CONSTRUCTION INDUSTRY PAYMENT AND ADJUDICATION ACT 2012

This Act comes into operation on a date to be appointed by the Minister by notification in the Gazette.

Application

any building, erection, edifice, structure, wall, fence or chimney, whether constructed wholly or partly above or below ground level;

any road, harbour works, railway, cableway, canal or aerodrome;

any drainage, irrigation or river control work;

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any electrical, mechanical, water, gas, oil, petrochemical or telecommunication work; or

any bridge, viaduct, dam, reservoir, earthworks, pipeline, sewer, aqueduct, culvert, drive, shaft, tunnel or reclamation work, and includes—

any work which forms an integral part of, or are preparatory to or temporary for the works described in paragraphs

to (e), including site clearance, soil investigation and improvement, earth-moving, excavation, laying of foundation, site restoration and landscaping; and

procurement of construction materials, equipment or workers, as necessarily required for any works described in paragraphs (a) to (e);

“construction work contract” means a contract to carry out construction work;

“contract administrator” means an architect, engineer, superintending officer or other person howsoever designated who administers a construction contract;

“Government” means the Federal Government or the State

Government;

“High Court” means the High Court in Malaya or the High

Court in Sabah and Sarawak, as the case may require;

“KLRCA” means the Kuala Lumpur Regional Centre for

Arbitration;

“Minister” means the Minister charged with the responsibility for works;

“non-paying party” means a party against whom a payment claim is made pursuant to a construction contract;

“payment” means a payment for work done or services rendered under the express terms of a construction contract;

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“principal” means a party who has contracted with and is liable to make payment to another party where that other party has in turn contracted with and is liable to make payment to a further person in a chain of construction contracts;

“respondent” means the person on whom the notice of adjudication and adjudication claim has been served;

“site” means the place where the construction work is affixed whether on-shore or off-shore;

“unpaid party” means a party who claims payment of a sum which has not been paid in whole or in part under a construction contract;

“working day” means a calendar day but exclude weekends and public holidays applicable at the State or Federal Territory where the site is located.

The payment claim shall be in writing and shall include—

A non-paying party who disputes the amount claimed in the payment claim, either wholly or partly, shall serve a payment response in writing on the unpaid party stating the amount disputed and the reason for the dispute.

A payment response issued under subsection (1) or (2)

shall be served on the unpaid party within ten working days of the receipt of the payment claim.

A non-paying party who fails to respond to a payment claim in the manner provided under this section is deemed to have disputed the entire payment claim.

Right to refer dispute to adjudication

The right to refer a dispute to adjudication shall only be exercised after the expiry of the period to serve a payment response as specified under subsection 6(3).

A dispute referred to adjudication under this Act is subject to the Limitation Act 1953 [Act 254], Sabah Limitation Ordinance

[Cap. 72] or Sarawak Limitation Ordinance [Cap. 49] as the case may be.

Initiation of adjudication

Upon receipt by the respondent of the notice of adjudication, an adjudicator shall be appointed in the manner described in section 21.

A party to the adjudication proceedings may represent himself or be represented by any representative appointed by the party.

Adjudication claim

The claimant shall provide the adjudicator with a copy of the adjudication claim together with any supporting document within the time specified under subsection (1).

Adjudication response

The respondent shall provide the adjudicator with a copy of the adjudication response together with any supporting document within the time specified under subsection (1).

If the respondent fails to serve any adjudication response, the claimant may proceed with the adjudication after the expiry of the time specified under subsection (1).

Adjudication reply

The claimant shall provide the adjudicator with a copy of the adjudication reply together with any supporting document within the time specified under subsection (1).

Adjudication and decision

Subject to subsection 19(5), the adjudicator shall decide the dispute and deliver the adjudication decision within—

An adjudication decision which is not made within the period specified in subsection (2) is void.

The adjudication decision shall be made in writing and shall contain reasons for such decision unless the requirement for reasons is dispensed with by the parties.

The adjudication decision shall also determine the adjudicated amount and the time and manner the adjudicated amount is payable.

The adjudicator shall serve a copy of the adjudication decision, including any corrected adjudication decision made under subsection (7), on the parties and the Director of the KLRCA.

The adjudicator may at any time correct any computational or typographical error on the adjudicator’s own initiative or at the request of any party.

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The enforcement of the adjudication decision shall not be affected in any way by a request for correction under subsection (7)

and any correction made is deemed to take effect from the date of the original adjudication decision.

The Evidence Act 1950 [Act 56] shall not apply to adjudication proceedings under this Act.

Effect of adjudication decision

it is set aside by the High Court on any of the grounds referred to in section 15;

the subject matter of the decision is settled by a written agreement between the parties; or

the dispute is finally decided by arbitration or the court.

Consolidation of adjudication proceedings

the adjudication decision was improperly procured through fraud or bribery;

there has been a denial of natural justice;

the adjudicator has not acted independently or impartially;

or

the adjudicator has acted in excess of his jurisdiction.

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Stay of adjudication decision

an application to set aside the adjudication decision under section 15 has been made; or

the subject matter of the adjudication decision is pending final determination by arbitration or the court.

The High Court may grant a stay of the adjudication decision or order the adjudicated amount or part of it to be deposited with the Director of the KLRCA or make any other order as it thinks fit.

Withdrawal and recommencement of adjudication proceedings

The claimant shall bear the costs arising out of the withdrawal of the adjudication proceedings unless the adjudicator orders otherwise.

The claimant who has withdrawn the adjudication claim is free to recommence adjudication on the same subject matter by serving a new notice of adjudication in accordance with section 8.

If an adjudicator dies, resigns or is unable through illness or any other cause to complete the adjudication proceedings—

Subsection (1) shall prevail over any agreement made by the parties prior to the commencement of the adjudication proceedings by which one party agrees to pay the other party’s costs or bear the adjudicator’s fees and expenses.

Adjudicator’s fees and expenses, etc.

If the parties and the adjudicator fail to agree on the terms of appointment and the fees of the adjudicator, the KLRCA’s standard terms of appointment and fees for adjudicators shall apply.

The parties to the adjudication are jointly and severally liable to pay the adjudicator’s fees and expenses and the adjudicator may recover the fees and expenses due as a debt.

The parties shall contribute and deposit with the Director of the KLRCA a reasonable proportion of the fees in equal share as directed by the adjudicator in advance as security.

Before releasing the adjudication decision to the parties, the adjudicator may require full payment of the fees and expenses to be deposited with the Director of the KLRCA.

An adjudicator is not entitled to any fees or expenses relating to the adjudication if the adjudicator fails to decide the dispute within the period specified under subsection 12(2) except when the delay in the delivery of the decision is due to the failure of the parties to deposit the full payment of the adjudicator’s fees and expenses with the Director of the KLRCA under subsection (5).

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Confidentiality of adjudication

with the consent of the other party;

to the extent that the information is already in the public domain;

to the extent that disclosure is necessary for the purposes of the enforcement of the adjudication decision or any proceedings in arbitration or the court; or

to the extent that disclosure is required for any purpose under this Act or otherwise required in any written law.

by agreement of the parties in dispute within ten working days from the service of the notice of adjudication by the claimant; or

by the Director of the KLRCA—

upon the request of either party in dispute if there is no agreement of the parties under paragraph (a); or

The adjudicator shall propose and negotiate his terms of appointment including fees chargeable with the parties and shall within ten working days from the date he was notified of his appointment, indicate his acceptance and terms of his appointment.

If the adjudicator rejects his appointment or fails to indicate his acceptance of the appointment within the period specified in subsection (2), the parties may proceed to appoint another adjudicator in the manner provided under section 21.

Appointment of adjudicator by Director of the KLRCA

The adjudicator shall propose and negotiate his terms of appointment including fees chargeable with the parties and shall within ten working days from the date he was notified of his appointment, indicate his acceptance and terms of his appointment.

If the adjudicator rejects his appointment or fails to indicate his acceptance of the appointment within the period specified in subsection (2)—

there is no conflict of interest in respect of his appointment;

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he shall act independently, impartially and in a timely manner and avoid incurring unnecessary expense;

he shall comply with the principles of natural justice;

and

there are no circumstances likely to give rise to justifiable doubts as to the adjudicator’s impartiality and independence.

Powers of the adjudicator

establish the procedures in conducting the adjudication proceedings including limiting the submission of documents by the parties;

order the discovery and production of documents;

set deadlines for the production of documents;

draw on his own knowledge and expertise;

appoint independent experts to inquire and report on specific matters with the consent of the parties;

call for meetings with the parties;

conduct any hearing and limiting the hearing time;

carry out inspection of the site, work, material or goods relating to the dispute including opening up any work done;

inquisitorially take the initiative to ascertain the facts and the law required for the decision;

issue any direction as may be necessary or expedient;

order interrogatories to be answered;

order that any evidence be given on oath;

review and revise any certificate issued or to be issued pursuant to a construction work contract, decision, instruction, opinion or valuation of the parties or contract administrator relevant to the dispute;

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decide or declare on any matter notwithstanding no certificate has been issued in respect of the matter;

award financing costs and interest; and

extend any time limit imposed on the parties under this

Act as reasonably required.

Power of adjudicator not affected by non-compliance

The adjudicator may on the ground that there has been non-compliance in respect of the adjudication proceedings or document produced in the adjudication proceedings—

The parties to adjudication may at any time by agreement in writing extend the jurisdiction of the adjudicator to decide on any other matter not referred to the adjudicator pursuant to sections 5 and 6.

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Notwithstanding a jurisdictional challenge, the adjudicator may in his discretion proceed and complete the adjudication proceedings without prejudice to the rights of any party to apply to set aside the adjudication decision under section 15 or to oppose the application to enforce the adjudication decision under subsection 28(1).

The High Court may make an order in respect of the adjudication decision either wholly or partly and may make an order in respect of interest on the adjudicated amount payable.

The order made under subsection (2) may be executed in accordance with the rules on execution of the orders or judgment of the High Court.

Suspension or reduction of rate of progress of performance

The party intending to suspend the performance or reduce the rate of progress of performance under subsection (1) shall give written notice of intention to suspend performance or reduce the rate of progress of performance to the other party if the adjudicated amount is not paid within fourteen calendar days from the date of receipt of the notice.

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The party intending to suspend the performance or reduce the rate of progress of performance under subsection (1) shall have the right to suspend performance or reduce the rate of progress of performance of any construction work or construction consultancy services under a construction contract upon the expiry of fourteen calendar days of the service of the notice given under subsection (2).

The party who exercises his right under subsection (3)—

Upon receipt of the written request under subsection (1), the principal shall serve a notice in writing on the party against whom the adjudication decision was made to show proof of payment and to state that direct payment would be made after the expiry of ten working days of the service of the notice.

In the absence of proof of payment requested under subsection (2), the principal shall pay the adjudicated amount to the party who obtained the adjudication decision in his favour.

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The principal may recover the amount paid under subsection (3) as a debt or set off the same from any money due or payable by the principal to the party against whom the adjudication decision was made.

This section shall only be invoked if money is due or payable by the principal to the party against whom the adjudication decision was made at the time of the receipt of the request under subsection (1).

Concurrent exercise of remedies

The remedies provided by this Act are without prejudice to other rights and remedies available in the construction contract or any written law, including any penalty provided under any written law.

setting of competency standard and criteria of an adjudicator;

determination of the standard terms of appointment of an adjudicator and fees for the services of an adjudicator;

administrative support for the conduct of adjudication under this Act; and

any functions as may be required for the efficient conduct of adjudication under this Act.

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Policy directions

The Minister charged with the responsibility for legal affairs shall consult the Minister before making any policy directions on the functions of the KLRCA under section 32.

An adjudicator who has adjudicated a dispute under this

Act cannot be compelled to give evidence in any arbitration or court proceedings in connection with the dispute that he has adjudicated.

Prohibition of conditional payment

For the purposes of this section, it is a conditional payment provision when—

the contract price for the construction work or construction consultancy services;

any other rate specified in the construction contract;

any variation agreed to by the parties to the construction contract by which the contract price or any other rate specified in the construction contract is to be adjusted;

and

the estimated reasonable cost of rectifying any defect or correcting any non-conformance or the diminution in the value of the construction work or construction consultancy services performed, whichever is more reasonable.

In the absence of any of the matters referred to in paragraphs (1)(a) to (d), reference shall be made to—

The frequency of progress payment is—

The due date for payment under subsection (3) is thirty calendar days from the receipt of the invoice.

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Relationship between adjudication and other dispute resolution process

Subject to subsection (3), a reference to arbitration or the court in respect of a dispute which is being adjudicated shall not bring the adjudication proceedings to an end nor affect the adjudication proceedings.

An adjudication proceeding is terminated if the dispute being adjudicated is settled by agreement in writing between the parties or decided by arbitration or the court.

by delivering the notice or document personally to the party;

by leaving the notice or document at the usual place of business of the party during the normal business hours of that party;

by sending the notice or document to the usual or last-known place of business of the party by registered post;

or

by any other means as agreed in writing by the parties.

Regulations

any person or class of persons; or

any contract, matter or transaction or any class thereof, from all or any of the provisions of this Act, subject to such terms and conditions as may be prescribed.

Savings