A Contractor’s Guide To CIPAA Payment Claims & Adjudication

Payment Claims and adjudication under the Construction Industry Payment and Adjudication Act 2012 (CIPAA) offer a fast and cheap road to debt recovery for parties in Malaysia’s construction industry facing unfair non-payment.

And as it is also legally enforceable, claimants can think of a CIPAA adjudication in their favour as a fast-tracked court judgement, opening doors to legal debt enforcement methods in months rather than years.

That said, based on feedback from a construction debt recovery specialist whose input we trust, as powerful as CIPAA is, it is not perfect, and to contractors considering it, below we explain:

• CIPAA’s key advantages and limitations
• if your claim falls under CIPAA’s scope
• steps in the payment claim and adjudication process
• what happens after an adjudication decision
• fees to be aware of, and
• when there can be even better recovery strategies

For clarity, we refer below to the creditor as Claimant, the debtor as Respondent, and the upstream employer as Principal.

Let’s begin.

Overview of CIPAA 2012

For a very long time, Malaysia’s construction industry has been plagued with employers hiding behind unfair terms to delay or deny payment to service providers, with the main recourse being a lengthy and expensive civil trial.

In response, The Construction Industry Payment and Adjudication Act 2012 (CIPAA) introduced a statutory payment claim and adjudication process overseen by industry experts under the Asian International Arbitration Centre (AIAC) that bypasses the need for litigation.

This allows aggrieved parties to quickly dispute non-payment and potentially recover unpaid sums without going through lengthy proceedings.

Benefits and limitations

To truly appreciate what CIPAA offers, its benefits and limitations should be weighed comparison to civil litigation.

Advantages:

• win or lose, the matter is decided within several months instead of years in court
• successful claimants can access remedies that allow them to simultaneously:
  • claim direct payment from the upstream party
  • suspend or slow down work after proper notice, and
  • enforce the decision through the courts like a court judgment
• payment cannot be withheld just because the respondent hasn’t been paid
• it is almost always more affordable than an equivalent civil suit
• claimants can engage industry professionals to represent them instead of lawyers
• proceedings and decisions are private unlike court cases which are public

Limitations:

• adjudication decisions can still be challenged in court or arbitration later
• strict deadlines can be a double-edged sword for claimants juggling other business priorities

Based on the above, so long as the claimant has a valid claim, CIPAA truly is a faster, cheaper, and legally binding debt recovery method whose outcome can still be challenged in court later.

Specifically, it protects against two defenses employers in construction projects commonly take advantage of to deny payment.

Liquidated Ascertain Damages

 Liquidated Ascertained Damages (LAD) clauses are often used as grounds for reducing for denying payment. Under CIPAA, a properly obtained Extension of Time (EOT) in line with the contract can entirely eliminate exposure to LAD, protecting honest contractors from being taken advantage of.

‘Pay-when-paid’ contract clauses

Section 35 of CIPAA voids all conditional payment provisions that make payment dependent on the employer receiving money from a third party or on the availability of funds or financing. By banning ‘pay when paid’ clauses, contractors are protected from one of the most common delay tactics in the construction industry.

CIPAA jurisdiction

CIPAA has jurisdiction over payment disputes for construction, engineering, and consultancy services (such as project management) that meet the following:

• claims are based on expressly written contract terms (can be electronic messages)
• the work was done wholly or partly in Malaysia

The one exception is that CIPAA does not apply to contracts with a natural person (not a company) for a home less than four storeys high meant for their own occupation.

The CIPAA Payment Claim process

Laid out in Section 5 of CIPAA, Payment Claims are both a self-contained process and preliminary steps to adjudication that consists of two steps:

1. Serving a Payment Claim, and
2. Allowing the respondent time for a response 

Step 1: Serving Payment Claim

The claimant must serve a written Payment Claim stating:

• the amount claimed
• the due date
• details of the cause of action (contract provisions relied upon)
• description of work or services performed, and
• a statement that it is made under CIPAA

Here is a sample Payment Claim for readers to use.

This document defines the adjudicator’s jurisdiction, as anything not stated in this claim cannot be adjudicated.

Step 2: Payment response

From the date of service of the Payment claim, the respondent has 10 working days to serve a Payment Response and either:

• pay the claim 
• dispute it, or
• fail to respond

Ideally, the respondent pays or begins negotiations, making adjudication unnecessary.

However, should they dispute payment or fail to respond entirely (which results in the claim deemed disputed in full) adjudication proper can begin.

Note: The adjudication process can only begin after 10 working days, so even if the respondent disputes it on Day 2, the formal Notice of Adjudication still cannot be served until Day 11.

The CIPAA adjudication process

CIPAA adjudication proceedings follow a standardised timeline with four main stages:

1. Service of Notice of Adjudication
2. Appointment of adjudicator
3. Pleadings
4. Final adjudicator decision

Step 1. Notice of Adjudication

The claimant serves a written Notice of Adjudication on the respondent and the matter is registered with the AIAC within 7 days, together with payment of the registration fee.

Here’s a sample Notice of Adjudication.

Step 2. Appointment of adjudicator

Once registered with AIAC, the claimant and respondent have 10 working days to agree on an adjudicator, failing which the AIAC will usually be requested to appoint one.

In basic English, the adjudicator acts as a judge with broad powers on how the dispute is heard without being bound by the usual formalities of a courtroom, including: 

• ordering the discovery and production of specific documents
• conducting site visits and inspecting work or materials, and
• reviewing and revising any certificate, opinion, or valuation

As adjudicators are usually legally trained individuals with years of experience in construction dispute resolution, their discretionary powers are usually in favour of the legally justified party.

The chosen adjudicator must formally indicate their willingness to act and propose their terms and fees within 10 working days of being notified, after which the pleadings stage can begin.

Step 3: Pleadings

This is where parties formally submit their detailed written arguments and evidence to the adjudicator, consisting of three primary documents in the following order: 

1. Adjudication Claim
2. Adjudication Response
3. Adjudication Reply

Details on each document can be seen in the table below.

Document	Prepared by / Sent to	Timeframe	Content
Adjudication Claim	Prepared by Claimant; served on Respondent and Adjudicator	10 working days of adjudicator’s acceptance	Nature and description of the dispute, reliefs sought, and supporting documents
Adjudication Response	Prepared by Respondent; served on Claimant and Adjudicator	10 working days of receiving Adjudication Claim	Respondent’s version of facts and grounds for dispute
Adjudication Reply	Prepared by Claimant; served on Respondent and Adjudicator	Within 5 working days of receiving the Adjudication Response	Limited to answering points raised in the Response; cannot introduce entirely new claims

As the table shows, the claimant is responsible for the Adjudication Claim and Reply and here are samples of both documents:

Note that copies of both must be submitted to AIAC within seven working days of being served on the adjudicator and respondent.

Once pleadings are finished, the adjudicator is required to deliver a written decision within a strict statutory timeframe of 45 working days (though it can be extended in certain circumstances).

Step 4. Final decision

Within 45 days of the final pleading submissions, if the adjudicator finds in favour of the claimant, they may pass a decision that outlines:

• the adjudicated amount, and
• the time and manner of payment

The decision is immediately binding, meaning the losing party must pay the adjudicated amount even if they intend to challenge it in court or arbitration.

And of course, there is always the chance that the adjudicator finds in favour of the respondent, in which case the claimant may be the one doing the challenging.

Post-adjudication options

If the adjudication finds in favour of the claimant, they can then pursue the following remedies:

• apply to the High Court to enforce the decision like a court order, granting access to various judgement debt enforcement options
• suspend or reduce the rate of work progress with 14 working days’ notice
• get paid directly from the Principal who owes the respondent (like a garnishee order)

If dissatisfied, the claimant may petition to have the adjudication decision set aside by the High Court.

Permissible grounds include:

• the decision was procured through fraud or bribery
• there was a denial of natural justice (fancy term for unfairness)
• the adjudicator failed to act independently or impartially, or
• the adjudicator acted in excess of their jurisdiction

Bear in mind that by this point, a significant amount of time has already passed and escalating to the courts will incur significantly higher costs. 

CIPAA adjudication fees

The AIAC sets out a standard rate for adjudication fees under CIPAA adjudication as follows:

• non-refundable dispute registration fee of RM 250
• appointment fee If parties cannot agree on an adjudicator RM 400.
• administrative fee calculated at 20% of the adjudicator’s total fees
• standard adjudicator rates based on a sliding scale according to the disputed amount ranging from RM 2,760 (claims < RM 50,000) to RM 50,000 (claims 5,000,001 and above)
• standard adjudicator expenses including travel, lodging, and meals

Note: Parties are free to negotiate and agree on specific fees directly with the adjudicator, and the general rates usually apply to AIAC appointed individuals. 

You get what you pay for, so it is recommended to offer above standard fees for complicated or high-value cases to ensure it is adjudicated by experienced professionals.

For claimants ready to proceed, time to establish a formal record of the payment dispute.

The main limitation of CIPAA

Compared to litigation, CIPAA adjudication is undoubtedly superior in speed, but is still often too slow to be a practical alternative for a contractor in financial distress.

When all statutory steps are followed as they must be, the time from serving the Payment Claim to receiving the final adjudication decision is typically just under 90 working days.

Step	Working days
Payment Claim	1
Payment Response	10
Notice of Adjudication	1
Adjudicator Appointment	5–10
Adjudicator Acceptance & Terms	Up to 10
Adjudication Claim	10
Adjudication Response	10
Adjudication Reply	5
Final Decision	45

We didn’t even get into extensions, so it could take even longer!

For cash-strapped claimants (and we’ve never met a contractor who wasn’t) this could mean three payment cycles of defaulting on their own payments.

An alternative debt recovery method

As construction disputes often involve high-value debts owed by solvent, operational corporate debtors making statutory demands under the Companies Act 2016 are potentially even faster at securing payment.

A statutory demand is a formal notice requiring the debtor to pay within 21 days. Failure to do so allows the creditor to petition the court for a compulsory winding-up – a powerful incentive for immediate settlement, as seen in several of our past cases.

While CIPAA adjudication moves recovery into months, a statutory demand in the right circumstances can reduce the timeline to just weeks.

That’s all from us, and we wish you a smooth debt recovery 🙂

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