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August 22, 2014

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An Overview of CIPAA

August 22, 2014

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An Overview of CIPAA

August 22, 2014

With the advent of CIPAA, Construction Industry Payment Adjudication act 2012 being gazetted to become legally binding on all parties in the Construction Industry, we will be expecting a number of cases be brought to KLRCA for decision. Construction Industry has evolved from the traditional business or we called it the family business type of Industry to a fairly competitive and advanced Industry.

 

Arbitration was never heard of which many of us would attempt to avoid it due to business survival or ignorance of their rights. Unpaid construction parties would rather beg and plead than enforce their rights in Courts.

 

Nonetheless, our Construction Industry has developed further and at the same time, contractors and other parties involved in the Construction Industry have become better equipped to look into the fine prints of the contracted terms and aware of their rights under the contracts they entered into.  Inevitably, because of the nature and type of the construction business every party will need to rely on many other parties to carry out their part in order to complete the building process culminating into the completion of a building project.

 

The present work force in which professionals in the respective construction disciplines helmed the project team and it appears that this CIPAA enactment aims to bring the construction Industry to a higher platform.

 

 

Statute Mandates Faster Resolution

 

We have entrenched in our very own construction culture through the many years of development, only allowed the aggrieved party to seek justice through Arbitration and the Courts.  As even via the Arbitration proceeding which was intended to be an easier and cheaper method, it has inevitably complicates and protracts amicable solutions.

 

With CIPAA 2012, Section 2 stipulates that this specific statute will encompass all payment disputes arising out of any construction contracts which are wholly or partly carried out in Malaysia. As long as the construction works constitute the material part of the Construction Contract parties are bound.

 

It is now mandatory for parties in Construction Contracts as defined in Section of the same act to refer their disputes under the Act.

 

This Act allows for parties to refer their disputes to either Arbitration or the courts and at the same as stated in Section 37 of the Act, an adjudication under Act can proceed concurrently with any other on-going legal process.

 

The Act will be given similar status as other legal avenues in the Adjudication Decision as valid decision, notwithstanding that doctrine of binding precedent applies. As stated in Section 15 of the Act, adjudication decision can be overruled due to reasons of independence, impartiality, rules of natural justice and jurisdictional authority.

 

An adjudicator decides wrongly in a right manner, the decision is valid, unless he chooses to decide in a wrong manner, even his decision is right his decision can be considered faulty. Upon delivery of the decision, the dissatisfied party is entitled under Section 27 of the Act to proceed further in Arbitration or Courts. 

 

One of the main features of the Act as required in Section 12 of the Act that if the adjudication decision is not made within 45 days from the date of the Respondents Adjudication Response or Reply, the decision will be considered void. Adjudicator will not be allowed collect his fees and the adjudication proceed will be annulled.

 

Contracts in Writing

 

Construction personnel relies greatly on network and relationship to procure contracts. Very often contracts are given out to those who used to work and follow the same company hoping always for continuity of future work. Many contracts are verbally concluded and work started with very little documentation.

 

Under CIPAA 2012 for this act to take effect, KLRCA has given a guideline in a form of a circular that any contract which must be writing as defined in Section of the Act, will accepted even though the contracts are not signed.

 

Similarly, it is also stated that if the contract is evidenced in writing by way communication between parties, it satisfies the written document requirement.

 

This simple provision has made simple for unpaid parties to pursue their payment default claims via the Act.

 

 

KLRCA as the Administrative Authority

 

KLRCA, under CIPAA 2012 has been given the authority to administer the adjudication proceeding in coordination and administer the adjudication proceeding. In the same Act, KLRCA has been given the authority to set the competency standards and criteria and also train adjudicators under Section 32 and 33 of the Act.

 

KLRCA will also accredit adjudicators and one of the qualifications include persons who have been working in the construction industry for at least 7 years. This requirement is made less restrictive to allow experienced construction personnel to take an active role in the Adjudication Process.

 

 

These trained adjudicators will be empanelled to adjudicate payment disputes of construction contracts which disputes usually involve technical, measurement and evaluation matters.

 

Putting the right person who are trained and knowledgeable in construction matters can simply the adjudication process 

 

As stated in Section 8(3) of the Act, professionals in Construction Industry are allowed to be represented to take active role. Qualification as required under CIPAA will be those who may have 7 years of working experience in the Construction Industry.

 

  • Legal procedures will not dominate the Adjudication proceeding and instead plain construction language will be used.

 

This Act is enacted to enable Adjudication as an interim measure and summary mechanism where the unpaid party can seek financial relief which otherwise the unpaid party will suffer which will spill over to the progress and quality of project. Cash flow is the lifeline of any construction contract, in particular for small and medium contractors.

 

In any payment dispute, it is always founded on method of measurement and evaluation which are usually technical in nature.

 

Under section 12 (9) of the Act, Evidence Act 1950 will not be applicable. Preponderous legal arguments on strict application of evidential rules and procedures will stifle adjudication process and the Act emplaced lesser emphasis on strict legal rules and procedures. And this negates the need for a lawyer to represent any party.

 

And although, we may not want to admit this, but many disputes are made complicated with the presence of lawyers and the strict application of procedural rules.

 

In an adjudication proceeding, parties involved are allowed to be represented before adjudicators who are in one way or another active in the construction industry will progressively infuse construction language to be used extensively.

 

 

New Construction Culture and Order

 

Construction Industry in relation to Contractors is not naturally and legally governed by a code of conduct similar to other professions. Contractors are conducting businesses of proximity of relationship and network advantage in their business dealings.

 

Adjudication disputes with simplified process will give long term benefit and is expected to slowly eliminate the unfair trade practices of stronger party to withhold unreasonably payment to their own advantage.

 

When this mindset to deliver on time with the right quality within a targeted budget takes root to all parties in all levels of the construction process,  it will weed out culture of relationship networking  of  knowing  who business concept and to develop a  skill and knowledge based construction business.  

 

 

 

 

 

With the implementation of CIPAA, we hope and expect that our local construction industry will be brought to a higher platform and thus it would be interesting to see how this area would develop in time. 

 

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