Vol 2 2014 Journal - entrusty.comentrusty.com/site/wp-content/uploads/2018/04/42... · CIPAA prevails over it. Relatively, adjudication is a much faster and cheaper process compared

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Master Builders Journal 2nd Quarter 2014

In this second quarter issue of Master Builders Journal for 2014,BK Burns & Ong Sdn Bhd, a subsidiary of BK Asia Pacific, aninternational construction consultancy group providing project,commercial and contractual management services joins withEntrusty Group, a multi-disciplinary group, collectively namedBK Entrusty, to present a new series of construction contractand management articles in areas related to project, commercial,contracts, risks, quality, value and the like. This article on “

is a three parts article. PartThree which is the final part, is published in this quarter.

INTRODUCTIONIn the Malaysian construction industry it is a common practice thatmany contractors sub-let their works to subcontractors on ‘pay-when-paid’ or ‘pay-if-paid’ basis. This means that unless theContractor receives payment from the Employer, the Sub-Contractor will not receive its corresponding payment.Unfortunately, sub-contractors are often burdened and sufferedfinancially as a consequence of such practice, particularly whennon-payment by the Employer to the Contractor bears no relationto the Sub-Contractor’s payment entitlement for its sub-contractworks.

In many cases, when the Contractor is related to the Employerdirectly or indirectly, such payment provision is often introducedinto the sub-contracts, with an ulterior motive or ill-intent ofdelaying or simply not paying the subcontractors. Unfortunately,the courts which have been deciding on such payment provisionson payment disputes by the contracting parties have so far ruledand decided in favour and have enforced them, literally.

In this three parts Article, BK Entrusty aims to provide readerswith an appreciation of the past and present payment practices andprovisions of conditional payment in Malaysia in the First Part,review the payment provisions and their implementation andpractices in countries like United Kingdom, Australia andSingapore, which have their own statutory adjudication act in theSecond Part and introduce Construction Industry Payment andAdjudication Act (“CIPAA”) on its pertinent features andprovisions, including the issues, challenges and implications in theThird and Final Part.

The following are the main sub-headings of this three parts Article:

Part One� Introduction� Past and present construction payment provisions and practices in Malaysia� Payment provisions in United Kingdom, Australia and Singapore

Part Two� Introduction� Post Adjudication scenarios in United Kingdom, Australia and Singapore.

Part Three� Introduction� Pertinent features and provisions of CIPAA� CIPAA pertinent issues and implications� Summary/Conclusion� References/Bibliography

Since publishing the first two parts of this three parts Article, theConstruction Industry Payment and Adjudication Act 2012 whichwas gazetted on 22nd June 2012, came into operation on 15th April2014. CIPAA primary objective is to facilitate regular and timelypayment by providing mechanism for speedy dispute resolutionthrough adjudication, which is a speedy alternative disputeresolution for recovery of outstanding payment/s in theconstruction industry.

Part Three, which is the final part of this three parts Article,is presented below.

PERTINENT FEATURES AND PROVISIONS OF CIPAA

On 15th April 2014, CIPAA came into operation together with itssubsidiary legislation, namely Construction Industry Payment &Adjudication Regulations 2014 (“CIPAA Regulations”) andexemption order, namely Construction Industry Payment &Adjudication (Exemption) 2014 (“CIPAA Exemption Order”).

Objectives and Scope

The primary objective of CIPAA is to address cash flow problemsin the construction industry by “removing the pervasive and prevalentpractice of conditional payment (‘pay when paid’, ‘pay if paid’ and ‘back toback’) and reduces payment default by establishing a cheaper and speediersystem of dispute resolution in the form of adjudication” (KLRCA , 2012).

CIPAA applies to every construction contracts includesconstruction work contracts and construction consultancycontracts, in writing, it defined construction works as;

construction, extension, installation, repair, maintenance, renewal, removal,renovation, alteration, dismantling, or demolition of:a) Any building, erection, edifice, 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; ore) Any bridge, viaduct, dam reservoir, earth-works, 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 siteclearance, soil investigation and improvement, earth-moving, excavation,laying of foundation, site restoration and landscaping; and

B. Procurement of construction materials, equipment or workers, asnecessarily required for any works described in paragraphs (a) to (e).”

Generally, this Act covers industries such as building/construction,oil and gas, infrastructure, petrochemical, telecommunication,utilities, supplies and consultancy. However, CIPAA is notapplicable to construction of any building which is less than 4storey high and for own occupation. Under the Act, the Ministerof Works can, with recommendation of KLRCA, exempt anyperson or contract, matter or transaction from CIPAA. In fact,under CIPAA Exemption Order First Schedule, the Ministry ofWorks has wholly exempted the following Governmentconstruction contracts;i) That is carried out urgently and without delay due to natural disaster,

flood, landslide, ground subsidence, fire and other emergency andunforeseen circumstances;

ii) That relates to national security or security relayed facilities whichincludes the construction of military and police facilities, military basesand camps, prison and detention camps, power plant and watertreatment plant.

CONSTRUCTION CONTRACT & MANAGEMENT ISSUES

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The CIPAA Exemption Order Second Schedule allowsGovernment construction contracts with a contract sum of RM20million or less to be exempted from the application of subsections6(3), 7(2), 10(1), 10(2), 11(1) and 11(2) until 31st December 2015,by providing a more lenient submission timeline. For example,submission of payment response is extended to 30 working daysinstead of 10 working days.

Adjudication Authority

By virtue of CIPAA Part V, Kuala Lumpur Regional Centre ForArbitration (“KLRCA”) has been appointed as the adjudicationauthority, including being the default appointing and administrativeauthority. Under CIPAA Section 32, KLRCA is responsible for:a) Setting of competency standard and criteria of an adjudicator;b) Determination of standard terms of adjudicator’s appointment and fees;c) Administrative support for efficient adjudication conduct;d) Any functions as may be required for efficient conduct of

adjudication.

Further KLRCA’s role and responsibility which areprovided and explained in CIPAA Regulations, includes theappointment of adjudicators, conducting adjudicators training andcertification courses, certifying qualified adjudicators and asstakeholder for adjudication fees payable to adjudicators.

Adjudication under CIPAA

As CIPAA governs adjudication, it is a statutory and mandatorydispute resolution process. It differs from other dispute resolutionmethods such as arbitration or mediation as it can commence atany time during progress of works and does not require anypre-agreement of the parties to commence the process. Even ifthere is a contract provision which prohibits using adjudication,CIPAA prevails over it. Relatively, adjudication is a much fasterand cheaper process compared to arbitration or court proceedings.

Under CIPAA Section 41, only payment disputes underconstruction contract can be referred to adjudication. Thedefinition of payment can be found under CIPAA Section 4, whichstates “a payment for work done or services rendered under the express termsof a construction contract”. Further under Section 5(1), “An unpaid partymay serve a on a non-paying party for

The whole adjudication process starts when the unpaid party whichis normally the Contractor or Sub-Contractor serves a PaymentClaim in writing as required under CIPAA Section 5(2), whichincludes:-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; andd) A statement that it is made under this Act.

According to Chow (2014), the “cause of action” may include oneor more of the following issues:a) the contractor’s entitlement to be paid as indicated in the amount certified

on the relevant payment certificate;b) the extent to which the contractor has been paid the certified amount;c) where the contractor does not accept the certified sum, the extent to which

the contractor maintains that he is entitled to a different sum from thecertified sum; and

d) where no payment certificate was issue in accordance with the contract,the amount which the contractor considers he should have been certifiedhad the certificate been promptly issued.”

The non-paying party who is usually the paymaster is to respondby making the payment or serving a Payment Response to theunpaid party within 10 working days. Failure in responding to thePayment Claim is deemed to have disputed the entire PaymentClaim.

If the payment remains unpaid thereafter, either the unpaid ornon-paying party can refer the payment dispute to Adjudication.The adjudication proceeding commences when the Claimant servesa written notice of adjudication to the Respondent. The flowchartof the adjudication process is, as follows;

Flowchart 1 : CIPAA Adjudication Process (BK Entrusty ©)

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Under CIPAA, an Adjudication decision is binding and enforceable,unless:a) It is set aside by High Court on the following grounds (Section 15):

i. the Adjudication decision was improperly procured through fraud or bribery;

ii. there has been a denial of natural justice;iii. the Adjudicator has not acted independently or impartially; oriv. the Adjudicator has acted in excess of his jurisdiction; or

b) Subject matter of the decision is settled by way of a written agreement between the parties (Section 13); orc) The dispute is finally decided by arbitration or by court (Section 13).

The winning party may enforce the adjudication decision byapplying to the High Court for an Order as if it is a judgement ororder of the High Court. The Court may make an Order in respectof the adjudication decision either wholly or partly and interest onthe adjudication amount payable, on such application. The Order,if granted, may be executed in accordance with the rules onexecution of orders or judgments of the High Court.

In the event of non-payment of the adjudicated amount, CIPAAunder Sections 29 and 30, provide remedies for winning parties to:a) suspend performance or reduce rate of progress of performance of construction work or construction consultancy services. However, the winning party can only do so if the losing party failed to pay the adjudicated amount upon expiry of 14 days from the receipt of a written notice of intention to suspend performance by the losing party (CIPAA Section 29).b) request the adjudicated amount directly from the principal (CIPAA Section 30). For example, if the winning party is the sub-contractor, he can request for direct payment from the Employer directly. The Employer may recover the amount paid to the winning party as a debt or set off from any money due or payable by Employer to the losing party.

The winning party who suspends performance or reduces his worksperformance is protected under CIPAA Section 29.4, provided thatsuch party:a) is not be in breach of contract;b) is entitled to a fair and reasonable extension of time to complete his obligation under the contract; andc) is entitled to recover any loss and expense incurred as a result thereof.

However, the winning party who exercises the aboveright/s, must resumes its works under the contractwithin 10 days after being paid the adjudicatedamount or any amount as determined by arbitrationor court. The winning party may exercise theseremedies concurrently, as allowed under CIPAASection 31.

Under Section 36, CIPAA provides default provisionsin the absence of any contract payment terms in thesub-contract agreements. It is stated that in theabsence of any matter on “progress payment at a valuecalculated by reference to:a) the contract price for the construction work or construction consultancy services;b) any other rate specified 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 specified in the construction contract is to be adjusted; andd) 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.”Reference shall also be made to (CIPAA Section 36(2)):a) fees prescribed by relevant regulatory board under any written law; orb) if there is no prescribed fees referred to in paragraph (a), fair and reasonable prices or rates prevailing in the construction industry at the time of carrying out the construction works or consultancy services.

The default frequency for progress payment under CIPAA Section36(3) is:a) monthly, for construction work and consultancy services; andb) upon the delivery of supply, for the supply of construction materials, equipment or workers; andc) the due date for such payment is 30 calendar days from receipt of invoice.

CIPAA PERTINENT ISSUES AND IMPLICATIONS

ISSUES

The interpretation of certain terms under CIPAA is one ofthe pertinent issues that may confuse and affect those usingCIPAA and its adjudication process. Those interpretation issuesinclude “construction contract made in writing” and “payment”,as discussed below;

i) “Construction Contract Made in Writing”

CIPAA neither defines nor provides explanation on the term“construction contract made in writing”. In views of thisshortcoming, KLRCA which is the adjudication authority by virtueof CIPAA Part V, issued its Circular 03 dated 28th April 2014 andadopted the following definition of “construction contract inwriting” as;

1) “There is a contract in writing:-a) If the contract is made in writing (whether or not it is signed by

the parties);b) If the contract is made by exchange of communications in writing;

orc) If the contract is evident evidenced in writing.

2) Where the parties agree otherwise than in writing by reference to termswhich are in writing, they make a contract in writing.

3) A contract is evidenced in writing if a contract made otherwise than inwriting is recorded by one of the parties, or a third party, with theauthority of the parties to the contract.”

Flowchart 2 : CIPAA Adjudication Process and Time Overview(KLRCA, 2012)


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However, it must be noted that aforesaid is only a guidelineprovided by KLRCA and is not binding. The Court may be providea legal definition of “construction contract made in writing” underCIPAA, in due course.

The aforesaid Circular 03 is amongst the 4 recent circulars byKLRCA to clarify several issues relating to CIPAA, as tabulatedbelow.

Table 3 : KLRCA Circulars on CIPAA (KLRCA, 2014)

ii) “Payment”

Another pertinent issue under CIPAA is the interpretation of“Payment” definition. Under CIPAA Section 4, “Payment” isdefined as “a payment for work done or services rendered under the expressterms of a construction contract”. Further under Section 5(1), “An unpaidparty may serve a on a non-paying party for

In construction project, payment may include;

1. Progress or Interim 7. Preliminaries Payment 8. Contingency Sum2. Payment from Variation 9. Prolongation Costs Works 10. Loss and/or Expense3. Final Payment 11. Insurance Costs4. Prime Cost Sum 12. Interest Payment5. Provisional Sum6. Retention Sum

By virtue of “Payment” definition, it is most likely that CIPAAcovers item (1) to (8). However for item (9) to (12), they may notdirectly be a payment for work done or services rendered but it canbe considered a payment pursuant to the construction contractconcern.

iii) “Loss and/or Expense”

CIPAA is silent on whether Loss and/or Expense (“L&E”) is partof its Payment Claim but allows L&E to be recovered when thewinning party reduces his construction or consultancy works rate

or suspends his works performance due to non-payment ofadjudicated amount by the Losing Party.

Based on the local standard construction/building forms inMalaysia, it is interesting to note that, under PAM 06 clause 24.4,it stated that any ascertained L&E by Architect/Quantity Surveyorshall be added to Contract Sum be included in subsequent interim

payment, accordingly. In PWD 203Aclause 44, it is stated that any ascertainedL&E by Superintending Officer to beadded into the Contract Sum.

In IEM CE 2011, the term L&E which isreplaced with “Cost”, is one of the itemsto be included under the Contractor’sInterim Payment Application, as perclause 58.1. Under CIDB Form, clause32.5 states that “…. the Contractor shall beentitled to have included in any payment certifiedby Superintending Officer pursuant to Clause 42(Payment) such amount in respect of any claimfor Loss and Expense as the SuperintendingOfficer may consider due to Contractor”.

As provided in above local standard forms,it is evident that L&E can be included inthe interim payments, thus it is submittedthat L&E can be part of “Payment Claim”under CIPAA. However, whether L&Eis part of CIPAA “Payment” definition iscurrently still uncertain and it is up to thecourts to decide on this issue, in due course.

iv) Others Issues

Due to the fact that CIPAA is still at its infancy, there are severalother uncertainties and issues of concerns to the interested andaffected parties. Some of these issues have been highlighted byHarbans (2014), as follows;

1. Under CIPAA Exemption Order, there are two categories ofexempted types of contract.§ Is it only the Main Contract of those two categories is

exempted? Or§ Are all the contracts, including sub-contracts and

suppliers exempted as well?2. What types of payment is allowed to be adjudicated under

CIPAA?3. What recourse if the adjudicator’s decision is void due to his

failure to deliver the decision within the stipulated periodunder CIPAA;§ CIPAA Section 19(6) stated that the adjudicator is not

entitled to his fees if he failed to deliver his decisionwithin the period specified under CIPAA.

§ How about the costs/expenses incurred by the disputingparties during the adjudication proceeding?

4. CIPAA applies to construction work carried out wholly orpartly within territory of work but to what extend? What ifonly 1% of the work is carried in Malaysia and the rest iscarried outside Malaysia, does CIPAA still applies?

5. What if the local contracts concerns are subjected to “foreign”law?

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IMPLICATIONS

Generally, CIPAA aim is mainly to address and resolve paymentdisputes in the Malaysian construction industry. However, theeffect of its implementation will be felt by all players in theconstruction industry including employers, contractors,subcontractors, suppliers and consultants. Below are some of thepotential implications;

i) Availability of sufficient/steady cash flow;ii) Need of efficient payment process administration;iii) Create CIPAA awareness and compliance;iv) More cautious on payment issues;v) Reduction in payment risk due to delayed/non payment;vi) Improvement in cash flow;vii) Option to reduce works performance or suspend works

due to non-payment of adjudicated amount;viii) Prohibition of “Conditional Payment” practice;ix) Enforcement of CIPAA default payment provisions in

the absence of contractual payment provision;x) Promote prompt resolution to payment disputes;xi) Need for adjudication knowledge and skills; andxii) Enlarge scope of consultancy services.

Prohibition of Conditional Payment Practice

The introduction of CIPAA will eventually change the localsub-contract payment practices entirely. Under CIPAA Section35(1), it effectively removes conditional payment provisions of ‘paywhen paid’ or ‘pay if paid’ or ‘back to back’, as below:

“Any conditional payment provision in a construction contract in relation topayment under the construction contract is void.”

Further to avoid any misconception on the conditional payment,CIPAA defined conditional payment provisions under Section 35.2as “when;1) The obligation of one party to make payment is conditional upon that

party having received payment from a third party; or2) The obligation of one party to make payment is conditional upon the

availability of funds or drawdown of financing facilities of that party.”

By making the conditional payment practice void, CIPAA reversesand brings to the end several past judicial decisions, such as;

and

Valuation of Variations

In common practice, many variation claims and valuations aremostly dealt with towards the end of the project as the timing forvaluation of variations is not specified in most standard forms. Forexample, under PAM 06 Form clause 11.5 states that all variationsshall be measured and valued by Quantity Surveyor (“QS”). Further,PAM 06 Form clause 11.9 stated that as soon as the variationamounts have been ascertained, the amounts ascertained shall beadded to the Contract Sum and such amount will be included inthe next Payment Certificate.

As variation claims are most likely to be included in the “PaymentClaim” under CIPAA, contractors should endeavour to submitvariation claims progressively and/or upon completion of eachvariation works. Any failure or delay in valuing and certifying thevariation works by QS and/or Architect is likely to give rise to abreach and possible adjudication reference. Unlike arbitration,adjudication under CIPAA can commence anytime during theworks progress, thus putting the employers vulnerable to suchaction. This may also apply at Sub-contract level.

Final Account Settlement

The preparation of Final Account is usually a lengthy processinvolving voluminous supporting documents. Below are theprocedures for Final Account settlement under the various localstandard forms:

i) In PAM 06 Form clause 30.10, within 6 months afterPractical Completion, the Contractor to submit all necessarydocuments for Architect or QS for Final Account preparation.

If no documents are submitted by Contractor, the Architect or QScan proceed with the preparation of Final Account based onavailable information.The Architect or QS to complete the Final Account within 6months of receipt of all documents from Contractor.The Contractor may dispute the Final Account within 3 monthsfrom its receipt and within 3 months, subsequently the Architect orQS may amend it.Any party who disagrees with the “amended” Final Account canrefer the dispute to Arbitration.

ii) PWD 203A Form has similar procedure, but the FinalAccount preparation period is 3 months instead of 6 months.§ PWD 203A is silent for revision of Final Account but

allows for any dispute to be arbitrated.iii) IEM CE 2011 Form requires Contractor to submit the Final

Account application 3 months after issuance of Certificate ofMaking Good Defects and within 2 months of its receipt, theEngineer must issue a Draft Final Account for theContractor’s agreement.§ In failing to achieve the Contractor’s agreement,

discussions need to be held within 60 days of theContractor’s notice of disagreement.

§ If the Contractor further disagrees with the Draft FinalAccount, the contracting parties may proceed withMediation and/or Arbitration.

Due to the speedy process of Adjudication under CIPAA, theEmployer may be “ambushed” by the Contractor if he decides tosubmit Final Account dispute to adjudication as:i) there is no time limit for the Contractor to serve a Payment

Claim after dispute has arisen as CIPAA is silent on it.Table 5 : Prohibition of Conditional Payment PracticeBefore and After 15 April 2014


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ii) the Employer has to respond to the Payment Claim within 10 days, otherwise the Employer deemed to have disputed entire payment claim

(CIPAA Section 6(4)).iii) the Contractor/Claimant can then refer the dispute to Adjudication

subject to the Limitation Act (CIPAA Section 7(3)).iv) once the Claimant/Contractor submitted its Adjudication Claim, the

Respondent/Employer has only 10 days to prepare its AdjudicationResponse (CIPAA Section 10(1)).

v) both Adjudication Claim and Response must be submitted with support-ing documents (CIPAA Section 9(2) and 11(2)).

A Contractor is likely to have sufficient time to prepare his PaymentClaim (CIPAA Section 5) prior to the issuance of Notice ofAdjudication, and the Adjudication Claim (CIPAA Section 9) whichis 10 days after appointment of Adjudicator as he will be able todetermine the time for initiating the whole Adjudication process.On the other hand, the Employer and his Architect, Engineerand/or QS may be caught unprepared due to the strict adjudicationtime limit. This scenario can also occur at sub-contract level,whereby the Subcontractor can surprise the Contractor, as well.

Multiple Adjudications

CIPAA Section 37 (1) allows reference to the Adjudication to runconcurrently with arbitration and/or litigation as it can commenceat any time, whether during the construction works or after itscompletion, as opposed to arbitration which normally commenceafter completion or alleged completion of the works.

Consequently, multiple adjudications and other disputes resolutionprocess may commence simultaneously at various levels of thecontractual chain. For example, the Contractor may commence anadjudication process against the Employer and at the same time,the Sub-contractor may commence an adjudication process withthe same Contractor. It is possible that in the same period,the Contractor commences arbitration proceeding against theEmployer, as well.

Due to the possibility of multi-cross dispute resolutions process,the disputing parties not only need to focus on construction tasksin hand but also prepare for multiple dispute resolution processes,especially adjudication which is a speedy process. There is alsono limit as to how many adjudications can be commenced onone project. Therefore, without proper project and financialmanagement of the construction project, such multipleadjudications can disrupt and delay the works progress, significantlyand the eventual project completion.

CONCLUSION

In this three parts Article published quarterly, over the past twoquarters, Part One aimed to provide readers with an appreciationof the past and present payment practices and provisions ofconditional payment in Malaysia, whilst Part Two reviewed anddiscussed the payment provisions and their implementation andpractices in the United Kingdom, Australia and Singapore, who areunder a statutory adjudication regime. For this quarter, this PartThree had introduced the pertinent features and provisions,including the issues, challenges and implications of the recentlyimplemented Construction Industry Payment and Adjudication Act(‘CIPAA”), which came into operation on 15 April 2014.

Following the aforesaid CIPAA implementation recently, theMalaysian construction industry, with its common practices ofcontractors sub-letting their works to subcontractors onconditional payment basis, is expected to come to an eventual halt,finally. Gone will be the days of the ‘pay-when-paid’ or ‘pay-if-paid’provisions, whereby sub-contractors can only receive their paymentwhen or if the Contractor receives its corresponding payment fromthe Employer. This should mean that sub-contractors who havebeen burdened and suffered financially by such practices, whichoften were tainted with malpractices or ill-intents, should cease andcash flow, which is the life blood of the construction industry,should improve to a healthy level, eventually. Consequently, CIPAA

introduction should be good news to contractors andsubcontractors especially, who have been long burdened by themalpractices of conditional payment term in sub-contracts, as notonly conditional payment term has been prohibited by the said Act,but also that remedies for non-payment are now been madeavailable to them.

However, as CIPAA is still at its infancy, barely six months intoits implementation, many contractors and sub-contractors are stillaccepting or even tolerating with the non or delay paymentpractices by the recalcitrant employers and contractors, respectively.In fact, conditional payment provisions, are still evident in theindustry today, particularly at sub-contract level, despite beingoutlawed by CIPAA.

Unlike in other countries with similar statutory payment regimewhere their construction industry is more developed, regulated andlitigious, the players in the Malaysian construction industry tend tobe more conservative and less litigious. Consequently, the emphasison tolerance, culture and commercial approach in settling paymentissues will not disappear overnight merely by CIPAA introduction.The usual “wait and see” attitude of Malaysian players is likely toprevail, until it is relatively clear and certain that the eventualadjudicated decisions do produce the speedy desired paymentoutcomes, with the necessary support of the courts, particularlythe recently launched construction courts in Kuala Lumpur andShah Alam. Consequently, it may require some proactive,persuasive and/or drastic measures, perhaps even subject to aneconomic downturn, for the industry players to really latch ontoCIPAA and adjudicate to achieve the necessary payment outcomes.

Just like the courts which have decided and affirmed the entrenchedconditional payment provisions and practices in the past, it willtake time for our industry players to be re-educated or conditionedinto resolving their payment disputes via adjudication. Nonetheless,with the CIPAA in force, the Malaysian construction industry canbe expected to be healthier in terms of payment and cash flow, butit may also mean the advent of longer payment duration,particularly by those who were the advocates of conditionalpayment terms, previously. Notwithstanding, in taking the cue fromthe statutory adjudication practiced elsewhere, such practices haveshown significant improvement in the construction industry interms of its economy and cash flow of those countries involvedand this is likely to happen, eventually here in Malaysia.

That said, adjudication is still a ‘rough justice’ and temporary judicialprocess as its decision or award is vulnerable to review by the courts,although under limited conditions only. The concern of having topossibly arbitrate/litigate after adjudication and/or the Payeesuffering the repercussion/s or getting the wrath subsequentlyfrom the Payor in an interim payment dispute of an ongoingconstruction project, can be a deterring factor in relying on CIPAAand referring it to adjudication, instead of other dispute resolutionavenues.

To this end, with the CIPAA finally in place, it will be interestingto see the actual impact on the Malaysian construction industryand how CIPAA will be governed, regulated and practiced, as wellas tested and decided by the courts, hereon.

In the next issue of the MBAM Journal, BK Entrusty articlewill deal with another pertinent contractual issue affecting

the Malaysian construction industry on “RatesRationalization Practices in the Construction Industry

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3) Antah Schindler Sdn Bhd v Ssangyong Engineering & ConstructionCo. Ltd [2008] 3 MLJ 204.

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.27) Pillay, MR (2011),” The Statutory Adjudication Regime in Singapore” MIARB Conference on Practice & Procedure of Adjudication (21 November 2011, Kuala Lumpur).28) Pernas Otis Elevator Co Sdn Bhd v Syarikat Pembenaan Yeoh Tiong Lay Sdn Bhd & Anor [2004] 5 CLJ.29) Rira Bina Sdn Bhd v GBC Construction Sdn Bhd [2011] 2 MLJ.30) Singapore Building and Construction Authority (2013),”Adjudication Statistics (Apr 2005 to May 2013)” retrieved August 2013 from

31) Singapore Building and Construction Industry Security of Payment Regulations (2006 Revised Edition) retrieved August 2013, from

.32) Seloga Jaya Sdn Bhd v UEM Geisys Sdn Bhd [2010] 3 MLJ 721.33) Sungdo Engineering & Construction (S) Pte Ltd V Italcor Pte Ltd [2010] SGHC 105.34) United Kingdom Law, Housing Grants Construction and Regeneration Act 1996 retrieved August 2013 from

.

35) United Kingdom Law, The Scheme for Construction Contracts (England and Wales) Regulation 1998, retrieved August 2013 from

36) United Kingdom Law, Local Democracy, Economic Development and Construction Act 2009, retrieved August 2013 from

37) Yuanda (UK) Co Limited v WW Gear Construction Limited [2010] EWHC 720 (TCC)38) References were also made to several Malaysian Standard Forms of Contract, namely;

i. PAM Forms of Building Contract (2006);ii. JKR/PWD Forms of Contract (203A – Rev.2007)iii. IEM Form of Contract for Civil Engineering Works (IEM

CE 2011) 2nd Editioniv. CIDB Form of Contract for Building Civil Engineering

Works (2000 Edition)v. PAM Sub-Contract 2006;vi. IEM Conditions of Sub-Contract (1990);vii. PWD Form 203N (2007) for Nominated Contractor; andviii. CIDB Form of Sub- Contract for Building Works (2002).

BK Asia Pacific is group of companies incorporated in the Asia PacificRegion providing a comprehensive network of project management,commercial and contract management services to the internationalconstruction industry, with offices in Cambodia, China (Hong Kong,Macau and Shanghai), Malaysia, Philippines, Singapore, Thailand andVietnam. For further details, visit www.bkasiapacific.com

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BK Entrusty provides 30 minutes of free consultancy (with priorappointment) to MBAM members in the areas of project, commercial,contracts, risks, quality and value management. For enquiries, pleasecontact Sr. HT Ong at BK Entrusty, 22-1 & 2 Jalan 2/109E, DesaBusiness Park, Taman Desa, 58100 Kuala Lumpur, Malaysia. Tel: 6(03)-7982 2123 Fax: 6(03)-7982 3122 Email: [email protected] [email protected]

Public Seminars1. Claims Preparation and Management2. Certifications and Payments3. Time and Monetary Claims4. Common Contractual Issues/Problems in Malaysia5. Pertinent Contractual Provisions in Construction Contracts6. Recent Construction Contract case law in Malaysia

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Vol 2 2014 Journal - entrusty.comentrusty.com/site/wp-content/uploads/2018/04/42... · CIPAA prevails over it. Relatively, adjudication is a much faster and cheaper process compared

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