Cipaa 2012

CONSTRUCTION
INDUSTRY PAYMENT
AND ADJUDICATION
ACT 20I2
2013
CONTENTS
Construction Industry Payment &
Adjudication Act 2012
CONSTRUCTION
INDUSTRY PAYMENT &
ADJUDICATION ACT
2012
Part I
ADJUDICATION -
PROCESS & TIME
OVERVIEW
Part II
GUIDE TO CIPA ACT 2012 Part III
CONSTRUCTION INDUSTRY PAYMENT & ADJUDICATION ACT 2012
2
Part I
CONSTRUCTION INDUSTRY
PAYMENT & ADJUDICATION ACT
2012
Part I
Preliminary
Clause 1 Short Title and Commencement 6
Clause 2 Application
Clause 3 Non-application 7
Clause 4 Interpretation
Part II
Adjudication of Payment Disputes
Clause 5 Payment Claim 10
Clause 6 Payment Response 11
Clause 7 Right to Refer Dispute to Adjudication
Clause 8 Initiation of Adjudication 12
Clause 9 Adjudication Claim
Clause 10 Adjudication Response 13
Clause 11 Adjudication Reply
Clause 12 Adjudication and Decision 14
Clause 13 Effect of Adjudication Decision 15
Clause 14 Consolidation of Adjudication
Proceedings
Clause 15 Improperly Procured Adjudication 16
Decision
Clause 16 Stay of Adjudication Decision
Clause 17 Withdrawal and Recommencement of 17
Adjudication Proceedings
Clause 18 Costs of Adjudication Proceedings
Clause 19 Adjudicators Fees and Expenses, etc 18
Clause 20 Condentiality of Adjudication 19
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Part III
Adjudicator
Clause 21 Appointment of Adjudicator 20
Clause 22 Appointment of Adjudicator by Parties
Clause 23 Appointment of Adjudicator by Director 21
of the KLRCA
Clause 24 Duties and Obligations of the 22
Adjudicator
Clause 25 Powers of The Adjudicator
Clause 26 Power of Adjudicator Not Affected 24
by Non-compliance
Clause 27 Jurisdiction of Adjudicator
Part IV
Enforcement of Adjudication Decision
Clause 28 Enforcement of Adjudication 25
Decision as Judgment
Clause 29 Suspension or Reduction of Rate of
Progress of Performance
Clause 30 Direct Payment from Principal 27
Clause 31 Concurrent Exercise of Remedies 28
Part V
Adjudication Authority
Clause 32 Functions of KLRCA 28
Clause 33 Policy Directions 29
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Part VI
General
Clause 34 Immunity of Adjudicator and KLRCA 29
Clause 35 Prohibition of Conditional Payment 30
Clause 36 Default Provisions in The Absence of
Terms of Payment
Clause 37 Relationship Between Adjudication and 31
Other Dispute Resolution Process
Part VII
Miscellaneous
Clause 38 Service of Notices and Documents 32
Clause 39 Regulations 33
Clause 40 Exemption
Clause 41 Savings
Part II
ADJUDICATION PROCESS & 35
TIME OVERVIEW
Part III
GUIDE TO CIPA ACT 2012 37
Part I
CONSTRUCTION
INDUSTRY
PAYMENT &
ADJUDICATION
ACT 2012
LAWS OF MALAYSIA
Act 746
CONSTRUCTION INDUSTRY PAYMENT &
ADJUDICATION ACT 2012
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.
ENACTED by the Parliament of Malaysia as follows:
Part I
Preliminary
1. Short title and commencement
1) This Act may be cited as the Construction Industry
Payment and Adjudication Act 2012.
2) This Act comes into operation on a date to be
appointed by the Minister by notication in
the Gazette.
2. Application
This Act applies to every construction contract
madein writing relating to construction work
carried out wholly or partly within the territory of
Malaysia including a construction contract entered
into by the Government.
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3. Non-application
This Act 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.
4. Interpretation
In this Act, unless the context otherwise requires
adjudication decision means the decision made
by an adjudicator under subsection 12(2);
adjudication proceedings means the process of
adjudication under this Act;
adjudicator means an individual appointed to
adjudicate a dispute under this Act;
claimant means an aggrieved party in a
construction contract who initiates adjudication
proceedings;
construction consultancy contract means a
contract to carry out consultancy services in relation
to construction work and includes planning and
feasibility study, architectural work, engineering,
surveying, exterior and interior decoration,
landscaping and project management services;
construction contract means a construction
work contract or construction consultancy contract;

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construction work means the construction,
extension, installation, repair, maintenance,
renewal, removal, renovation, alteration,
dismantling, or demolition of:
a) Any building, erection, edice, structure,
wall, fence or chimney, whether constructed
wholly or partly above or below ground level;
b) Any road, harbour works, railway, cableway,
canal or aerodrome;
c) Any drainage, irrigation or river control work;
d) Any electrical, mechanical, water, gas, oil,
petrochemical or telecommunication work; or
e) Any bridge, viaduct, dam, reservoir, earthworks,
pipeline, sewer, aqueduct, culvert, drive,
shaft, tunnel or reclamation work,
and includes
a) Any work which forms an integral part of, or
are preparatory to or temporary for the works
described in paragraphs (a) to (e), including site
clearance, soil investigation and improvement,
earth-moving, excavation, laying of foundation,
site restoration and landscaping; and
b) Procurement of construction materials,
equipment or workers, as necessarily required
for any works described in paragraphs (a) to (e);
construction work contract means a contract
to carry out construction work;
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contract administrator means an architect,
engineer superintending ofcer or other person
howsoever designated who administers a
construction contract;
Government means the Federal Government or
the State Government;
High Court means the High Court in Malaya or
the High Court in Sabah and Sarawak, as the case
may require;
KLRCA means the Kuala Lumpur Regional Centre
for Arbitration;
Minister means the Minister charged with the
responsibility for works;
non-paying party means a party against
whom a payment claim is made pursuant to a
payment means a payment for work done or
services rendered under the express terms of a
principal means a party who has contracted with
and is liable to make payment to another party where
that other party has in turn contracted with and is
liable to make payment to a further person in a chain
of construction contracts;
respondent means the person on whom the
notice of adjudication and adjudication claim has
been served;

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site means the place where the construction
work is afxed whether on-shore or off-shore;
unpaid party means a party who claims payment
of a sum which has not been paid in whole or in part
under a construction contract;
working day means a calendar day but exclude
weekends and public holidays applicable at the
State or Federal Territory where the site is located.
Part II
Adjudication of Payment Disputes
5. Payment Claim
1) An unpaid party may serve a payment claim on
a non-paying party for payment pursuant to a
construction contract.
2) The payment claim shall be in writing and
shall include
a) The amount claimed and due date for
payment of the amount claimed;
b) Details to identify the cause of action including
the provision in the construction contract to
which the payment relates;
c) Description of the work or services to which
the payment relates; and
d) A statement that it is made under this Act.
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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.
7. Right to Refer Dispute to Adjudication
1) An unpaid party or a non-paying party may refer
a dispute arising from a payment claim made
under section 5 to adjudication.
2) The right to refer a dispute to adjudication shall
only be exercised after the expiry of the period
to serve a payment response as specied under
subsection 6(3).
3) A dispute referred to adjudication under this Act
is subject to the Limitation Act 1953 [Act 254],
Sabah Limitation Ordinance [Cap. 72] or Sarawak
Limitation Ordinance [Cap. 49] as the case may be.
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8. Initiation of Adjudication
1) A claimant may initiate adjudication proceedings by
serving a written notice of adjudication containing
the nature and description of the dispute and
the remedy sought together with any supporting
document on the respondent.
2) Upon receipt by the respondent of the notice of
adjudication, an adjudicator shall be appointed in
the manner described in section 21.
3) A party to the adjudication proceedings may
represent himself or be represented by any
representative appointed by the party.
9. Adjudication Claim
1) The claimant shall, within ten working days from
the receipt of the acceptance of appointment by the
adjudicator under subsection 22(2) or 23(2), serve
a written adjudication claim containing the nature
and description of the dispute and the remedy
sought together with any supporting document on
the respondent.
2) The claimant shall provide the adjudicator with a
copy of the adjudication claim together with any
supporting document within the time specied
under subsection (1).
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10. Adjudication Response
1) The respondent shall, within ten working days
from the receipt of the adjudication claim under
subsection 9(1), serve a written adjudication
response which shall answer 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 specied
3) If the respondent fails to serve any adjudication
response, the claimant may proceed with the
adjudication after the expiry of the time specied
11. Adjudication Reply
1) The claimant may, within ve working days from
the receipt of the adjudication response, serve a
written reply to the adjudication response together
with any supporting document on the respondent.
2) The claimant shall provide the adjudicator with
a copy of the adjudication reply together with any
supporting document within the time specied
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12. Adjudication and Decision
1) The adjudicator shall conduct the adjudication in the
manner as the adjudicator considers appropriate
within the powers provided under section 25.
2) Subject to subsection 19(5), the adjudicator shall
decide the dispute and deliver the adjudication
decision within
a) Forty-ve working days from the service of
the adjudication response or reply to the
adjudication response, whichever is later;
b) Forty-ve working days from the expiry of
the period prescribed for the service of the
adjudication response if no adjudication
response is received; or
c) Such further time as agreed to by the parties.
3) An adjudication decision which is not made within
the period specied in subsection (2) is void.
4) The adjudication decision shall be made in writing
and shall contain reasons for such decision unless
the requirement for reasons is dispensed with by
the parties.
5) The adjudication decision shall also determine
the adjudicated amount and the time and manner
the adjudicated amount is payable.
6) The adjudicator shall serve a copy of the
adjudication decision, including any corrected
adjudication decision made under subsection (7),
on the parties and the Director of the KLRCA.
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7) The adjudicator may at any time correct any
computational or typographical error on the
adjudicators own initiative or at the request of
any party.
8) The enforcement of the adjudication decision
shall not be affected in any way by a request for
correction under subsection (7) and any correction
made is deemed take effect from the date of the
original adjudication decision.
9) The Evidence Act 1950 [Act 56] shall not apply to
adjudication proceedings under this Act.
13. Efect of Adjudication Decision
The adjudication decision is binding unless
a) It is set aside by the High Court on any of the
grounds referred to in section 15;
b) The subject matter of the decision is settled
by a written agreement between the parties; or
c) The dispute is nally decided by arbitration or
the court.
14. Consolidation of Adjudication Proceedings
If two or more adjudication proceedings in respect
of the same subject matter are being adjudicated
before the same adjudicator, the adjudicator
may, with the consent of all the parties to
the adjudication proceedings, consolidate and
adjudicate the matters in the same proceedings.
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15. Improperly Procured Adjudication Decision
An aggrieved party may apply to the High Court to
set aside an adjudication decision on one or more of
the following grounds:
a) The adjudication decision was improperly
procured through fraud or bribery;
b) There has been a denial of natural justice;
c) The adjudicator has not acted independently
or impartially; or
d) The adjudicator has acted in excess of
his jurisdiction.
16. Stay of Adjudication Decision
1) A party may apply to the High Court for a
stay of an adjudication decision in the
following circumstances:
a) An application to set aside the adjudication
decision under section 15 has been made; or
b) The subject matter of the adjudication decision
is pending nal determination by arbitration or
the court.
2) The High Court may grant a stay of the adjudication
decision or order the adjudicated amount or part
of it to be deposited with the Director of the KLRCA
or make any other order as it thinks t.
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17. Withdrawal and Recommencement of
Adjudication Proceedings
1) A claimant may at any time withdraw an
adjudication claim by serving a notice of withdrawal
in writing on the respondent and the adjudicator.
2) The claimant shall bear the costs arising out of the
withdrawal of the adjudication proceedings unless
the adjudicator orders otherwise.
3) The claimant who has withdrawn the adjudication
claim is free to recommence adjudication on the
same subject matter by serving a new notice of
adjudication in accordance with section 8.
4) If an adjudicator dies, resigns or is unable through
illness or any other cause to complete the
adjudication proceedings
a) The adjudication proceedings come to an
end and the parties are free to recommence
adjudication proceedings afresh; or
b) The adjudication proceedings may be continued
by a new adjudicator appointed by the
parties and the adjudication proceedings shall
continue as if there is no change of adjudicator.
18. Costs of Adjudication Proceedings
1) The adjudicator in making the adjudication decision
in relation to costs of the adjudication proceedings
shall order the costs to follow the event and shall
x the quantum of costs to be paid.
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2) Subsection (1) shall prevail over any agreement
made by the parties prior to the commencement
of the adjudication proceedings by which one party
agrees to pay the other partys costs or bear the
adjudicators fees and expenses.
19. Adjudicators Fees and Expenses, etc.
1) The parties and the adjudicator shall be free to a
gree on the terms of appointment of the adjudicator
and the fees to be paid to the adjudicator.
2) If the parties and the adjudicator fail to agree on
the terms of appointment and the fees of the
adjudicator, the KLRCAs standard terms of
appointment and fees for adjudicators shall apply.
3) The parties to the adjudication are jointly and
severally liable to pay the adjudicators fees and
expenses and the adjudicator may recover the fees
and expenses due as a debt.
4) The parties shall contribute and deposit with
the Director of the KLRCA a reasonable proportion
of the fees in equal share as directed by the
adjudicator in advance as security.
5) Before releasing the adjudication decision to the
parties, the adjudicator may require full payment
of the fees and expenses to be deposited with
the Director of the KLRCA.
6) An adjudicator is not entitled to any fees or expenses
relating to the adjudication if the adjudicator fails
to decide the dispute within the period specied
under subsection 12(2) except when the delay in
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the delivery of the decision is due to the failure
of the parties to deposit the full payment of the
adjudicators fees and expenses with the Director
of the KLRCA under subsection (5).
20. Confdentiality of Adjudication
The adjudicator and any party to the dispute shall
not disclose any statement, admission or document
made or produced for the purposes of adjudication
to another person except
a) With the consent of the other party;
b) To the extent that the information is already in
the public domain;
c) To the extent that disclosure is necessary for
the purposes of the enforcement of the
adjudication decision or any proceedings in
arbitration or the court; or
d) To the extent that disclosure is required for
any purpose under this Act or otherwise
required in any written law.
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Part III
Adjudicator
21. Appointment of Adjudicator
An adjudicator may be appointed in the following
manner:
a) By agreement of the parties in dispute within
ten working days from the service of the notice
of adjudication by the claimant; or
b) By the Director of the KLRCA-
i) Upon the request of either party in dispute
if there is no agreement of the parties
under paragraph (a); or
ii) Upon the request of the parties in dispute.
22. Appointment of Adjudicator by Parties
1) The claimant shall notify the adjudicator to be
appointed under paragraph 21(a) in writing and
provide him with a copy of the notice of adjudication.
2) The adjudicator shall propose and negotiate his
terms of appointment including fees chargeable with
the parties and shall within ten working days from
the date he was notied of his appointment, indicate
his acceptance and terms of his appointment.
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3) If the adjudicator rejects his appointment or fails to
indicate his acceptance of the appointment within
the period specied in subsection (2), the parties
may proceed to appoint another adjudicator in the
manner provided under section 21.
23. Appointment of Adjudicator by Director of the
KLRCA
1) The Director of the KLRCA shall appoint an
adjudicator under paragraph 21(b) within ve
working days upon receipt of a request and shall
notify the parties and the adjudicator in writing.
2) The adjudicator shall propose and negotiate his
terms of appointment including fees chargeable
with the parties and shall within ten working
days from the date he was notied of his
appointment, indicate his acceptance and terms
of his appointment.
3) If the adjudicator rejects his appointment or fails
to indicate his acceptance of the appointment
within the period specied in subsection (2)-
a) The parties may agree to appoint another
adjudicator in the manner provided under
paragraph 21(a); or
b) The Director of the KLRCA may proceed to
appoint another adjudicator in the manner
provided under paragraph 21(b).
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24. Duties and Obligations of the Adjudicator
The adjudicator shall at the time of the acceptance of
appointment as an adjudicator make a declaration
in writing that

a) There is no conict of interest in respect of
his appointment;
b) He shall act independently, impartially and in
a timely manner and avoid incurring
unnecessary expense;
c) He shall comply with the principles of natural
justice; and
d) There are no circumstances likely to give rise
to justiable doubts as to the adjudicators
impartiality and independence.
25. Powers of the Adjudicator
The adjudicator shall have the powers to
a) Establish the procedures in conducting the
adjudication proceedings including limiting
the submission of documents by the parties;
b) Order the discovery and production of
documents;
c) Set deadlines for the production of documents;
d) Draw on his own knowledge and expertise;

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e) Appoint independent experts to inquire and
report on specic matters with the consent
of the parties;
f) Call for meetings with the parties;
g) Conduct any hearing and limiting the hearing time;
h) Carry out inspection of the site, work, material
or goods relating to the dispute including
opening up any work done;
i) Inquisitorially take the initiative to ascertain
the facts and the law required for the decision;
j) Issue any direction as may be necessary or
expedient;
k) Order interrogatories to be answered;
l) Order that any evidence be given on oath;
m) Review and revise any certicate issued or to
be issued pursuant to a construction work
contract, decision, instruction, opinion
or valuation of the parties or contract
administrator relevant to the dispute;
n) Decide or declare on any matter
notwithstanding no certicate has been
issued in respect of the matter.
o) Award nancing costs and interest; and
p) Extend any time limit imposed on the parties
under this Act as reasonably required.
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26. Power of Adjudicator Not Afected by
Non-compliance
1) Subject to subsection (2), the non-compliance by
the parties with the provisions of this Act whether
in respect of time limit, form or content or in any
other respect shall be treated as an irregularity and
shall not invalidate the power of the adjudicator
to adjudicate the dispute nor nullify the
adjudication proceedings or adjudication decision.
2) The adjudicator may on the ground that there
has been non-compliance in respect of the
adjudication proceedings or document produced
in the adjudication proceedings
a) Set aside either wholly or partly the
adjudication proceedings;
b) Make any order dealing with the adjudication
proceedings as the adjudicator deems t; or
c) Allow amendment to be made to the document
produced in the adjudication proceedings.
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.
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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3) Notwithstanding a jurisdictional challenge, the
adjudicator may in his discretion proceed and
complete the adjudication proceedings without
prejudice to the rights of any party to apply to set
aside the adjudication decision under section 15 or
to oppose the application to enforce the adjudication
decision under subsection 28(1).
Part IV
Enforcement of Adjudication Decision
28. Enforcement of adjudication decision as
judgment
1) A party may enforce an adjudication decision by
applying to the High Court for an order to enforce
the adjudication decision as if it is a judgment or
order of the High Court.
2) The High Court may make an order in respect of
the adjudication decision either wholly or partly
and may make an order in respect of interest on the
adjudicated amount payable.
3) The order made under subsection (2) may be
executed in accordance with the rules on execution
of the orders or judgment of the High Court.
29. Suspension or Reduction of Rate of Progress
of Performance
1) A party may suspend performance or reduce the
rate of progress of performance of any construction
work or construction consultancy services under
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a construction contract if the adjudicated amount
pursuant to an adjudication decision has not been
paid wholly or partly after receipt of the adjudicated
decision under subsection 12(6).
2) The party intending to suspend the performance
or reduce the rate of progress of performance
under subsection (1) shall give written notice of
intention to suspend performance or reduce the
rate of progress of performance to the other party if
the adjudicated amount is not paid within fourteen
calendar days from the date of receipt of the notice.
3) The party intending to suspend the performance
or reduce the rate of progress of performance
under subsection (1) shall have the right to
suspend performance or reduce the rate of
progress of performance of any construction work
or construction consultancy services under a
construction contract upon the expiry of fourteen
calendar days of the service of the notice given
4) The party who exercises his right under
subsection (3)
a) Is not in breach of contract;
b) Is entitled to a fair and reasonable extension
of time to complete his obligations under
the contract;
c) Is entitled to recover any loss and expenses
incurred as a result of the suspension
or reduction in the rate of progress of
performance from the other party; and
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d) Shall resume performance or the rate of
progress of performance of the construction
work or construction consultancy services
under a construction contract in accordance
with the contract within ten working days after
having been paid the adjudicated amount or an
amount as may be determined by arbitration
or the court pursuant to subsection 37(1).
30. Direct Payment from Principal
1) If a party against whom an adjudication decision
was made fails to make payment of the adjudicated
amount, the party who obtained the adjudication
decision in his favour may make a written request
for payment of the adjudicated amount direct
from the principal of the party against whom the
adjudication decision is made.
2) Upon receipt of the written request under subsection
(1), the principal shall serve a notice in writing on
the party against whom the adjudication decision
was made to show proof of payment and to state
that direct payment would be made after the expiry
of ten working days of the service of the notice.
3) In the absence of proof of payment requested
under subsection (2), the principal shall pay the
adjudicated amount to the party who obtained the
adjudication decision in his favour.
4) The principal may recover the amount paid under
subsection (3) as a debt or set off the same from any
money due or payable by the principal to the party
against whom the adjudication decision was made.
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5) This section shall only be invoked if money is due or
payable by the principal to the party against whom
the adjudication decision was made at the time of
the receipt of the request under subsection (1).
31. Concurrent Exercise of Remedies
1) Unless a stay is granted under section 16, a party
who obtained an adjudication decision in his
favour may exercise any or all of the remedies
provided in this Act concurrently to enforce the
adjudication decision.
2) The remedies provided by this Act are without
prejudice to other rights and remedies available
in the construction contract or any written
law, including any penalty provided under any
written law.
Part V
Adjudication Authority
32. Functions of KLRCA
The KLRCA shall be the adjudication authority and
shall be responsible for the following:
a) Setting of competency standard and criteria
of an adjudicator;
b) Determination of the standard terms of
appointment of an adjudicator and fees for the
services of an adjudicator;
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c) Administrative support for the conduct of
adjudication under this Act; and
d) Any functions as may be required for the
efcient conduct of adjudication under this Act.
33. Policy Directions
1) In carrying out its functions under section 32,
the KLRCA shall obtain policy directions from
the Minister charged with the responsibility for
legal affairs.
2) The Minister charged with the responsibility for
legal affairs shall consult the Minister before
making any policy directions on the functions of
the KLRCA under section 32.
Part VI
General
34. Immunity of Adjudicator and KLRCA
1) No action or suit shall be instituted or maintained
in any court against an adjudicator or the KLRCA
or its ofcers for any act or omission done in good
faith in the performance of his or its functions
under this Act.
2) An adjudicator who has adjudicated a dispute under
this Act cannot be compelled to give evidence in any
arbitration or court proceedings in connection with
the dispute that he has adjudicated.
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35. Prohibition of Conditional Payment
1) Any conditional payment provision in a construction
contract in relation to payment under the
construction contract is void.
2) For the purposes of this section, it is a conditional
payment provision when:
a) The obligation of one party to make payment
is conditional upon that party having received
payment from a third party; or
b) The obligation of one party to make payment
is conditional upon the availability of funds or
drawdown of nancing facilities of that party.
36. Default Provisions in the Absence of Terms
of Payment
1) Unless otherwise agreed by the parties, a party
who has agreed to carry out construction work or
provide construction consultancy services under
a construction contract has the right to progress
payment at a value calculated by reference to
a) The contract price for the construction work or
construction consultancy services;
b) Any other rate specied in the construction
contract;
c) Any variation agreed to by the parties to the
construction contract by which the contract
price or any other rate specied in the
construction contract is to be adjusted; and
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d) The estimated reasonable cost of rectifying any
defect or correcting any non-conformance or the
diminution in the value of the construction work
or construction consultancy services performed,
whichever is more reasonable.
2) In the absence of any of the matters referred to in
paragraphs (1)(a) to (d), reference shall be made to:
a) The fees prescribed by the relevant regulatory
board under any written law; or
b) If there are no prescribed fees referred to in
paragraph (a), the fair and reasonable prices or
rates prevailing in the construction industry at
the time of the carrying out of the construction
work or the construction consultancy services.
3) The frequency of progress payment is:
a) Monthly, for construction work and construction
consultancy services; and
b) Upon the delivery of supply, for the supply of
construction materials, equipment or workers
in connection with a construction contract.
4) The due date for payment under subsection (3) is
thirty calendar days from the receipt of the invoice.
37. Relationship Between Adjudication and Other
Dispute Resolution Process
1) A dispute in respect of payment under a
construction contract may be referred concurrently
to adjudication, arbitration or the court.
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2) Subject to subsection (3), a reference to
arbitration or the court in respect of a dispute
which is being adjudicated shall not bring the
adjudication proceedings to an end nor affect the
adjudication proceedings.
3) An adjudication proceeding is terminated if the
dispute being adjudicated is settled by agreement
in writing between the parties or decided by
arbitration or the court.
Part VII
Miscellaneous
38. Service of Notices and Documents
Service of a notice or any other document under this
Act shall be effected on the party to be served
a) By delivering the notice or document
personally to the party;
b) By leaving the notice or document at the
usual place of business of the party during
the normal business hours of that party;
c) By sending the notice or document to the
usual or last-known place of business of the
party by registered post; or
d) By any other means as agreed in writing by
the parties.
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39. Regulations
The Minister may, upon considering the
recommendation of the KLRCA, make regulations
as may be expedient or necessary for giving full
effect or the better carrying out of the provisions
of this Act.
40. Exemption
The Minister may, upon considering the
recommendation of the KLRCA, by order published
in the Gazette, exempt
a) Any person or class of persons; or
b) Any contract, matter or transaction or any
class thereof,
from all or any of the provisions of this Act,
subject to such terms and conditions as may
be prescribed.
41. Savings
Nothing in this Act shall affect any proceedings
relating to any payment dispute under a
construction contract which had been commenced
in any court or arbitration before the coming into
operation of this Act.
33
Part II
ADJUDICATION -
PROCESS
& TIME
OVERVIEW
35
Part III
GUIDE TO
CIPA ACT 2012
37
INTRODUCTION
The construction industry, in particular, the
Construction Industry Development Board
(CIDB) and Master Builders Association Malaysia
(MBAM) and other related promoters have been
instrumental in getting the government to enact
this piece of legislation since 2003 to address
the cash ow problems plagued by the industry.
The primary objective of the Act is to address
cash ow problems in the construction industry.
It removes the pervasive and prevalent practice of
conditional payment (pay when paid, pay if paid
and back to back) and reduces payment default
by establishing a cheaper and speedier system of
dispute resolution in the form of adjudication.
The Act also provides for the recovery of payment
upon the conclusion of the adjudication process
in addition to a host of other remedies such as a
right to reduce the rate of work progress or to
suspend work or even to secure direct payment
from the principal.
It further provides default payment terms in
the absence of provisions to that effect in the
construction contract.
38
What Is Statutory Adjudication?
Adjudication is a means of dispute resolution
that allows a party (the claimant) who is owed
monies under a construction contract to promptly
obtain payment from the non-paying party (the
respondent), based on an assessment of the
merits of the claim by an appropriately qualied and
independent industry expert i.e. the adjudicator.
Statutory adjudication is essentially an adjudication
process prescribed by CIPAA.
It is conducted privately and ensures condentiality.
It is a mandatory and statutory process that does
not require the agreement of the parties to
commence the process and prevails over any
contractual agreements to the contrary between
the parties.
It offers a relatively simpler, cheaper and faster
process compared to arbitration and/or court
proceedings by virtue of express provisions
prescribed by the Act itself.
The adjudicator must make a decision within
forty ve (45) working days from the completion
of the reference by the parties to him; failing
which his decision is regarded as void and that
he cannot recover his payment.
The decision is temporarily binding in that it can
still be subjected to an arbitration or litigation in
court i.e. if either or both the parties so desire.
39
In the interim, the parties need to still comply
with the adjudicators decision and pay the
disputed amount unless the decision is stayed (by
application made to the High Court).
Who Does It Afect?
CIPAA applies to every construction contract
(as dened by the Act) relating to construction
work carried out wholly or partly in Malaysia. It
therefore affects both local and international
contracts that fall within the ambit of the Act.
CIPAA identies the particular construction
contracts which are included within its scope.
Generally, these encompass construction work
contracts and consultancy services contracts.
More importantly, CIPAA only applies to contracts
which are made in writing.
The Act applies equally to the Government of
Malaysia as well as the Private Sector.
CIPAA is wide ranging and covers inter alia, the
building industry, the oil and gas industry, the
petrochemical industry, telecommunication,
utilities, infrastructure, supply contracts and
consultancy contracts.
CIPAA does not apply to an individual owner i.e.
resident, who erects a building not more than
four-storeys high which is wholly intended for his
own occupation.
40
Statutory adjudication is compulsory in that any
party to a construction contract who is neither
excluded nor exempted under the Act has the right
to resort to adjudication. No contracting out of the
Act is permitted so as to defeat the application of
its provisions and/or the objectives of the Act.
Only payment disputes for work done and
services rendered under the express terms of
a construction contract may be referred and be
subjected to adjudication.
41
PROCESS FLOW
What Are The Main Steps Involved In Adjudication?
The adjudication process can be summarised by the
following principal steps -
Step 1: Making the Payment Claim
The unpaid party may serve a Payment Claim on the
non-paying party. The non-paying party may then
respond by making payment or by serving a Payment
Response on the unpaid party in reply to the claim
within 10 working days. If there is a failure to respond
within this time, it is deemed that the entire payment
claim is disputed. Either party may then refer the dispute
to adjudication.
Step 2: Initiation of Adjudication
The adjudication proceeding is initiated by the
serving of a Notice of Adjudication by the Claimant on
the Respondent.
Step 3: Nomination of Adjudicator
An adjudicator is thereafter nominated by the
agreement of both parties in the dispute within 10
working days from the service of the notice. Upon any
disagreement, or if the parties so desire, a request
can be made to KLRCA for the adjudicator to be
nominated by the Director of the KLRCA who has
5 working days to undertake the same.
42
Step 4: Adjudication Claim & Response
Once the adjudicator is nominated and has negotiated
and accepted the terms and conditions and the relevant
fees, the Claimant has to serve the Adjudication Claim on
the Respondent within 10 working days upon receipt of
the acceptance by the adjudicator. The Respondent has
to then serve the Adjudication Response on the Claimant
within 10 working days particularizing his defence and
response following which the Claimant may then serve a
further Adjudication Reply within 5 working days.
Step 5: The Adjudicator
The adjudicator would then start with the review of the
documents submitted and the making of his decision.
He may call for meetings, require interrogatories to
be answered by the parties, call for clarications and
further documents, if necessary to help him with his
task. In doing so, the adjudicator has to abide by the rules
of natural justice and the relevant provisions of CIPAA.
Step 6: Adjudication Decision
The Adjudicator has to reach a decision, formulate
it and deliver the decision not later than 45 working
days from the service of the Adjudication Response
or Adjudication Reply, whichever is later unless the
parties agree otherwise expressly. An adjudication
decision which is not made within the specied period
is statutorily 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 must be provided not only to the parties but a
copy must be served on the Director of KLRCA as well.
43
FREQUENTLY ASKED QUESTIONS
ON ADJUDICATION
Who Can Start The Adjudication?
Either party to a construction contract can start the
process of adjudication provided the right to do so
under the Act has accrued.
This can be done by serving a notice of adjudication
on the opposing party.
How Do I Choose An Adjudicator?
Parties are entitled to choose their own adjudicator
by mutual agreement as specied by CIPAA.
If the parties are unable to so choose, a request in
writing can be made to the Director of the Kuala
Lumpur Regional Centre for Arbitration (KLRCA) to
nominate an ajudicator.
It is important that the adjudicator selected is
well qualied and experienced to deal with the
particular dispute and to handle the adjudication
process in a timely and cost effective manner as
prescribed by the Act.
44
Do I Need A Lawyer?
A party to the adjudication proceedings may
represent themselves or by any representatives
appointed, who may be a lay practitioner or
a lawyer.
A lawyer may however be necessary if there is
a reference for a stay or for the enforcement of
the adjudicators decision to the High Court.
What Happens During An Adjudication?
The adjudicator is given a list of powers, duties and
obligations by the CIPAA to conduct the adjudication.
The procedure as stipulated in the Act must be
complied with. It is generally informal and relatively
exible; being both adversarial and inquisitorial.
Generally, the adjudicator invites written
submissions and evidence from both parties.
There may be a short hearing or meeting where
further submissions can be made, witnesses
crossexamined and the adjudicator may ask
questions on matters in issue. An adjudicator
may also conduct a site visit if necessary. He is
permitted to use his own specialist knowledge
subject to the rules of natural justice in dealing
with the in dispute.
45
What Can Be Done If Payment Is Not Made After The
Adjudicators Decision?
CIPAA allows, as one of the remedies, for the
winning party to suspend or reduce the rate of
progress of the construction work provided notice
is given to the losing party. The former is entitled
to a fair and reasonable extension of time to
complete his obligations under the contract after
being paid and to recover any loss and expense
incurred thereby.
CIPAA further permits the winning party a right
to request for direct payment from the principal
of the party owing the monies, and the principal
is required to pay the amount in question subject
to the particular provisions of the Act.
More importantly, the winning party can also
apply to the High Court to enforce the adjudicators
decision whilst the losing party is permitted
to seek a stay of the same by application to the
High Court.
CIPAA provides that the winning party can
exercise any or all of the above rights or
remedies concurrently.
How Is An Adjudicators Decision Enforced?
Both parties to a construction contract are required
to comply with an adjudicators decision.
If one of the parties refuses to comply with the
adjudicators decision, the other party may enforce
the adjudicators decision through the courts.
46
When enforced, the adjudicators decision takes
effect as a judgment of the court unless the opposing
party obtains a stay from the court.
Who Pays For The Adjudication?
Both parties are required to equally share the
cost of the adjudicators fees and expenses. These
fees have to be deposited with the Director of the
KLRCA in advance as security.
The loser of the adjudication will have to pay
eventually all the costs. As prescribed in CIPAA,
costs follow event which simply means that the
loser must pay for the legal and other related costs
to the winner in the adjudication proceedings.
The loser of the adjudication must also pay for
the amounts as decided by the adjudicator in regard
to the payment dispute.
What Is The Role Of The Kuala Lumpur Regional
Centre For Arbitration (KLRCA)?
KLRCA is responsible, inter alia, to;
Set the competency standard and criteria of an
adjudicator. This is done by providing the relevant
training courses to parties who are interested to
become certied adjudicators.
Certifying qualied adjudicators and listing them
on KLRCAs panel of adjudicators.
47
Determine the standard terms of appointment of
an adjudicator and fees for his services.
Provide administrative support for the conduct of
adjudication under CIPAA.
Undertake any other duties and functions as may
be required for the efcient conduct of adjudication
under this Act.
KLRCA will maintain a copy of each and every
adjudication decision undertaken under CIPAA as
the adjudicator is required to serve the same on the
Director of KLRCA upon the conclusion of the matter
referred to him.
KLRCA will also act as a stakeholder for the
adjudication fees payable to the adjudicators, and for
any adjudicated amount ordered by the court to be
deposited with KLRCA by any party persuant to an
application for a stay.
For KLRCA to play the above role, the adjudicator will
direct the parties to pay the adjudicators fees to the
Director of KLRCA as advance security.
How Can I Prepare For Adjudication?
General awareness of CIPAA is necessary.
A good system of contemporaneous record
keeping is essential. It will become vital should a
party intend to pursue an adjudication action or to
defend a claim.
48
The payment terms in the construction contract
must be adhered to as strictly as possible. The
absence of payment terms would automatically
trigger the operation of the default provisions
under CIPAA; meaning, amongst others, that
the fees prescribed by the relevant regulatory
board under any written law will apply or if there
are no prescribed fees then a fair and reasonable
price would be awarded for the work and
services done.
An adjudication under the Act can only commence
when a dispute has arisen. An opportunity must
be given to the other party to respond to the
payment claim before an adjudication should be
considered. If the other party denies the claim,
disputes the claim or simply fails to respond to
the claim, only then should an adjudication
be triggered.
An Alternative to Adjudication
Statutory adjudication under the CIPAA is temporarily
binding in nature and Section 37(3) of CIPAA allows
for a dispute in respect of payment to be concurrently
referred to arbitration or court without affecting the
adjudication process. Hence, parties who are keen
to have nal and binding process that is fast and
effective may consider an arbitration process under the
KLRCA Fast Track Arbitration Rules.
The KLRCA Fast Track Arbitration Rules is an expedited
arbitration process which allows for summary or
documents-only process. The arbitration process
involving substantive oral hearings will be completed in
160 days from commencement and a documents only
proceeding will be completed within the period of 90
days. The arbitrators fee and administrative charges
related to the arbitration is reasonable and is xed at a
pre-established scale. The costs of the arbitration are
capped at 30% and 50% of the total amount of claim
for a documents-only and substantive oral hearing,
respectively. The rules also allows for consolidation of
disputes, thus avoids compelling arbitration in court.
Parties will be able to achieve a speedy temporary
decision through adjudication and also attain prompt
decision which is nal and binding by undertaking
arbitration under the KLRCA Fast Track Arbitration
Rules simultaneously or subsequently.
49
Construction Industry
Payment & Adjudication
Act 2012
www.klrca.org.my
KUALA LUMPUR REGIONAL
CENTRE FOR ARBITRATION
( ESTABLISHED UNDER THE AUSPICES OF THE
ASIAN-AFRICAN LEGAL CONSULTATIVE ORGANISATION )
12, Jalan Conlay,
50450 Kuala Lumpur, Malaysia
T
+
603 2142 0103
F
+
603 2142 4513
E [email protected]

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