If you are owed money for construction work or supplies, CIPAA 2012 gives you a fast-track route to recover payment through adjudication, typically within about 90 days. You start by serving a payment claim, and if the response is unsatisfactory, you can refer the dispute to an adjudicator whose decision is temporarily binding and enforceable as a court judgment.

What Is CIPAA and Who Can Use It?

The Construction Industry Payment and Adjudication Act 2012 (CIPAA) came into force on 15 April 2014. It provides a statutory right for unpaid parties in the construction industry to pursue rapid adjudication of payment disputes.

CIPAA applies to construction contracts, whether written or oral, relating to construction work carried out in Malaysia. This includes main contractors, subcontractors, consultants and suppliers of construction materials. The Act covers both private and government construction projects.

Step 1: Serving a Payment Claim

The process begins when the unpaid party serves a payment claim on the non-paying party. Under section 5 of CIPAA, an unpaid party has the right to receive payment and may serve a payment claim at any time after a reference date in the contract, or if there is no such date, after work has been done or supplies have been made.

What the Payment Claim Must Contain

A valid payment claim must include:

  • The amount claimed
  • A description of the work done or materials supplied
  • The period to which the claim relates

There is no prescribed form, but the claim should be clear and detailed enough for the recipient to understand and respond. Serve the payment claim in accordance with the notice provisions in your contract, or by registered post or other means that provide proof of delivery.

Step 2: The Payment Response

Once a payment claim is served, the non-paying party must issue a payment response within the time stipulated in the contract. If the contract is silent, section 6 of CIPAA provides a default period of 10 working days from receipt of the payment claim.

The payment response must state:

  • The amount the respondent proposes to pay, if any
  • If the amount differs from the claim, the reason for the difference

If no payment response is served within the time allowed, or if the claimant disputes the response, the claimant may refer the matter to adjudication.

Step 3: Initiating Adjudication

To commence adjudication, the claimant must serve a notice of adjudication on the respondent. This notice must identify the contract, the parties, the nature of the dispute, and the remedy sought.

After serving the notice, the claimant must apply to the Director of the Asian International Arbitration Centre (AIAC) for the appointment of an adjudicator, unless the parties agree on one. The Director must appoint an adjudicator within 10 working days of receiving the application.

Key Adjudication Timelines

The adjudication process moves quickly:

  1. Within 10 working days of the adjudicator's acceptance, the claimant must serve the adjudication claim with supporting documents.
  2. The respondent then has 10 working days to serve an adjudication response.
  3. The adjudicator must deliver the decision within 45 working days from receipt of the adjudication response, or from when it was due if none was served.

The adjudicator may extend this 45-day period with the consent of both parties. Additional submissions, such as a reply or rejoinder, require the adjudicator's permission.

Step 4: The Adjudication Decision

The adjudicator's decision is binding on the parties unless or until it is set aside by the High Court, revised by a subsequent adjudication decision, or the dispute is finally resolved by arbitration or litigation.

The non-paying party must comply with the adjudication decision, including paying any sum awarded, within the time specified by the adjudicator or, if none is specified, within 10 working days of receiving the decision.

Step 5: Enforcing an Adjudication Decision

If the losing party fails to pay, the successful party can enforce the adjudication decision as if it were a High Court judgment. Under section 28 of CIPAA, the successful party may apply to the High Court for an order to enforce the decision.

On such an application, the court will make an enforcement order unless the respondent can show that:

  • A stay of the decision has been granted
  • The subject matter is not within the scope of CIPAA
  • The decision was improperly procured through fraud, bribery or corruption

Once an enforcement order is made, the decision can be executed using the usual methods of enforcing court judgments, such as writ of seizure and sale or garnishee proceedings.

Suspending or Reducing Work for Non-Payment

CIPAA provides another powerful remedy. Under section 29, if the non-paying party fails to pay the adjudicated amount, the unpaid party may serve a notice of intention to suspend or reduce the rate of progress of work.

The notice must give at least 14 calendar days for the non-paying party to comply. If payment is still not made after that period, the unpaid party may suspend performance or slow down work without breaching the contract.

This right continues until payment is made. Importantly, the unpaid party is entitled to a reasonable extension of time and recovery of additional costs arising from the suspension, and cannot be penalised for exercising this statutory right.

Challenging an Adjudication Decision

A party dissatisfied with an adjudication decision may apply to the High Court to set it aside under section 15 of CIPAA. The grounds are narrow and include situations where the decision was improperly procured, the adjudicator acted beyond jurisdiction, or there was a breach of natural justice.

A party may also apply to stay the adjudication decision pending arbitration or court proceedings on the underlying dispute. However, the court will generally require security to be provided as a condition of any stay.

Practical Tips for Subcontractors and Suppliers

To make the most of CIPAA's protections:

  • Document everything. Keep detailed records of work done, delivery orders, and correspondence.
  • Serve payment claims promptly. Do not let debts accumulate without taking action.
  • Respond to payment claims on time if you are a paying party, to preserve your right to raise defences.
  • Act quickly. CIPAA's strict timelines can work against you if you miss deadlines.

CIPAA has significantly improved cash flow protection in the Malaysian construction industry. Understanding how to use it effectively can help you recover what you are owed without lengthy and expensive litigation.

Common questions

How long does CIPAA adjudication take from start to finish?

The process typically takes around 75 to 90 working days from serving the payment claim to receiving the adjudicator's decision, depending on whether all deadlines are met and any extensions are granted.

Can I use CIPAA if I do not have a written contract?

Yes. CIPAA applies to construction contracts whether written or oral, provided the contract relates to construction work carried out wholly or partly in Malaysia.

Is the adjudication decision final?

The decision is temporarily binding. It can be set aside by the High Court on limited grounds, or the dispute can be finally resolved later through arbitration or court proceedings.

What happens if the other party still refuses to pay after the adjudication decision?

You can apply to the High Court to enforce the decision as a judgment. You also have the right to suspend or slow down your work after giving 14 days' notice.

Does CIPAA apply to government projects?

Yes. CIPAA applies to both private construction contracts and government construction contracts in Malaysia.