CIPAA (Construction Industry Payment and Adjudication Act 2012) is a legislation enacted on 15th April 2014 by the Parliament of Malaysia to resolve the construction payment dispute and alleviate the cash flow in the construction industry through the statutory CIPAA adjudication process.
The mechanism of CIPAA offers ‘rough justice’ to the Claimant and it is often described as ‘pay now, argue later’. This is evident from the statistic provided by AIAC in 2017 that a whooping 89.28% of the CIPAA Adjudication Decision is awarded in favour of the Claimant.
Typically, construction payment dispute is resolved by way of arbitration proceeding or court action which could often be very time-consuming. As a result, the contractors / consultants would be deprived of the much-needed cash flow for a long time.
Please also read: Advantages of CIPAA Adjudication
As a result, CIPAA Adjudication is now widely used by the contractors / consultants to resolve the payment dispute and to recover their outstanding payment and fees in the construction industry.
But what are the requirements and conditions to launch a CIPAA claim?
The requirements to launch a CIPAA claim
In order to avail yourself under the CIPAA Adjudication Proceeding, one must make sure that the following requirements must be met:
1. There must be a Written Contract
The contract needs to be a written one.
However, it shall not be confused as a formal comprehensive contract drafted by a lawyer.
The formalisation of a contract can be derived from a series of letters, correspondences and could even be made up of purchase orders (PO) and delivery order (DO).
This is in line with the guideline issued by the CIPAA’s administrative center, Asian International Arbitration Centre (AIAC).
2. There must be a Construction Contract
In order to launch a CIPAA claim, the subject matter must be within the ambit of CIPAA and the contract must relate to Construction Work or Construction Consultancy.
3. The contract must be executed after 15.04.2014
Following the case of Jack-in Pile (M) Sdn Bhd v. Bauer (Malaysia) Sdn Bhd & Another Appeal  1 CLJ 299 and Ireka Engineering & Construction Sdn Bhd v. PWC Corporation Sdn Bhd & Other Appeals  1 CLJ 193, the Federal Court of Malaysia had ruled that CIPAA applies prospectively.
In another word, CIPAA only applies to construction contract executed after the enforcement of CIPAA, 15th April 2014.
(Please read: Case Updates: CIPAA applies prospectively)
4. The Construction Contract must relate to construction work carried out within wholly or partly in Malaysia.
In order to mount a CIPAA claim, the Construction Work or Construction Consultancy Work must be carried out within the territory of Malaysia either wholly or partly.
5.The Construction Contract is NOT entered by a natural person for construction work less than 4 storey high wholly intended for his occupation.
Lastly, CIPAA doesn’t apply to construction contract entered into by individual for Construction Work less than 4 storey high and wholly intended for the occupation of the individual.
What is a Construction Contract under CIPAA?
The ‘Construction Contract’ was defined to include the contract for
Importantly, it should be highlighted that the High Court had held that the meaning of construction work and construction consultancy work as defined in CIPAA shall be interpreted widely and not to be construed restrictively
The meaning of Construction Work has been widely defined under CIPA Act.
It refers to the 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; or
(e) any bridge, viaduct, dam, reservoir, earthworks, pipeline, sewer, aqueduct, culvert, drive, shaft, tunnel or reclamation work,
It includes 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.
It further includes the procurement of construction materials, equipment or workers, as necessarily required for any works described in paragraphs (a) to (e);
Construction Consultancy Services
On the other hand, Construction Consultancy Services includes planning and feasibility study, architectural work, engineering, surveying, exterior and interior decoration, landscaping and project management services.
Type of claims claimable under CIPAA
Generally, the followings are the payment disputes which can be adjudicated under CIPAA:
- Delayed payment
- Non-certification / Under-certification
- Deductions / set-off
- Variation Order
- Loss & Expense
- Retention Sum
- Final account
- Professional / Consultancy fee
* Note: the list is not exhaustive