Malaysia

The construction industry, which has always been one of the more productive sectors, is constantly contributing to Malaysia’s economy. However, its fluctuating growth rates in recent years prompted the creation of the Construction Industry Master Plan (CIMP) to overcome some inherent weaknesses for the economic betterment of the construction industry. The CIMP, which was launched in 2007, is a ten-year plan to motivate, drive and change the mind-set of the construction industry to be more resilient and robust in facing the era of globalisation.

One of the most glaring issues is the fact that the construction industry has been constantly plagued with the chronic problem of delayed and non-payments to contractors and sub-contractors for construction works and services provided. As a result, it has caused tremendous hardship to the industry, evident by the amount of delayed or abandoned development projects over the years.

To provide significant remedy associated with protracted resolution of construction debt disputes and cash flow-related problems, and to ensure fairness, integrity and justice to the industry, the Construction Industry Development Board (CIDB) spearheaded a CIMP-compliant initiative which led to the enforcement of the Construction Industry Payment and Adjudication Act 2012 (CIPA Act), with effect from April 15, 2014.

The CIPA Act
The CIPA Act encompasses a wide range of industries as the words “construction works” have been interpreted to include the construction of buildings, roads, railways and even oil and gas infrastructures. In addition, the CIPA Act also encompasses consultancy contracts in which architects, engineers and quantity surveyors are employed, and where such contracts relate to construction works. In such cases, those architects, engineers and quantity surveyors may refer their payment disputes to the Kuala Lumpur Regional Centre of Arbitration (KLRCA), in accordance with the CIPA Act.

The CIPA Act addresses several stages of the dispute, including payment claim, payment response, notice of adjudication, appointment of adjudicator and the terms of such appointment, the adjudication claim, response and reply, representation, adjudication proceedings and the decision.

The KLRCA has been appointed as the adjudication authority, giving the centre a key role as the default appointing, administrative and training authority for statutory adjudication.

The order and regulations
Complementing the CIPA Act are the Construction Industry Payment and Adjudication (Exemption) Order 2014 (the Order) and the Construction Industry Payment and Adjudication Regulations 2014 (the Regulations), both of which came into force on April 15, 2014.

The Order exempts specified government construction contracts from the provisions of the CIPA Act. The rationale for the exemptions provided under the First Schedule of the Order appears to be justified as it covers construction works that involve emergency, unforeseen circumstances and which relate to national security or security related facilities. However, the temporary exemptions which were extended to construction contracts with the Government, of the contract sum of not more than MYR20 million, received numerous objections from several sectors, most notably from the Malaysian Bar.

The Regulations, on the other hand, provide for detailed information pertaining to the responsibility of the KLRCA as the statutory adjudicator, some of which include the appointment of adjudicators, and the cost of adjudication proceedings. The Regulations were passed to complement the CIPA Act in ensuring that its provisions are strictly adhered to.

Conclusion
The implementation of the CIPA Act looks to provide a platform for the introduction of adjudication proceedings and various methods of resolving payment disputes under construction contracts, to enable construction projects to run smoothly without unduly delay.

Companies however should be mindful of the provisions of the CIPA Act regarding the need to stipulate specific terms in their construction contracts in order to avoid the imposition of the default payment terms. Conditional payment clauses should also be reconsidered following the restrictions under the CIPA Act.

ZUL RAFIQUE & partners
D3-3-8 Solaris Dutamas, No 1 Jalan Dutamas 1
50480 Kuala Lumpur, Malaysia
Tel: (60) 3 6209 8228
Fax: (60) 3 6209 8221
Email: mariette.peters@zulrafique.com.my
amylia.soraya@zulrafique.com.my
Website: www.zulrafique.com.my

Related Articles by Firm
Moral Rights … From peaks to pieces
MALAYSIA- Six years ago, the cultural and historical sculpture, Lunar Peaks or Puncak Purnama (‘the Sculpture’) made the national headlines when ...
Introducing the tort of sexual harassment
The Malaysian Federal Court in the case of Mohd Ridzwan bin Abdul Razak v Asmah binti Hj Mohd Nor recently delivered a landmark judgment ...
New Minimum Wages from July 2016
In Malaysia, the National Minimum Wages initiative (the Policy) was first introduced and announced by the Malaysian Prime Minister ...
Only Muslims may practise in Syariah courts
The Malaysian Federal Court in the case of Majlis Agama Islam Wilayah Persekutuan v Victoria Jayaseele Martin [2016] 1 LNS 131
Trans-Pacific Partnership Agreement ... some highlights
The Trans-Pacific Partnership Agreement (the TPPA) is a multilateral free trade agreement which aims to further liberalise the economies of ...
Financial Ombudsman Scheme
Financial Ombudsman Schemes are not novel in countries such as Australia, Ireland, the United Kingdom, and Singapore. On October 29, 2015, the Central Bank of Malaysia...
Budget 2016... Some highlights
Budget 2016 was first unveiled on October 23, 2015 by the Malaysian Prime Minister and Minister of Finance, Dato’ Sri Mohd ...
The Prevention of Terrorism Act 2015
The Prevention of Terrorism Act 2015 (the Act) came into force on September 1, 2015. The Act, which aims to prevent the conduct or ...
A new strata regime
Introduction The Strata Management Act 2013 (the Act) which came into force on June 1, 2015 repeals the Building and Common Property (Maintenance and Management) Act 2007. The implementation of the ...
Unfair dismissal…compensation, reinstatement, or neither?
The Malaysian Federal Court in the case of Unilever (M) Holdings Sdn Bhd v So Lai & Anor1 has issued a landmark ruling whereby it was held that an employee who had been wrongfully ...
The net effect
Netting arrangements refer to the settlement of obligations between two parties that processes the combined value of transactions. It is designed to lower the number of transactions ...
Taxing times ahead?
The Goods and Services Tax (GST) at the rate of 6 percent was introduced in Malaysia with effect from April 1, 2015. ...
What to expect when you are expecting…
The Court of Appeal, in the recent decision of Airasia Bhd v Rafizah Shima Mohamed Aris,1 ruled on the extent of which …
Amendments to the Malaysian Penal Code
After the withdrawal of two controversial clauses relating to the national flag and vandalism, the amendments made to the Malaysian Penal Code finally took effect …
Dismissal for unlawful picketing...too harsh?
In October 2014, the Federal Court of Malaysia, in Harianto Effendy Zakaria & Ors v Mahkamah Perusahaan Malaysia & Anor, [2014] 6 MLJ 305, upheld the dismissal of nine former bank employees by …
The Malaysian Credit Reporting Agencies Act comes into force
The Credit Reporting Agencies Act (CRA Act) came into force on January 15th, 2014. The Act provides for the registration and regulation of credit reporting agencies that are carrying on credit …
Landmark case on minimum wages in Malaysia… Does it include a service charge?
In June 2014, the Malaysian Industrial Court, in a landmark decision, ruled on the issue of a hotel employee’s salary structure. …
Deep impact... (on Malaysia’s bond market?)
The recent decision of the Malaysian Federal Court reported as CIMB Bank Bhd v Maybank Trustees Bhd & Other Appeals [2014] 3 CLJ 1 appeared to have changed the landscape of the bond market …
The liberalisation of legal services in Malaysia
After several years of dialogue, debate and deliberation, the amendments to the Malaysian Legal Profession Act 1976 have finally come into force, taking effect from June 3rd, 2014. The Legal Profession Act …
Related Articles
Related Articles by Jurisdiction
Navigating a shifting landscape
In the ongoing transformation of Asian capital markets, money flows are changing direction and new industries are rising across the region. But Hong Kong and Singapore regulators still set the pace, reports Eric J. Brooks.
Latest Articles