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What is CIPAA?
CIPAA stands for Construction Industry Payment and Adjudication Act.
The Malaysian government enacted the Construction Industry Payment and Adjudication Act, 2012 (CIPAA) in 2012, which went into effect in April 2014. The purpose of this Act is to establish a quick, efficient, and cost-effective dispute resolution procedure for payment disputes in the construction sector.
The Master Builders Association Malaysia (MBAM), PAM, BEM, Construction Industry Development Board (CIDB), IEM, and other important construction industry participants have endorsed this Act.
The CIPAA expressly states the applicability and non-applicability of payment issues for adjudication.
Applications: The Act applies to all construction contracts in which written agreements are made to carry out projects entirely or partially within Malaysian territory, regardless of whether the contract is entered into with the government or a private entity.
Non-Application: The Act does not apply to any construction contract entered into by a natural person for a structure less than four storeys high that is only intended for his occupation.
Because the word "construction contract" encompasses both a construction work contract and a consultant contract, CIPAA would cover any disputes originating from non-payment for works done, services performed, or materials supplied under a signed construction contract.
How CIPAA will help resolve cashflow issues arising from payment disputes faced by contractors?
The Construction Industry Payment and Adjudication Act (CIPAA) helps resolve cash flow issues arising from payment disputes faced by contractors by providing a fast-track, efficient and cost-effective mechanism for resolving payment disputes. The key features of CIPAA that contribute to its effectiveness in resolving payment disputes and improving cash flow for contractors include:
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Expedited Decision Making: Adjudication under CIPAA is designed to be a quick process, with adjudicators required to make a decision within 42 days of receiving a referral. This helps to resolve disputes in a timely manner and avoid prolonged payment delays.
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Binding Decisions: Adjudicator's decisions are binding and enforceable, meaning that contractors can rely on the outcome of the adjudication to secure payment.
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Accessibility: The act applies to all construction projects in Malaysia, regardless of the value of the contract, making it accessible to contractors of all sizes.
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Cost-Effective: Adjudication under CIPAA is a cost-effective alternative to traditional court proceedings, reducing the financial burden of resolving payment disputes for contractors.
By providing a quick, effective and accessible mechanism for resolving payment disputes, CIPAA helps to improve the cash flow of contractors and reduce the financial burden associated with resolving payment disputes.
Implications of CIPAA
The Construction Industry Payment and Adjudication Act (CIPAA) has several implications for the construction industry in Malaysia, including:
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Improved Cash Flow: By providing a fast-track mechanism for resolving payment disputes, CIPAA helps to improve the cash flow of contractors and reduce the financial burden associated with resolving payment disputes.
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Increased Contractor Confidence: The ability to secure prompt payment through adjudication under CIPAA can increase contractor confidence and reduce the risk of financial hardship for contractors.
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Faster Dispute Resolution: The expedited nature of the adjudication process under CIPAA means that payment disputes can be resolved more quickly, avoiding the delays and costs associated with traditional court proceedings.
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Improved Contractual Relationships: By promoting prompt payment and resolving disputes in a timely manner, CIPAA can help to improve relationships between contractors and owners, leading to a more positive and productive working environment.
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Increased Contractor Compliance: The binding nature of adjudicator's decisions under CIPAA can encourage compliance with contractual obligations and promote a culture of prompt payment in the construction industry.
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Increased Professionalism: The requirement for adjudicators to be impartial and independent promotes professionalism and enhances the credibility of the adjudication process, contributing to the overall development of the construction industry in Malaysia.
CIPAA's disadvantages
CIPAA, on the other hand, has significant limitations. CIPAA, for example, is limited to payment issues relating to construction contracts, as previously stated.
The Adjudicator's Adjudication Decision is of an interim nature and is susceptible to arbitration and litigation.
Beyond what is specified in the Act, the Adjudicator may decide how to conduct the adjudication processes. Oral hearings, site inspections, and other such requests are limited.
Law Books in Malaysia on CIPAA:
Common Issues in Malaysian Adjudication: Guide to CIPAA 2012 (Soft Cover)
This book clearly describes the statutory adjudication procedure under the Construction Industry Payment and Adjudication Act 2012 (Act 746). (CIPAA 2012). From the commencement of the CIPAA 2012 adjudication procedure through the delivery of the adjudication judgement, the book guides the reader step by step.
Construction Adjudication In Malaysia, 3rd Edition | 2022
In 22 logically organised chapters, the book provides in-depth and practical guidance on all stages of the adjudication process, from the filing of a payment claim to the initiation of adjudication proceedings, management of the adjudication proceedings up to the delivery of the adjudication decision, as well as enforcement, stay, and challenge of adjudication decisions.
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