New Act to improve cash flow in construction sector

KUALA LUMPUR: The Construction Industry Development Board (CIDB) is certain that the proposed Construction Industry Payment and Adjudication Act (CIPAA) will promote cash flow efficiency and planning prudence for the construction and property sectors.

"It is to facilitate regular and timely payment, to provide security and remedies for the recovery of payment and to provide a mechanism for speedy dispute resolution through adjudication," said CIDB's business environment development sector senior general manager Sariah Abdul Karib.

Once CIPAA is in place, it would improve the cash flow, efficiency and productivity in the industry, she added. Steady cash flow is an essential element in the construction industry as a project often requires a long period for completion while the terms of payments are on credit.

"The services are rendered before progress payment and the construction products are fixtures," said Sariah when commenting on The Edge Financial Daily's report on Wednesday, which highlighted the proposed CIPAA would help regulate payments in the industry.

She said CIDB initiated the CIPAA under the Construction Industry Master Plan 2006-2015 to resolve non-payment issues plaguing the industry.

CIDB, whose role is to improve, expand and coordinate the construction industry, had gathered views from the industry and stakeholders through road shows and consultations while some had sent feedback in form of a bill.

Sariah said the adjudication mechanism introduced by the bill will complement the existing recourses, arbitration and litigation that are available to the contracting parties in the industry.

"Where there is cash flow, then contractors are able to implement projects more efficiently and effectively. They would not be bogged down with disputes as they will be settled quickly, efficiently and cheaply (with CIPAA)," she said, adding once the bill is finalised it would be tabled in parliament by the Works Ministry.

Sariah explained that litigation and arbitration takes time to resolve hence the adjudication mechanism will give a temporary finality to a certain issue so that cash can flow. "When payment is stuck, it affects everyone from sub-contractors, suppliers, consultants and other professionals. If anyone defaults in payment, there is serious repercussions throughout the value chain," she said.

CIPAA would also correct industry issues such as unequal bargaining power of the contracting parties in which payment provisions may be abused. The impact of CIPAA is expected to be immediate when industry players see the need to improve their process and payment culture.

"The implication of CIPAA will also cause developers to think twice if they want to embark on speculative developments. Developers that want to embark on projects must be financially sound.

"We are promoting payment culture, professionalism in embarking on projects and also enhancing values," said Sariah, adding that underlying the enactment is national interest in enhancing productivity and efficiency.

The Malaysian construction and property industry is currently seeing a boom with the various projects being rolled out through the government's Economic Transformation Programme projects.

On whether the aggrieved party is allowed to suspend work pending payment, Sariah said that has also been proposed as a remedy in CIPAA. "It works in a situation where the defaulting party fails to pay even after adjudication, then the suspension or slow down work will be a remedy.

"CIPAA allows that (suspension) as a deterrent for non-payment," she said, adding suspension of work is not available as a remedy currently.