume of work available

Need to maintain competency,
integrity and professionalism

Statutory immunity against:
1. Any action / suit
2. Provided acting in good faith
COURTS

Need to be educated / updated
on the philosophy, aims /
objectives, implementation, etc.
of adjudication

Necessity to:
1. Recognize the differences
between adjudication and
other ADR and TDR methods
2. Give effect to CIPAA whole
heartedly

Must be prepared for an increase
in adjudication generated
litigation
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Some CIPAA Details

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 FASTFACTS
An Act to facilitate regular and timely payment, to provide a mechanism for speedy dispute resolution
through adjudication, to provide remedies for the recovery of payment in the construction industry and to
provide for connected and incidental matters.

Principal Act comprises

41 sections, divided into 7 parts

Enforcement:
Date of Royal Assent - 18 June 2012
Date of publication in the Gazette - 22 June 2012.
Came into force upon Ministers order (12 April 2014)
Not retrospective (according to KLRCAs circular)

Principal Act + Regulations to give full effect or the better carrying out of the provisions of [the] Act.

Applies to construction contract (including construction consultancy contract) made in writing, for
construction works carried out wholly or partly within the territory of Malaysia, including a construction
contract entered into by the Government.

Non-application (s3) natural person, building is less than 4-storey and for own occupation.

Exemptions by Minister (s40)

upon recommendation from KLRCA for person/class from all/any provision of the CIPAA subject to
terms/conditions as may be prescribed

No contracting out (implied).

Applies to payment disputes.

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 Part I
Preliminary
CIPAA Part II
(Sections 1 to 4)
Regulations Application of Payment
(Refer KLRCA Website) Disputes
(Sections 5 to 20)

Part VII CIPAA : CONTENTS Part III Adjudicator

Miscellaneous & FRAMEWORK (Sections 21 to 27)
(Sections 38 to 41)

Part IV Enforcement
Part VI Part V of Adjudication
General Adjudication Authority Decision
(Sections 34 to 37) (Sections 32 to 33) (Sections 28 to 31)

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1. Preliminary stage
Making a claim
Response to a claim
Decision of unpaid party

2. Initiation of Adjudication stage

Decision to initiate adjudication
Initiation of adjudication process

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3. Appointment of Adjudicator stage
Selection of adjudicator
Appointment of adjudicator

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4. Conduct of adjudication
proceedings stage
Commencement of
adjudication proceedings
Submissions
Determination

5. Post decision
stage
Post publication of
decision
Enforcement of
decision
Enforcement of
other remedies

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QS - Valuation and Certification
(PAM06)

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 NON-PAYMENT TRIGGERS CIPAA

PAM06
Possible cause of Non-payment
Clause 30.1 Delay in issuing Interim Certificate

Within 21 Days from Contractors payment application, Delay by Employer to make payment
Architect is to issue Interim Certificate
QS / Architect under-certifies without reasonable
\Within Period of Honouring Certificate (default = 21 cause
Days), Employer to make payment according to the
Interim Certificate Employer does not pay in full without reasonable
cause

Delay in certification is not a non-payment if

Employer pays within (21 Days + Period of
Honouring Certificate).

Payment Contractor
Payment Ar. issues Due Date may issue a
Application Payment Employer CIPAA
by Certificate must make 2012
Contactor payment Payment
Claim

PAM06 21 Days Period of Honouring Certificate If Employer does not make payment at the end of
period, it is considered Non-payment whether or
CIPAA default payment provision: not the Architect has issued a certificate
Monthly; Payment due date is 30 days from receipt of invoice

Contractor
Invoice may issue a
CIPAA 2012
Payment
CIPAA2012 Claim 32
 PAYMENT RESPONSE

CIPAA 2012
Failure to provide a Payment Response
Section 5 Payment Claim Non-paying party deemed to dispute the whole
amount
(1) An unpaid party may serve a payment claim on a non-paying party for
payment pursuant to a construction contract.
Respondent cannot later raise counter claim or
defense which was not specified in the
Payment Response section 27(1)
Section 6 Payment Response

(1) A non-paying party who admits to the payment claim served on him shall
serve a payment response on the unpaid party together with the whole amount
claimed or any amount as admitted by him.
(2) A non-paying party who disputes the amount claimed in the payment claim,
either wholly or partly, shall serve a payment response in writing on the unpaid
party stating the amount disputed and the reason for the dispute.
(3) A payment response issued under subsection (1) or (2) shall be served on
the unpaid party within ten working days of the receipt of the payment claim.
(4) A non-paying party who fails to respond to a payment claim in the manner
provided under this section is deemed to have disputed the entire payment claim.
Section 27 Jurisdiction of Adjudicator
(1) Subject to subsection (2), the adjudicators jurisdiction in relation to any
dispute is limited to the matter referred to adjudication by the parties pursuant to
sections 5 and 6.
Examples:
No payment response, or payment response did
not mention deduction of Liquidated Damages
respondent cannot later raise this in defense
No payment response, or payment response did
not mention set-off for rectification of defective
works carried out by others respondent cannot
later counter claim in this adjudication.

Whether a Payment Response was provided
or not, the unpaid party may proceed to issue
the notice of adjudication at the end of the
stipulated period (10 working days)

(2) The parties to adjudication may at any time by agreement in writing extend
the jurisdiction of the adjudicator to decide on any other matter not referred to the
adjudicator pursuant to sections 5 and 6.

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 ADJUDICATION RESPONSE

CIPAA 2012
Failure to provide an
Adjudication Response, or
Section 9 Adjudication Claim providing an inadequate
response
(1) The claimant shall, within ten working days from the
receipt of the acceptance of appointment by the adjudicator Failure to answer the
under subsection 22(2) or 23(2), serve a written
adjudication claim containing the nature and description of Claimants adjudication
the dispute and the remedy sought together with any claim
supporting document on the respondent.
Could be fatal to
Section 10 Adjudication Response Respondent for
adjudication based on
(1) The respondent shall, within ten working days from the documents only since the
receipt of the adjudication claim under subsection 9(1), Adjudicator has very limited
serve a written adjudication response which shall answer time.
the adjudication claim together with any supporting
document on the claimant.

(2) The respondent shall provide the adjudicator with a

copy of the adjudication response together with any
supporting document within the time specified under
subsection (1).

(3) If the respondent fails to serve any adjudication

response, the claimant may proceed with the adjudication
after the expiry of the time specified under subsection (1).
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 Comparative :
Adjudication under PAM06 (With amendments) & CIPAA 2012
Clause 30.1 - Contractor submits
payment application

set off issue non-payment issue

Suggested amendments for cl. 30.4

notice / negotiation timeline is
reduced from 21 to 14 days

President of
PAM appoints
adjudicator

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Lessons Learnt

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 Lessons Learnt

 Potential of AMBUSH - Employer has limited time to response, but

response he must
Walter Construction Group v CPL (Slurry Hills) Pty Ltd [2003] NSWSC 266
 A Christmas ambush launched when consultants were on holiday. Payment Claim
$13.9 million. Amount subsequently certified by Superintendent was $952,351.00.
Several of these claims amounted to no more than mere assertions.

 Payment Claim of $13.9 million was upheld because of failure to provide the
Payment Schedule (ie payment response under CIPAA) within the stipulated time of
10 business days.

All Consultants and Clients on Holiday!

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 Lessons Learnt
 Ambush is allowed! Beware of the short time frame allowed for dispute which is
complex or involves large volumes of material!

Bovis Lend Lease Ltd v. The Trustees of the London Clinic [2009] EWHC
64
 Short timetable does not mean that the process is unfair.
 Affirming CIB Properties Ltd v Brise Construction [2004] EWHC 2365,
TCC, and London & Amsterdam Properties Ltd v Waterman
Partnership Ltd (2003) that an "ambush" by the claiming party in an
adjudication does not in itself amount to procedural unfairness.

 Variation works must be paid if done!

Minister for Commerce v Contrax Plumbing & Ors [2004] NSWSC 823
 Clause stipulating elaborate contract administration process was held to be
invalid.

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 Lessons Learnt

 Volumes of Documents Do not mean procedural unfairness

The Dorchester Hotel Ltd v Vivid Interiors Ltd [2009] EWHC 70

 37 lever arch files, including 6 substantial witness statements and two experts'
reports

 Tight timetable = real risk of a breach of natural justice?

 Affirmed CIB Properties v Birse a dispute which is complex or involves large

volumes of material does not necessarily mean that an adjudication is procedurally
unfair

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 Lessons Learnt

 Most Expensive adjudication case

CIB Properties Ltd v Brise Construction [2004] EWHC 2365, TCC

 The claim was contained in 53 files and the referral notice was accompanied by 49 files
containing 24 reports from experts

 The adjudicator was Professor John Uff, QC. One of the parties was represented by Sir
Vivian Ramsey, now the Head of the Technology Court.

 The referral was made on 14 November 2003. The decision was extended several time,
and given on 24 February 2004.

 The adjudicators decision runs 139 pages. Total costs came to 4 million.

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 Lessons Learnt

 Contracting out of CIPAA?

John Mowlem plc v Hydra-Tight Ltd [2000] 17ConstLJ 358

When contract provisions have the effect of modifying, restricting or prejudicing the
operation of the Act
New Engineering Contract 2nd Edition Sub-Contract published by ICE Option Y a
dispute require a Notice of Dissatisfaction to be given, and matter not resolved within 4
weeks
The Court held that the contract did not comply with the Act.

Minister for Commerce v Contrax Plumbing & Ors [2004] NSWSC 823
Clause stipulating elaborate contract administration process was held to be invalid
offended section 34 of NSW SOP Act / section 36 Sgp SOPA no equivalent in
CIPAA?

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Rules, Procedures & Forms

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 Payment
Claim
Notice of
Adjudication

Rules

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 KUALA LUMPUR REGIONAL CENTRE FOR ARBITRATION
ADJUDICATION RULES & PROCEDURE

PART A - RULES SCHEDULE I FORMS

RULE 1: GENERAL
RULE 2: COMMENCEMENT & REGISTRATION OF
ADJUDICATION
RULE 3: APPOINTMENT OF ADJUDICATOR
RULE 4: NOTIFICATION OF ADJUDICATION CLAIM
RULE 5: NOTIFICATION OF ADJUDICATION
RESPONSE
RULE 6: NOTIFICATION OF ADJUDICATION
REPLY, IF ANY
RULE 7: THE PURPOSE OF THE ADJUDICATION
AND THE ROLE OF THE
ADJUDICATOR
RULE 8: CONDUCT OF THE ADJUDICATION
RULE 9: FEES AND EXPENSES
RULE 10: ADJUDICATION DECISION
PART B - PROCEDURE
SCHEDULES
SCHEDULE I - FORMS
SCHEDULE II - KLRCA STANDARD TERMS OF
APPOINTMENT
SCHEDULE III - ADMINISTRATIVE FEE SCHEDULE
SCHEDULE IV - ADJUDICATOR CODE OF
CONDUCT
FORM 1 - Payment Claim
FORM 2 - Payment Response
FORM 3 - Notice of Adjudication
FORM 3A - Notice to the Director of KLRCA to register the
adjudication
FORM 4 - Request to the chosen adjudicator to act
FORM 5 - Request to the Director of KLRCA to appoint an
adjudicator
FORM 6 - Notice of acceptance of the appointment to act as
adjudicator
FORM 7 - Adjudication Claim
FORM 8 - Adjudication Response
FORM 9 - Adjudication Reply
FORM 10 - Agreement to extend the adjudicators jurisdiction
FORM 11 - Notice of withdrawal of adjudication claim/proceedings
FORM 12 - Notice of consolidation of adjudication proceedings
FORM 13 - Adjudicators request for extension of time to deliver the
adjudication decision
FORM 14 - Notice for withholding the release of the decision until
payment of fees and expenses in full
FORM 15 - Sample Format of an adjudication decision
FORM 16 - Delivery of Adjudication Decision
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 SUMMARY
Both Employers and Consultants need to be aware and
be prepared for CIPAA Supporting the
Adjudication
Proceedings

Contract Responding to Answer the Claim

Documentation Payment Claim 1 do not just deny

Ensure Contract Internal process to Get the team to

1 complies with the 1 accommodate 2 cooperate on
Act statutory timeline timeline
Formulation of Data bank of
Sort out Contract
2 Formation Issues
2 response strategy 3 response
phraseology
Prescribe standard Adjudication Claim
Develop payment
3 claim format 3 response format 4 and Payment
Claim

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The End

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