Enactment of the

Construction presented at the

Industry Seminar on
LEGAL REFORMS
in the Malaysian Construction
Payment & Industry

Adjudication Act
or CIPAA
for Malaysia

1
 Presentation FLOW

● The Construction Industry ●

● Empirical Findings ●
● Payment in Project Implementation ●
● Overview of CIPAA ●

2
The CONSTRUCTION Industry

Topic :
Construction : Quality of Life
The Knock-on Effect
Uniqueness of the Industry
More Pressing Scenario

3
 CONSTRUCTION : Quality of Life
CONSTRUCTION
Socio Economic INDUSTRY
Policies Business
Housing . Objectives
Hospitals .
Mosques .
Government Schools .
Social
Public Spaces .
Infrastructure
Other Social Amenities .
Elects Highways . Private
Dams . Funded
Economic Airports .
Infrastructure Ports .
Technology Parks .
Commercial Centre .
Society Power Generator .
Environmental Business
Standard of Friendly Objectives
Living & Quality Processes &
of Life Materials
Environment 4
 ESSENTIAL Element in Project
Implementation

Cash flow
is the LIFE BLOOD of the construction industry
5
 The KNOCK-On Effect

Payment Risk
Owner/
Developer

Builder/
Main Con.

Sub-contractor

Suppliers
Labour Contractor

Construction Worker

Society Indirect
IMPACT

6
 UNIQUENESS of the
CONSTRUCTION Industry
• LONG Completion Period
1
• MULTI Layered and Phases
2
• Terms of Payment on CREDIT
3
• Services Rendered BEFORE Progress Payment
4
• Products Becomes Fixtures DISABLING Removal
5
7
 MORE Pressing Scenarios
Speculative development Contractual bargaining powers
without enough financial of parties are not equal -
capital by unscrupulous payment obligations maybe
developers abused

Existing dispute PROBLEMS

resolution Remedies such as
mechanisms suspension of work,
(arbitration & direct payment, etc
litigation) takes a very Existing related cannot be properly
long time and statutory laws only and lawfully exercised
expensive apply generally and
not enough to deal
with current
problems
8
 Empirical FINDINGS

Topic :

2006 Questionnaire Survey

Empirical Evidence : Contractors
Empirical Evidence : Consultants

9
2006 QUESTIONAIRE SURVEY
A Study Commissioned by CIDB

A Report on Late and

Non-payment Issues in the
Malaysian Construction
Industry 2006

10
 Empirical Evidence : CONTRACTORS

SURVEY
by University Contractors Consultants
of Malaya

11
 Empirical Evidence: CONSULTANTS

SURVEY
by University Contractors Consultants
of Malaya

12
 PAY M E N T i n
Project Implementation

Topic :
Contractual Arrangement
Categories of Payment Problems
Impact of Payment Problems
Initiatives by Other Countries
Consultative Forums
Industry Support
The CIPAA Journey
CIPAA Status

13
 Contractual ARRANGEMENTS
Contracts with Contracts with
Terms of Payment Terms of Payment

Contracts with
incomplete or no Terms
of Payment

14
 CATEGORIES of Payment Problems

1) Formal
Complete Terms of
Payment

2) Formal
Incomplete Terms of
Payment

3) Informal
Oral

15
 IMPACT of Payment PROBLEMS

PAYMENT PROBLEMS

Affect cash flow and physical Innocent third party purchasers

development or construction works become victims of delayed and
suffers – lead to bankruptcy abandoned projects

Payment Disputes must be resolved through

quicker, less costly and binding mechanism
16
 ADR COMPARISON
Nature Purpose Duration Effectiveness Source

Interest Workable only if genuine

Seek Voluntarily by
Mediation based
compromise
2 weeks willingness to settle the
agreement
process dispute

Constitutionally
Rights Independent & binding
Court Fine & final At least 4 enabled and
based judgment subject only to
Litigation justice years governed by CJA
process appeal to Appellate Court
1964/SCA 1948

Voluntarily by
Rights Independent & binding
Fine & final At least 2 agreement but
Arbitration based
justice years
award subject to appeal on
governed by AA
process issues of law to High Court
2005

Independent & binding

decision but dissatisfied Statutorily
Rights
Temporarily party may recommence enabled and
Adjudication based
final justice
2 months
dispute resolution by governed by
process
arbitration or court CIPAA
litigation
17
10 JURISDICTIONS
Around the World

18
 Consultative FORUMS
CHRONOLOGY OF EVENTS 2003 2004 2005 2006 2007 2008 2009

•Presidents & CEOs Roundtable (24/6)

•Roundtable Prelude Conference (15/6)

24 June 2003 24 June 2004
•Presidents & CEOs Roundtable (24/6) Presidents and CEO’s
Presidents and CEO’s
•National Forum on Payment (10/8) roundtable discussion roundtable discussion

•International Forum on CIPAA (13-14 Sept)

•10 Steering Committee Meetings

Forum-2
Forum-1 Forum-4 Forum-5
•Industry endorsement of CIMP 2006-2015 13-14 Sept Forum-3
10 August 4 April 2006 Aug-Oct
2005 22 Feb 2006 2009
•Open Consultative Forum on CIPAA (22/2) 2004 Roundtable
Consultative Industry
National Open
International Forum
Consultative
Forum on Consultative Roadshow
•Roundtable Consultative Forum for Captains Forum on
Payment Forum
of Industry (4/4) CIPAA

•Presentation to PEMUDAH (27/3)

•Presentation to Cabinet (15/7)

27 March 2009 15 July 2009
•Industry Consultation Road show (Penang, Presentation to PEMUDAH Presentation to Jemaah Menteri
Johor, Sarawak, Sabah and Kuala Lumpur)

19
 Industry SUPPORT

Construction Industry Stakeholders supporting CIPAA:

 BEM  LAM  BQSM  PAM  ISM  ACEM  CIOB  MBAM  PKMM
 PKIM  REHDA  TEEAM  MFPA  C&CA 20
The CIPAA
Journey
2003
Initial discussions
2004 Forums
2005 Conference and Industry Consultations
2006 Key Recommendation on CIPAA in CIMP
2007 Roadshows and Awareness

2008 Cabinet Paper

2009 Approval in Principle from Cabinet

2010 Briefing to AG and more consultations

2011 1st CIPAA draft from AG (March)

1 AUG 2011 2 OCT 2011 3 NOV 2011 4 DEC 2011 5 APR 2012 6 MAY 2012
Amended Industry Final Draft 1 Reading
st nd2 Reading 3 Reading
rd

draft Consultation In Parliament In Parliament In Parliament

from AG
21
 CIPAA Status

On 15th July 2009, Cabinet Second reading of the CIPAA bill

agreed that CIPAA be enacted to 2 April 2012
resolve payment problems in
construction industry

Third reading of the CIPAA bill

7 May 2012
First reading of the CIPAA bill
1 December 2011

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BLUE BILL of CIPAA

Both in English and Malay Version

23
 O v e r v i e w o f C I PA A

Topic :
Definition of Payment
Purpose of CIPAA
Application of CIPAA
Key Features of CIPAA
Procedures of CIPAA

24
 DEFINITION of payment
under CIPAA
PAYMENT under CIPAA is described as
follows:

Payment means a payment for work done or

services rendered under the express terms of
a construction contract

25
 PURPOSE of CIPAA

1 To facilitate regular and timely payment

2 To provide a mechanism for speedy dispute

resolution through adjudication

3 To provide remedies for the recovery of

payment in the construction industry

26
 APPLICATION of CIPAA
Covers All WRITTEN Government & Private Sector
Construction Contracts

Construction Contracts Consultancy Services Contracts

• All construction works as defined • Planning & feasibility study

in CIDB Act 520.
• Architectural work
• Procurement of construction
materials • Engineering

• Surveying
• Procurement of construction
equipments & workers • Exterior & interior deco

• Landscaping

• Project management

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 TYPE of Contractual Agreement
Captured by CIPAA
Contractors and principal/ developer

Sub-contractors and contractors

Suppliers and sub-contractors / contractors

Plant & equipment hirers and sub-contractors / contractors

Consultants and clients

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 VALUE of Projects Nationwide
Public and Private Sector Construction Projects 2006-2011

Public Sector Private Sector Total

Value
22b 36% 2006 64% 39b
61b
48b 51% 51% 2007 49% 46b
94b
39b 45% 45% 2008 55% 48b
87b
33b 44% 44% 2009 56% 42b
75b
20b 22%
22 78%
2010 68b
% 88b
24% 76%
21b 2011 69b
91b
 VALUE of Projects in Sarawak
Public and Private Sector Construction Projects 2006-2011

2006 2007 2008 2009 2010 2011

Public Private
Total Value 5.38b 5.56b 6.94b 6.79b 7.88b 4.83b
Value
[Rm bilion] % against
total value 8.8% 5.9% 11.4% 9.1% 9.0% 5.3%
nationwide
5

4.56b
4
3.78b

3.70b
3.61b
3.53b

3.47b
3.32b
3.33b
3

3.09b
2
2.03b
1.60b

1.36b
1

-
2006 2007 2008 2009 2010 2011
30
 KEY FEATURES of CIPAA
4 Main Key Features of CIPAA

1 2
STREAMLINING
PROHIBITION
payment procedures for
of Conditional Payment
construction works

3 ESTABLISHING
less
4 Providing REMEDIES
costly, speedier, con for the recovery of payment
temporaneous, binding following decision by the
statutorily-enabled Adjudicator
Adjudication Mechanism
31
 CIPAA Key Feature-1
‘Pay when Paid’ & Conditional Payment

• PROHIBITION of ‘Conditional Payment’

 Upon that party having received payment from a third
party

 Upon availability of funds or drawdown of financing

facilities of that party

32
 CIPAA Key Feature-2
Payment Procedures for Construction Works

• Streamlining Payment Procedures for

Construction Works
 Response Procedures to facilitate Payment Claims
when there is payment default.
 Default Mechanisms to facilitate Payment in the
absence of contractual provisions on terms of
payment.

33
 CIPAA Key Feature-3
An Adjudication Mechanism – Adjudication Process

• Adjudication MECHANISM (Adjudication Process)

 Adjudication is a statutory procedure by which any party to
a construction contract has a right to have a dispute
decided by an adjudicator.
 Adjudication is intended to be quicker and more cost
effective than litigation or arbitration.
 The adjudicator must decide the dispute in less than 45
working days.
 The adjudication decision is binding and its usually upheld
by the courts.

34
 CIPAA Key Feature-3
Success rate of adjudication

from 1999 to 2007

Adjudication
Country
No. of Cases Referred to Court Adjudication
Success Rate

United Kingdom 15,000 300 98%

Australia 3,700 180 95%
New Zealand 300 26 91%

35
 CIPAA Key Feature-3
Statistics on Adjudication in Neighboring Country

Adjudication Statistics
(April 2005 till Dec 2011)

Total number of cases referred 631

Determined 484 (77%)
Withdrawn 138 (22%)
368 (76%)
In progress 9 (1%) were ruled in favor of
claimant

36
 CIPAA Key Feature-3
KLRCA as the Adjudication Authority

• KLRCA shall be responsible of the following:

 Setting of competency standard and criteria of an adjudicator

 Determination of the standard terms of appointment of an

adjudicator and fees for the adjudicator services

 Administrative support for the conduct of adjudication under

CIPAA

 Any other functions required for the efficient conduct of

adjudication under CIPAA

37
 CIPAA Key Feature-4
Remedial Provisions

• REMEDIAL Provisions
 Enforcement of adjudication decision as judgment

 Suspension or reduction of rate of progress of

performance

 Direct Payment from principal

38
 PROCEDURES under CIPAA
Claimant serves notice of adjudication on respondent

Adjudicator is appointed

Claimant serves claim on respondent

Respondent serves adjudication response

Claimant may serve reply

Adjudicator hears parties

Adjudicator delivers decision

(Adjudication proceedings takes only 95 days. Current mechanisms take between 9 months to a few years)
39
 PROCEDURES under CIPAA
95d

Payment Adjudication Process

Disputes

Non-paying party
serves Payment
Response to
unpaid party
KLRCA
(Clause 6)
appoints
adjudicator Claimant Respondent Claimant
Claimant upon serves serves serves
serves Notice request of Adjudication Adjudication Adjudication
of Adjudication parties in Claim to the Response to Reply to the Adjudicator to deliver
1d 10d to respondent dispute respondent the claimant respondent Adjudication Decision
(Clause 8) (Clause 21) (Clause 9) (Clause 10) (Clause 11) (Clause 12)

Unpaid Party serves

Payment Claim to non-
paying party
(Clause 5)
10d 5d 10d 10d 5d 45d

Appointment of Acceptance of
adjudicator upon appointment by
receipt of Notice of adjudicator
Adjudication (Clause 22 (2) or
(Clause 8) 23(2))
Unpaid Claimant/
party Non-paying party Adjudicator KLRCA Claimant Respondent Claimant Adjudicator 40
 CIPAA PROSPECT
Inculcate healthy culture in making timely and regular payments

Parties are more attentive on their obligations to settle payments

promptly

More certainty in collecting payments due

Have clearer contractual provisions on payment terms due to

awareness of default provisions prescribed under the Act

Sub-contractors submitting more professional and detailed

payment claims

Increase confidence to enter into contracts with unfamiliar

contractors

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Thank YOU
www.cidb.gov.my
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