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DISPUTE RESOLUTIONMECHANISM &CONSTRUCTION INDUSTRYPAYMENT AND ADJUDICATION

ACT (CIPAA) 2012

Construction Law II

Sem 1 – 2013/2014

By: Dr. Sr Mohd Suhaimi Mohd Danuri

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INTRODUCTION

Litigation Arbitration

Mediation Adjudication

CIPAA

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ADJUDICATION (CONTRACTUAL)

PAM2006 has i ntroduced a djudication as on e of thecontractual methods t o resol ve construction dispute.Interest ingly, reference t o adjudication is m ade conditionpreced ent to a rbitration if there i s a set-off dispute b etweenthe pa rties. (Clause 30.4 a nd 34.1 of PAM2006 Agreement andConditions of Building Contract)The adjudicator’s d ecision is b inding until practical completionof the p roject but if there i s a ny objection, the d isputant partymust issue n otice t o t he ot her p arty to ref er t he d ispute t oarbitration within 6 weeks f rom the d ate of the a djudicator’s

decision. (Clause 34.4 of PAM2006 Agreement and Conditionsof Building Contract.)PAM2006 provides t hat if there i s an y dispute (other t han set-off dispute u nder clause 30 .4), the m atter c an be b rought toarbitration which cover a very broad subject under c lause 3 4.5.

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ADJUDICATION (CONTRACTUAL)

It is anticipated t hat the new PAM2006 mayattract unnecessary d ispute or c hallenge b y theparties with regards t o the jurisdiction ofadjudication and arbitration.For e xample, set-off dispute m ay also i nvolve t heissue of rights a nd liabilities o f the parties i nrespect of the d etermination of employment bythe con tractor or employer which is p rovidedunder t he arbitrator’s j urisdiction. (Clause 3 4.5of PAM2006 Agreement and Conditions ofBuilding Contract.)

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ADJUDICATION (STATUTORY)

In a r ecent development, the CIPAA has nallybeen passed in the P arliament of Malaysia on the2 April 2012 and gazetted on the 22 J une 2012.The p rimary ob jective o f the A ct is t o a ddresscash ow problems i n the construction industry.Sections 2 and 4 of the C onstruction IndustryPayment and Adjudication Act 2012.

CIPAA applies t o ever y construction contract made i nwriting including consultancy services con tract.It also i ncludes p rocurement of materials,equipments and workers and a b road scope ofconstruction-related w orks.

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ADJUDICATION (STATUTORY)

Sections 28 and 29 of the C onstruction IndustryPayment and Adjudication Act 2012.

In essen ce, CIPAA allows an adjudicator’s decision tobe en forced a s judgment of the H igh Court and givesseveral other remedies to the p arty who obt ained theadjudication decision in his f avour, such as t osuspend t he work if the ad judicated a mount pursuantto a n adjudication decision has n ot been paid whollyor p artly within the st ipulated time.

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ADJUDICATION (STATUTORY)

Sections 32 and 33 of the C onstruction IndustryPayment and Adjudication Act 2012.

Part V of CIPAA also s tipulates t he functions ofKLRCA as the adjudication authority, which amongothers to set competency standard and criteria of anadjudicator, and to p rovide a dministrative su pport forthe conduct of adjudication.

CIPAA comes into operation on 15 April 2014.

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WHAT IS STATUTORY ADJUDICATION?

Adjudication is allows a p arty (the claimant) who is owed monies undera construction contract to p romptly obtain paymentfrom the n on-paying party (the r espondent), based on an

assessment of the m erits of the claim by anappropriately qualied and independent industry exp erti.e. the adjudicatorStatutory adjudication is essen tially an adjudicationprocess prescribed by CIPAA.

It is conducted privately a nd ensures condentialityIt is a m andatory and statutory process t hat does n otrequire t he ag reement of the p arties' to commence t heprocess and prevails over any con tractual agreements tothe contrary b etween the p arties.

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WHAT IS STATUTORY ADJUDICATION?

It offers a relatively simpler, cheaper a nd faster p rocesscompared to a rbitration and/or court proceedings byvirtue of express p rovisions p rescribed by the p roposed

Act itself

The ad judicator must make a d ecision within forty ve(45) working days f rom the com pletion of the r eference b ythe p arties t o h im failing which his d ecision is r egardedas voi d and that he cannot recover his payment.The d ecision is t emporarily binding in that it can still be

subjected to a n arbitration or l itigation in court i.e. ifeither or b oth the p arties so desire. In the i nterim, theparties n eed to still comply with the adjudicator’sdecision and pay the d isputed amount unless t he d ecisionis s tayed (by application made t o H igh Court).

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WHO DOES IT AFFECT?

CIPAA applies t o eve ry " construction contract" (asdened by the Act) relating t o construction workcarri ed out wholly or p artly in Malaysia. Ittherefore a ffects b oth local and international

contracts t hat fall within the a mbit of the A ct.CIPAA identies t he p articular constructioncontracts which are i ncluded within its s cope.Generally, these en compass construction work

contracts and consultancy serv ices contracts.More i mportantly, CIPAA only applies t o contractswhich are m ade "in writing" .The Act applies equally t o the G overnment ofMalaysia as w ell as t he P rivate S ector.

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WHO DOES IT AFFECT?

CIPAA is w ide r anging and covers i nter al ia, the b uildingindustry, the oi l and gas i ndustry, the p etrochemical industry,telecommunication, utilities, infrastructure, supply contractsand consultancy contracts.CIPAA does not apply t o a n individual owner i.e. resident, whois bu ilding a house n ot more t han four-storeys h igh which iswholly intended for his own occupation.Statutory a djudication is compulsory in that any p arty t o aconstruction contract who i s n either e xcluded nor e xemptedunder t he A ct has t he ri ght to resort to a djudication. There i sno contracting ou t of the Act permitted so as to defeat theapplication of its p rovisions a nd/or t he objectives o f the ActOnly payment disputes for work done an d ser vices renderedunder the exp ress t erms of a construction contract may b ereferred and be su bjected to a djudication.

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THE WAYS IN WHICH CIPAA HELPS TOREGULATE THE PAYMENT PRACTICE IN THEMALAYSIAN CONSTRUCTION INDUSTRY

1. The Act provides for the recovery of payment uponthe con clusion of the a djudication process i naddition to a host of other remedies s uch as aright to red uce t he r ate of work progress or tosuspend work (Section 29)or even to sec ure d irectpayment from the p rincipal (Section 30).

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THE WAYS IN WHICH CIPAA HELPS TOREGULATE THE PAYMENT PRACTICE IN THEMALAYSIAN CONSTRUCTION INDUSTRY

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THE WAYS IN WHICH CIPAA HELPS TO REGULATETHE PAYMENT PRACTICE IN THE MALAYSIANCONSTRUCTION INDUSTRY (CONT’D SECTION 29)

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THE WAYS IN WHICH CIPAA HELPS TO REGULATE THEPAYMENT PRACTICE IN THE MALAYSIANCONSTRUCTION INDUSTRY (CONT’D SECTION 29(4))

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THE WAYS IN WHICH CIPAA HELPS TOREGULATE THE PAYMENT PRACTICE IN THEMALAYSIAN CONSTRUCTION INDUSTRY

2. I t removes t he p ervasive a nd prevalent practice of

conditional payment (pay w hen paid, pay i f paid)and reduces payment default by establishing acheaper an d speedier s ystem of dispute res olutionin the f orm of adjudication (Section 35)

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THE WAYS IN WHICH CIPAA HELPS TOREGULATE THE PAYMENT PRACTICE IN THEMALAYSIAN CONSTRUCTION INDUSTRY

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THE WAYS IN WHICH CIPAA HELPS TOREGULATE THE PAYMENT PRACTICE IN THEMALAYSIAN CONSTRUCTION INDUSTRY

3. It further provides default payment terms in theabsence of provisions t o t hat effect in theconstruction contract (Section 36)

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THE WAYS IN WHICH CIPAA HELPS TOREGULATE THE PAYMENT PRACTICE IN THEMALAYSIAN CONSTRUCTION INDUSTRY

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