*This article was originally published in the Business Section of the Star Online by Shaila Koshy on 18th January 2016.
KUALA LUMPUR: The Government no longer has exemption under the Construction Industry Payment and Adjudication Act 2012 (CIPAA) for construction contracts worth RM20mil and less, as of Jan 1, a move that some have described as “excellent” news towards increasing efficiency in the industry.
The lifting of the exemption means that sub-contractors handling small jobs involving RM20mil and below will have greater protection in cases of delayed or non-payments.
“Over time, this would lead to a more efficient and professional construction industry with more projects being completed on time, a savings in cost and an elimination of delays,” said former Pemudah co-chair Tan Sri Yong Poh Kon who is also the immediate past president of Federation of Malaysian Manufacturers.
Just before the Act came into force in April 2014, the Government applied for two exemptions from the law which had been enacted as a protection for sub-contractors against delayed payments or non-payment.
It said it needed more time to adjust to the new time lines involving the resolution of such disputes.
The exemption order for contracts worth RM20mil and less became operative on April 15, 2014, but it had a sunset clause. The order expired on Dec 31 last year.
In an e-mail dated Jan 11, Kuala Lumpur Regional Centre for Arbitration (KLRCA) director Prof Datuk Sundra Rajoo announced that as of Jan 1, such contracts were not exempt anymore from the time schedules under CIPAA.
(KLRCA is the adjudicating authority under CIPAA.)
He added, however, that the exemption for Government construction works involving emergency and national security remained.
On Feb 19, 2014, in Starbiz, Prof Sundra explained that Government contracts worth RM20mil and less “usually go to Class B contractors and below, the majority of whom are bumiputra contractors.”
“People, including consultants, contracting with the government and its agencies, will not have protection for delayed payment and non-payment (if the exemption was allowed),” he had added.
Yesterday, Prof Sundra welcomed the end of the exemption, saying the Government should have “got its act together by now.”
“It’s a good thing. There’s now a level playing field for contracts below RM20mil.
“It’s usually the small contractors who need protection.”
Yong, who is also a member of the Economic Council chaired by Prime Minister Datuk Seri Najib Tun Razak, described the lifting of the exemption as a piece of “excellent news.”
“It shows that the Government is walking the talk, and the adherence to the deadline to end the exemption would be welcomed by all in the construction industry.
“It shows that the government implementors of projects, whether it is JKR (Public Works Department) or other authorities, are prepared to be subject to the same discipline that the private sector developers and employers are subjected to.”
Over time, he said this would lead to a more efficient and professional construction industry with more projects being completed on time, a savings in cost and an elimination of delays.
“Even without the government projects during the exemption period, many in the private sector have utilised the provisions of CIPAA, and I have been told that in 2015 alone, 200 cases have already been referred to KLRCA for adjudication,” said Yong.