3.0 Construction industry payment and adjudication act.

A legislation in Malaysia called the Construction Industry Payment and Adjudication Act
(CIPAA) attempts to provide a prompt and effective process for resolving payment-related
issues in the construction sector (Chang Keng Hoe, 2019). It was adopted in 2012 and went
into effect in April of that same year. The Act mandates the use of the Construction Industry
Payment Adjudication System (CIPAS) for the adjudication of payment disputes and calls for
the appointment of an adjudicator to provide a decision in accordance with the disputes
presented to him within a certain time frame. The adjudicator's decision is enforceable as a
court decision.

3.1 The purpose of CIPAA

A law known as the Construction Industry Payment and Adjudication Act (CIPAA) was
passed in Malaysia in order to offer a rapid and effective method for resolving payment-
related issues in the construction sector. CIPAA's major goal is to offer a quick procedure for
settling payment disputes between construction partners. As well as problems between
contractors and owners or developers, this also involves disagreements between contractors
and subcontractors. The statute establishes a quicker and more affordable adjudicatory
process than traditional judicial processes.

In addition, the CIPAA allows for the employment of an adjudicator, a neutral expert chosen
to provide a decision in the dispute. As stated by Chee Weng Leong, 2023, the adjudicator's
judgement is final and binding, which helps speed up and streamline the dispute-resolution
process.

By offering a system for the prompt payment of contractors and subcontractors, CIPAA also
aims to improve cash flow in the construction sector. This is accomplished by imposing
deadlines on parties for payments and imposing fines for late payments. To ensure that
contractors and subcontractors are safeguarded against non-payment, CIPAA also permits the
use of security for payment, such as performance bonds or bank guarantees. This aids in
reducing the risk of non-payment and guarantees that the construction sector's cash flow is
maintained.

In order to establish a rapid and effective process for the settlement of payment-related
disputes in the construction sector, Malaysia passed the Construction Industry Payment and
Adjudication Act (CIPAA). Its main goals are to streamline the process for resolving
payment disputes, improve cash flow in the construction industry, provide payment security,
and promote fairness and transparency in the sector. It also makes sure that everyone
involved is aware of the amount owed and the due date for payment.

5.1 Type of late payment and non- payment Default in Construction Industry

Late payments and non-payment defaults may take many different forms in the construction
sector. Several instances include:

 Owners or developers that fail to make payments to contractors or subcontractors for

work completed on a construction project are considered payment defaulters. The
contractor or subcontractor may have financial hardship as a result of this default, and
the construction project may experience disagreements and delays as a result.
 Performance defaults by a contractor or subcontractor who does not finish the job by
the deadline or does not follow the contract's specifications. This kind of default may
result in conflicts, increased expenses, and delays for the owner or developer as well
as financial hardship for the contractor or subcontractor.
 Liquidated damages, which are agreed-upon sums of money that a party is required to
pay for each day that a building project is delayed. This kind of default may result in
financial hardship for the party that caused the delay, as well as disagreements and
more expenses for the other party.
 Retention payments, which are sums of money withheld from the contractor's or
subcontractor's payment by the owner or developer to guarantee that any required
corrective work is done on the project. The contractor or subcontractor may have
financial hardship as a result of this default, and the construction project may
experience disagreements and delays as a result.
 Bond defaults, which happen when a contractor or subcontractor doesn't adhere to the
conditions of a performance bond or payment bond that the owner or developer may
need as a guarantee of performance or payment. The contractor or subcontractor may
have financial issues as a result of this form of default, while the owner or developer
may experience disagreements and increased expenses.
5.2 Causes of Late Payment and Non-Payment Default

There are serious problems with late payments and non-payment defaults in the construction sector.
These problems may result in financial hardships for contractors and subcontractors, as well as
disagreements and building project delays.

Financial issues on the side of the owner or developer are one of the primary reasons for late
payments and non-payment defaults. An owner or developer may be less able to pay contractors and
subcontractors for work completed on a building project while they are having financial problems.
Delays in payment may result from this, which may put the contractor or subcontractor in a tight
financial situation.

Poor cash flow management on the part of the contractor or subcontractor is another reason for late
payments and non-payment defaults. A contractor or subcontractor may be less able to make on-time
payments to their creditors when they do not adequately manage their cash flow. Delays in payments
and non-payment defaults may result from this.

Payment delays may also be the result of disagreements on the quality or completeness of the job. It
may be less probable for a contractor or subcontractor to be paid when the quality of the job is in
discussion. Similar to this, if a contractor or subcontractor concerns whether the job was finished, they
could not be paid until the issue is addressed. Misunderstandings concerning deadlines and payment
conditions may also result from poor or non-existent communication between the parties. Parties may
be unaware of payment conditions and deadlines when there is ineffective communication between
them. Delays in payments and non-payment defaults may result from this.

Payment delays may also be brought on by bureaucratic hiccups or administrative faults, such as
difficulties in billing or payment processing. Payments may be delayed as a result of administrative
blunder or bureaucratic delays, which might put the contractor or subcontractor in a tight financial
situation. Payment delays may also result from unclear payment conditions and deadlines in the
contract. It might be challenging for parties to understand when payment is due if the contract's
payment conditions and deadlines are not expressly stated. Delays in payments and non-payment
defaults may result from this.

Long lengths of time without a solution may also be caused by inadequate project control or
monitoring. Delays in payments and non-payment defaults may result from this. The construction
business may also be impacted by government policies or economic downturns, which might result in
payment delays and interruptions.
References

1) https://www.kkr.gov.my/en/akt/akt-industri-binaan-bayaran-dan-penentuan-juruwang-cipaa-
2012
2) https://www.cipaamalaysia.com/blog/cipaa
3) https://www.aiac.world/wp-content/adjudication/CIPAAct-7.pdf
4) December (2002), CIPAA, CIPAA Act 2012: A Complete Guide To The Construction
Industry, retrieved from, https://www.cipaamalaysia.com/blog/cipaa
1) https://www.aiac.world/wp-content/adjudication/CIPAAct-7.pdf
2) AIAC. (n.d.). Asian International Arbitration Centre.
https://www.aiac.world/wp-content/adjudication/CIPAAct-7
3) EJOURNAL. (n.d.). Retrieved January 18, 2023, from https://ejournal.um.edu.my/
4)