Bill to tackle building woes

KUALA LUMPUR: The construction industry may soon see a major change in the way non-payment issues are resolved. Issues of cash flow shortage or non-payment of progress billings that often plague the industry may be reduced in the future when a Bill to regulate the payment is passed by Parliament.

In the past, non-payments or arbitrarily reduced payments of progress billings — by developers to contractors, or contractors to sub-contractors and suppliers — have caused major problems for the industry. They lead to cash flow problems for firms down the construction value chain, affecting their ability to deliver, and sometimes even to survive financially.

For the end-buyers, these disputes have led to late delivery of homes, and in some cases, abandoned projects.

The Kuala Lumpur Regional Centre For Arbitration (KLRCA) director Sundra Rajoo said the centre has proposed the Construction Industry Payment and Adjudication Bill 2011 (CIPA) to regulate payment in the industry.

The Bill, which is currently being tweaked in the Attorney-General's Chamber, would facilitate regular and timely progress payment through a speedy resolution via adjudication. However, adjudication does not eliminate the right of the parties to litigation if they are unhappy with the resolution.

The CIPA is expected to cover all construction works, which include buildings, roads, harbours, bridges, dams, drainage, electrical, mechanical, water, telecommunication work and earthworks.

Sundra said payments in the construction industry are often disrupted by project failure or parties willfully refusing to pay.

"The way the construction industry is going to work is to make sure people honour their contracts," he said, adding that KLRCA is all for making the industry more efficient.

He said the adjudication mechanism proposed in the Bill would facilitate cash flow in the industry during a project.

"Adjudication is a quick method of deciding a dispute. Parties will formulate the dispute and go to a third party and look at the dispute summarily. He (the third party) is not supposed to go into details but look at it overall," said Sundra.

However, he said the adjudication mechanism should not be used in assessing the final account, as it is more complex and some would even take up to six months or a year to prepare.

The Malaysian Bar Council vice-president Lim Chee Wee said non-payment problems in the past had a major negative knock-on effect in the industry and CIPA will provide for speedy and simple dispute resolution mechanism where an adjudicator   will make a decision which is binding on the parties.

Among other powers, the adjudicator can decide on the right of the unpaid party to suspend his performance. He can also decide on the right of the principal to pay the adjudicated amount direct to the sub-contractor and deduct from the main contractor.

However, Lim said there are several issues that the government needs to decide before the final version of the Bill is put to Parliament.

These policy issues include whether adjudication should include the final account, whether the Bill should apply to all constructions works without any opting out and whether the party which awards the contract or sub-contract should provide a payment bond.

In the case of the final amount, the Bar Council is of the view that it should not be included as the nature of the adjudication process cannot cater for the complicated and laborious process of determining the final account.

One of the concerns raised was whether government agencies and government-linked companies, which are the biggest work providers in the country, would also be bound by the final version of the Bill.

Master Builders Association Malaysia president Kwan Foh Kwai said the idea for the Bill came about as early as 2003.

In countries where a similar Act has been implemented, payment risk was eliminated and cost savings were passed on to purchasers.

Kwan said adjudication would give the industry a faster and cheaper way of resolving disputes as the contracting parties would be able to take the matter to the adjudicator for "rough justice".

As to whether the contracting parties could suspend work during the dispute, Kwan said temporary suspension has been proposed to be included, but the suspension of work must be justifiable.

Kwan was of the opinion that adjudication should not be limited to progress payments, but to all payment matters.

"Even the final payments can be adjudicated. Sometimes, it is just the retention money. It can be easily adjudicated. We don't have to wait for arbitration. We are suggesting that final payment can be adjudicated. If they are not happy, then they can file for arbitration. They have a choice. They can opt for adjudication or arbitration," he said, stressing that the adjudication would be handled by professionals ranging from surveyors to engineers, and lawyers to architects.

Kwan said each professional body would have its list of qualified members to be adjudicators.

"We hope that there will be one body where all the professional bodies will be represented and would set the standard," he added.

Meanwhile, Real Estate & Housing Developers' Association of Malaysia (Rehda) president Datuk Seri Michael Yam said CIPA would provide clarity, especially in the area of dispute resolution.

"Sometimes, the employers do not pay on time because they feel short-changed or under-delivered by contractors and these reasons may have been used in the withholding of payments and unfair adjustments of payments that causes the industrial issues", Yam said.

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