Prepared By:Messrs. Richard Wee & YipNo. 21, Jalan Aminuddin Baki, Taman Tun, Dr Ismail, 60000 Kuala Lumpur

CONSTRUCTION INDUSTRY PAYMENT AND ADJUDICATION ACT 2012 (“CIPAA”):

The Scope and How Does It Work?

CIPAA• What is CIPAA?• Governing Rules & Procedure• Why CIPAA?• Comparison• Pros (Litigation, Arbitration & Adjudication)• Cons (Litigation, Arbitration & Adjudication)• Objectives of CIPAA• Effect of CIPAA• Scope & Applicability• How Does It Work?

Prepared by Messrs Richard Wee & Yip 2014

CIPAA: The Scope and How Does It Work?

Prepared by Messrs Richard Wee & Yip 2014

WHAT IS THE CONSTRUCTION

INDUSTRY PAYMENT AND

ADJUDICATION ACT 2012 (“CIPAA”) ?

CIPAA: The Scope and How Does It Work?

Prepared by Messrs Richard Wee & Yip 2014

• CIPAA was gazetted on 22 June 2012.

• CIPAA came into operation on 15 April 2014.

• Another form of Alternative Dispute Resolution

• An Act of Parliament that makes adjudication compulsory via statutory adjudication

• The primary objective is to address critical cash flow issues in the construction industry.

WHAT IS CIPAA?

CIPAA: The Scope and How Does It Work?

Prepared by Messrs Richard Wee & Yip 2014

CIPAA: Governing Rules &

Procedure• Construction Industry Payment & Adjudication Act 2012

• Construction Industry Payment and Adjudication Regulations 2014

• Construction Industry Payment and Adjudication (Exemption) Order 2014

• KLRCA Adjudication Rules & Procedure

CIPAA: The Scope and How Does It Work?

Prepared by Messrs Richard Wee & Yip 2014

Why CIPAA? • To create a statutory solution to specifically deal with the

prevailing issues:- Payment default; Conditional payments; and Non-payment to contractors.

• Fast and gives quick solutions

CIPAA: The Scope and How Does It Work?

Prepared by Messrs Richard Wee & Yip 2014

COMPARISON:A.VENUE:

1. Litigation : Court2. Arbitration : Anywhere3. Adjudication : Anywhere

B.PARTIES1. Litigation : Plaintiff & Defendant2. Arbitration : Applicant & Respondent3. Adjudication : Claimant & Respondent

CIPAA: The Scope and How Does It Work?

COMPARISON (cont’d):

C.REPRESENTATION1. Litigation : Lawyers 2. Arbitration : Lawyers/Self-representation3. Adjudication : Lawyers/Self-representation

D.DECISION-MAKER1. Litigation : Judge 2. Arbitration : Arbitrator3. Adjudication : Adjudicator

Prepared by Messrs Richard Wee & Yip 2014

CIPAA: The Scope and How Does It Work?

COMPARISON (cont’d):

E. EFFECT OF SOLUTIONS1. Litigation : Binding (Judgment in

Law)2. Arbitration : Binding (Arbitral Decision)

Can seek order from Court to enforce

3. Adjudication : Temporarily Binding“Pay first, argue later” concept

Prepared by Messrs Richard Wee & Yip 2014

CIPAA: The Scope and How Does It Work?

PROS:No.

LITIGATION ARBITRATION ADJUDICATION

1. Final & Binding Final & Binding Temporarily Binding

2. Detailed arguments

Specialization Specialization

3. Follows precedents

Flexible Fast

4. Private Private

5. Internationally applicable

Prepared by Messrs Richard Wee & Yip 2014

CIPAA: The Scope and How Does It Work?

Prepared by Messrs Richard Wee & Yip 2014

CONS:No.

LITIGATION ARBITRATION ADJUDICATION

1. Cost (High) Cost (Medium) Cost (Lower)

2. Open to public (No confidentiality)

Time (Delay) Only temporarily binding

3. Time (Delay)

CIPAA: The Scope and How Does It Work?

Prepared by Messrs Richard Wee & Yip 2014

Objectives of CIPAA

1. Facilitate regular and timely payment

2. Provide a mechanism for speedy dispute resolution through adjudication

3. Provide remedies for recovery of payment

CIPAA: The Scope and How Does It Work?

Prepared by Messrs Richard Wee & Yip 2014

EFFECT OF CIPAA

• CIPAA seeks to ensure that all employers of contractors in the construction industry (including the Government) pay their contractors promptly so that they are not starved for cash.

• CIPAA introduces an intervening provisional stage in the dispute resolution process of ‘pay first argue later’.

• Effectively removes conditional payment provisions of “pay when paid” or “pay if paid” which contributes to cash flow problems.

CIPAA: The Scope and How Does It Work?

SCOPE & APPLICABILIT

Y

CIPAA: The Scope and How Does It Work?

Prepared by Messrs Richard Wee & Yip 2014

Prepared by Messrs Richard Wee & Yip 2014

SCOPE AND APPLICABILITY

• This Act applies to –o Every construction contract o Made in writing o Relating to construction work o Carried out wholly or partly within the territory of

Malaysia o Includes a construction contract entered into by the

Government of Malaysia[SECTION 2 CIPAA]

CIPAA: The Scope and How Does It Work?

SCOPE AND APPLICABILITY

(CONT’D)

• Parties:o Natural Individualso Corporate Bodieso Statutory Bodieso Government of Malaysia

• The Act would apply unless exempted by the Works Minister.

• Note: CIPAA only applies to breaches which occur

after 15th April 2014.*

* Circular by KLRCA on the Saving Provision in Section 41 of the CIPAA and the Administration of Adjudication Cases by the KLRCA dated 23rd April 2014.

Prepared by Messrs Richard Wee & Yip 2014

CIPAA: The Scope and How Does It Work?

Prepared by Messrs Richard Wee & Yip 2014

SECTION 3 CIPAA:CIPAA does not apply to a construction contract 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 occupation

CIPAA: The Scope and How Does It Work?

OUT OF THE SCOPE

Prepared by Messrs Richard Wee & Yip 2014

HOW DOES IT WORK?

CIPAA: The Scope and How Does It Work?

PAYMENT CLAIM

- SECTION 5- SERVED BY

UNPAID PARTY

INITIATE ADJUDICATION- SECTION 8- SERVE WRITTEN 'NOTICE OF ADJUDICATION' BY CLAIMANT

PAYMENT RESPOND- SECTION 6- SERVE BY NON-PAYING PARTY

APPOINTMENT OF ADJUDICATOR

- SECTION 21- BY KLRCA

DIRECTOR OR BY AGREEMENT OF

PARTIES

ADJUDICATOR ACCEPTS THE APPOINTMENT AND PROPOSES TERMS AND FEES- SECTION 22(2)

10 days after acceptance by

Adjudicator10 days after receipt 10 days after receipt 10 days after notifying

the Adjudicator

ADJUDICATION CLAIM- SECTION 9- SERVE BY CLAIMANT

CIPAA: The Scope and How Does It Work?

Prepared by Messrs Richard Wee & Yip 2014

ADJUDICATION CLAIM- SECTION 9- SERVE BY CLAIMANT

ADJUDICATION RESPONSE- SECTION 10- SERVE BY RESPONDENT

ADJUDICATION REPLY - SECTION 11- SERVE BY CLAIMANT

DECISION BY ADJUDICATOR- SECTION 12

10 days after receipt 5 days after receipt45 days

from service of adjudication response or reply to the

adjudication response, whichever later

CIPAA: The Scope and How Does It Work?

Prepared by Messrs Richard Wee & Yip 2014

FLOWCHARTSection 5(1) - unpaid party may

serve payment claim to non-paying party

Section 6(1) - Admits partly

or wholly

Section 6(4) - Fails to

response is deemed to have

disputed

Section 6(2) - Disputes partly or wholly

ADJUDICATION PROCEEDINGS - Section 7

- Within six years based as per Limitation Act 1950

Admits partly to the payment claim

Admits wholly to the payment

claim

CIPAA: The Scope and How Does It Work?

Prepared by Messrs Richard Wee & Yip 2014

ADJUDICATION PROCEEDINGS - Section 7

Section 8(1) – Claimant send notice of adjudication to

respondent

Section 8(2) & Section 21 – Appointment of

adjudicator

Section 21(a) – appointment of adjudicator by agreement of

parties

Section 21(b) – appointment of adjudicator by Director of the

KLRCA

Section 22(1) – Claimant shall notify the

adjudicator

Section 23 – Director of the KLRCA shall appoint the

adjudicator within five days after request and shall notify the adjudicator and the parties

CIPAA: The Scope and How Does It Work?

Prepared by Messrs Richard Wee & Yip 2014

Prepared by Messrs Richard Wee & Yip 2014

CIPAA Announcements/Guidelines

• Press Statemento 15th May 2014 – The Construction Industry Payment and Adjudication

Act 2012 Comes Into Operation

• KLRCA CIPAA Circularso KLRCA CIPAA Circular 01 – Dated 23rd April 2014

• On the saving provision in Section 41 of CIPAA and the administration of adjudication cases by the KLRCA

o KLRCA CIPAA Circular 02 – Dated 28th April 2014• KLRCA’s recommended schedule of fees

CIPAA: The Scope and How Does It Work?

Prepared by Messrs Richard Wee & Yip 2014

CIPAA Announcements/Guidelines• KLRCA CIPAA Circulars (cont’d)

o KLRCA CIPAA Circular 03 – Dated 28th April 2014• Guideline on the meaning of “construction contract made in

writing”

o KLRCA CIPAA Circular 04 – Dated 28th April 2014• Procedure for exemption application made under Section 40 of the

Construction Industry Payment and Adjudication Act 2012

CIPAA: The Scope and How Does It Work?

Prepared by Messrs Richard Wee & Yip 2014

THANK YOU.

CIPAA: The Scope and How Does It Work?