The Construction Industry Payment and Adjudication Act 2012 (CIPAA) which came into effect on 15.04.2012 is a legislation enacted by the Parliament to alleviate the cash flow problem in the construction industry by the introduction of the mechanism of Adjudication Proceeding.
Before the introduction of CIPAA, the parties often have to go through the lengthy and time-consuming process of litigation or arbitration to recover outstanding payment or professional fees. As a result, the cash flow will be gravely affected.
CIPAA Adjudication Proceeding offers a quick and efficient procedure to this problem as the Adjudication Decision can be rendered within 80 – 95 working days and the Winning Party may then enforce the Adjudication Decision and recover the outstanding payment or professional fees.
Given that the rationale and objective of CIPAA is to resolve the construction payment dispute expeditiously, the Parties of CIPAA Adjudication Proceeding must strictly adhere to the timeline. If there has been a non-compliance in respect of time, the Adjudicator may set aside the Adjudication Proceeding pursuant to Section 26(2)(b) of CIPAA. As such, the Parties must fully understand the procedure of CIPAA Adjudication Proceeding.
Procedure of CIPAA Adjudication Proceeding
Here’s the summary of the procedures of CIPAA Adjudication proceeding:
- Payment Claim (Form 1)
Unpaid party shall serve the Payment Claim to non-paying party to initiate the CIPAA Proceeding.
- Payment Response (Form 2)
Non-paying party may serve the Payment Response to the Unpaid Party within 10 working days.
- Notice of Adjudication (Form 3)
After the expiry of 10 working days to serve Payment Response, the Unpaid Party may initiate the adjudication by way of Notice of Adjudication.
- Appointment of adjudicator
The Adjudicator may be appointed by mutual agreement or by the Director of AIAC if the parties fail to reach a consensus.
- Adjudication Claim (Form 7)
The Claimant shall serve the Adjudication Claim within 10 working days from the acceptance of appointment by the Adjudicator.
- Adjudication Response (Form 8)
The Respondent will then have to serve its Adjudication Response within 10 working days from the receipt of Adjudication Claim.
- Adjudication Reply (Form 9)
The Claimant may serve its Adjudication Reply within 5 working days from the receipt of Adjudication Claim.
- Delivery of Adjudication Decision
The Adjudicator will deliver the Adjudication Decision within 45 working days from the service of Adjudication Response / Adjudication Reply, whichever is later.
- Enforcement of Adjudication Decision
The Claimant may then proceed to enforce the Adjudication Decision based on the available method under Part IV of CIPAA.
CIPAA is initiated by way of ‘Payment Claim’ by the unpaid party to the non-paying party.
Section 5 of CIPAA stipulates that the Payment Claim shall include the amount claimed, due date for payment, details of the claims, descriptions of the work or services and a statement that the Payment Claim is made pursuant to CIPAA.
There shall be strict compliance with the requirement of Section 5 of CIPAA, failing which it may render the Payment Claim invalid and liable to be set aside
Following the receipt of Payment Claim, Section 6 of CIPAA provides that the non-paying party has 10 working days to reply by way of ‘Payment Response’.
The Payment Response shall contain the amount admitted or disputed by the Non-Paying Party.
If the Non-Party fails to respond with a Payment Response, the entire Payment Claim shall be deemed to be disputed.
After the Federal Court’s decision in the case of View Esteem Sdn Bhd v Bina Puri Holdings Bhd  2 MLJ 22, the significance of the filing of Payment Response has been reduced significantly.
It appears that even the non-paying party fails to submit a Payment Response, the Adjudicator is still duty-bound to consider all the new defences in the nature of set-off/deductions and cross-claims/counterclaims raised in the Adjudication Response.
For strategic reason, non-paying party may not want to file the Payment Response or leave out its core defence to ambush the claimant in the Adjudication Response.
However, it is understand that the Federal Court had granted leave in the case of Milsonland Development Sdn Bhd v Macro Resources Sdn Bhd and another case  8 MLJ 708 and Leap Modulation Sdn Bhd v PCP Construction Sdn Bhd and another appeal  1 MLJ 334 on the similar question of law raised in View Esteem Sdn Bhd v Bina Puri Holdings Bhd  2 MLJ 22 and may review and change the current position of law.
Given the circumstances, it would be prudent for a non-paying party to file a Payment Response.
Initiation of Adjudication Proceeding
Thereafter, either party, most commonly the Unpaid Party, may initiate the Adjudication Proceeding by way of ‘Notice of Adjudication‘ pursuant to Section 8 of CIPAA.
At this stage, the party who initiated the Adjudication Proceeding will be referred to as “Claimant” and the other party will be referred to as “Respondent”.
Once the AIAC received the Notice of Adjudication and the Notice to Register the Adjudication, AIAC will proceed to assign an adjudication number to the dispute.
Appointment of Adjudicator
Concurrently, the parties may also proceed to appoint an Adjudicator to decide on the matter.
The Adjudicator may be mutually appointed within 10 days from the service of Notice of Adjudication, failing which the Claimant shall request the Director of AIAC to appoint an Adjudicator.
Alternatively, the parties may straightaway request the Director of AIAC to appoint an Adjudicator.
Upon the acceptance of appointment by the Adjudicator, the Claimant shall serve and file the “Adjudication Claim” on the Respondent within 10 working days from the date of acceptance of appointment.
At this stage, the Claimant should submit a more comprehensive and detailed claim together with the supporting documents.
The claim shall clearly outline the nature and the description of the dispute and the remedy sought thereunder.
Upon the receipt of Adjudication Claim, the Respondent shall respond to the Adjudication Claim “Adjudication Response” within 10 working days.
Similarly, at this stage, the Respondent will have to submit a more comprehensive and detailed defence, counterclaim(s) and/or set-off together with supporting documents.
Upon the receipt of Adjudication Response, the Claimant has a final opportunity to reply to the Respondent’s Adjudication Response within 5 working days.
Lastly, the Adjudicator will have 45 working days from the service of Adjudication Response / Adjudication Reply (whichever is later) to render the Adjudication Decision.
If the Adjudicator fails to render the Adjudication Decision within 45 days, the Adjudication Decision will be rendered void unless otherwise agreed by the parties.
Enforcement of Adjudication Decision
If the Adjudication Decision is in the Claimant’s favour, the Adjudication Decision is binding unless it is set aside by the High Court or finally decided by arbitration or court.
The Claimant may then proceed to enforce the Adjudication Decision by the following methods either concurrently or separately:-
1) Enforcing the Adjudication Decision as a judgment;
2) suspension of work
3) request for direct payment from the principal;
4) initiating winding up procedure against the Respondent;
CIPAA Flow Chart
The Construction Industry Development Board Malaysia (CIDB) Malaysia has also taken the initiative to provide a CIPAA Flow Chart
* Source: http://www.cidb.gov.my/images/content/cipaa/CIPAA-Flow-Chart.jpg