Payment disputes in the construction industry can cripple cash flow and halt projects entirely. Before the Construction Industry Payment and Adjudication Act 2012 (CIPAA) came into force, contractors and subcontractors often waited years for court proceedings to resolve payment disputes. CIPAA changed everything by introducing a fast-track adjudication process designed to keep money flowing and projects moving.

This guide breaks down everything you need to know about CIPAA adjudication in Malaysia – from who can use it, to the step-by-step process, timelines, and how to enforce an adjudication decision.

What is CIPAA and Why Does It Matter?

The Construction Industry Payment and Adjudication Act 2012 (CIPAA) is a Malaysian statute that came into force on 15 April 2014. Its primary purpose is to facilitate regular and timely payment in the construction industry and to provide a mechanism for speedy dispute resolution through adjudication.

Before CIPAA, subcontractors and suppliers were often at the mercy of main contractors who delayed payments for months or even years. Court litigation was expensive and time-consuming, sometimes taking longer than the construction project itself. CIPAA addresses this by providing a statutory right to payment and a rapid adjudication process that typically concludes within 45 to 65 working days.

Who Can Use CIPAA Adjudication?

CIPAA applies to construction contracts entered into on or after 15 April 2014 that relate to construction work carried out wholly or partly within Malaysia. This includes:

Main contractors claiming against employers or developers; subcontractors claiming against main contractors; suppliers claiming for materials supplied for construction work; and consultants claiming professional fees related to construction projects.

However, CIPAA does not apply to construction contracts entered into by natural persons for any construction work in respect of their residential property with a total area of not more than 500 square metres. This exemption protects individual homeowners building or renovating their own homes.

The CIPAA Adjudication Process: Step by Step

Step 1: Serve a Payment Claim

The process begins when the unpaid party (the claimant) serves a payment claim on the non-paying party (the respondent). This payment claim must be in writing and must state the amount claimed and the basis for the claim. There is no prescribed form, but the claim should be clear and supported by relevant documentation such as invoices, progress claims, and variation orders.

Step 2: Payment Response

The respondent has a limited time to serve a payment response. If the construction contract specifies a period, that period applies. If not, the default period under CIPAA is 10 working days from receipt of the payment claim. The payment response must state the amount the respondent proposes to pay (if any) and the reasons for any difference from the claimed amount.

Step 3: Notice of Adjudication

If the dispute remains unresolved, the claimant may initiate adjudication by serving a notice of adjudication. This notice must identify the parties, the nature of the dispute, the remedy sought, and the name of the proposed adjudicator (if the parties have agreed on one).

Step 4: Appointment of Adjudicator

The parties may agree on an adjudicator within 10 working days of the notice of adjudication. If they cannot agree, either party may request the Director of the Asian International Arbitration Centre (AIAC), formerly known as the Kuala Lumpur Regional Centre for Arbitration (KLRCA), to appoint an adjudicator. The AIAC maintains a panel of qualified adjudicators with construction industry expertise.

Step 5: Adjudication Claim and Response

Within 10 working days of the adjudicator's acceptance of appointment, the claimant must serve an adjudication claim setting out the nature of the dispute, the parties' contentions, the relief sought, and all supporting documents. The respondent then has 10 working days to serve an adjudication response. The claimant may serve a reply within 5 working days thereafter.

Step 6: Adjudication Decision

The adjudicator must deliver a decision within 45 working days from receipt of the adjudication response, or 45 working days from when the response was due if none was served. This period can be extended by agreement of the parties or at the adjudicator's discretion for an additional 15 working days.

Key Timelines at a Glance

Understanding CIPAA timelines is critical because missing a deadline can be fatal to your claim or defence. Here is a summary of the key statutory periods:

Payment response: 10 working days from payment claim (unless contract specifies otherwise). Agreement on adjudicator: 10 working days from notice of adjudication. Adjudication claim: 10 working days from adjudicator's acceptance. Adjudication response: 10 working days from adjudication claim. Reply (optional): 5 working days from adjudication response. Adjudicator's decision: 45 working days from response (extendable by 15 days).

Enforcing an Adjudication Decision

One of CIPAA's greatest strengths is that adjudication decisions are immediately binding and enforceable. Under Section 28 of CIPAA, an adjudication decision may be enforced through the High Court in the same manner as a court judgment.

To enforce the decision, the successful party files an application to the High Court accompanied by a copy of the construction contract, the adjudication decision, and a certificate of non-compliance (confirming that the losing party has not complied with the decision). The court will typically grant leave to enforce unless there are valid grounds to set aside the decision.

Grounds to Set Aside an Adjudication Decision

Adjudication decisions can only be set aside on limited grounds under Section 15 of CIPAA. These include: the adjudicator was not validly appointed; the adjudicator acted in excess of jurisdiction; the adjudication decision was procured by fraud or bribery; there was a breach of natural justice; or the adjudicator failed to act independently.

Importantly, errors of fact or law are not grounds to set aside an adjudication decision. This reflects the policy that adjudication provides a quick interim resolution – parties can still pursue arbitration or litigation for a final determination.

Practical Tips for CIPAA Adjudication

Document everything. Keep meticulous records of payment claims, variations, instructions, and correspondence. In adjudication, the quality of your documentary evidence often determines success.

Act quickly. The timelines under CIPAA are tight. Engage your legal advisors early and ensure you can meet the statutory deadlines.

Choose your adjudicator wisely. If you have the opportunity to agree on an adjudicator, select someone with relevant construction industry experience and a reputation for fair, efficient proceedings.

Preserve your rights. Even if you win adjudication, remember that the decision is not final. If there are significant issues to be determined, consider whether to pursue final resolution through arbitration or litigation.

Consider the commercial relationship. Adjudication can strain working relationships. Where possible, attempt negotiation before initiating formal proceedings.

Conclusion

CIPAA has transformed the landscape of construction dispute resolution in Malaysia. For contractors, subcontractors, and suppliers who have been short-changed, it provides a rapid and cost-effective mechanism to recover payment without years of litigation. Understanding the process, meeting the deadlines, and presenting a well-documented claim are the keys to success.

If you are facing a construction payment dispute, early legal advice can make the difference between a successful adjudication and a costly misstep.

Disclaimer

This article is intended for general informational purposes only and does not constitute legal advice. The information provided may not reflect the most current legal developments and should not be relied upon as a substitute for professional legal counsel. Every construction dispute has unique facts and circumstances, and the application of law can vary accordingly. If you have a specific legal question or require advice concerning a construction payment dispute, you should consult a qualified legal professional who can assess your particular situation. Naidu Chambers and its lawyers do not accept any liability for actions taken or not taken based on the contents of this article.