A Full Guide To CIPAA Payment Claims In Malaysia

For contractors and subcontractors in Malaysia owed payments, a CIPAA Payment Claim can potentially help recover construction debt in as little as 10 working days.

That said, there are mandatory steps claimants must follow when initiating a Payment Claim.

Sample Payment Claim.

Below, we explain these steps and considerations for claimants to ensure a smooth process.

Alternatively, skip the reading and get in touch for a free recovery assessment.

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Otherwise, let’s begin.

The main advantage of CIPAA Payment Claims

Conditional payment or 'pay-when-paid' clauses allow employers to only pay once they have received payment, leading to Malaysia's construction industry becoming rife with multiple layers of sub-contracted work and any delayed payments affecting smaller contractors downstream.

Section 35 of CIPAA renders these clauses null and void even in signed contracts, meaning the debtor cannot use it as a legal defense against a Payment Claim under the Act (though they may refuse to delay payment for as long as possible).

Scope of CIPAA

CIPAA applies to payment disputes for various construction and related services (such as project management) done wholly or partly in Malaysia and based on expressly written contract terms.

The one exception is that CIPAA does not apply to contracts with individuals for homes less than four storeys high meant for their own occupation.

If your claim falls under the scope of CIPAA, ensure all key details are documented as required.

Requirements for a Payment Claim

Gather supporting documents that establish and strengthen your position including:

• signed construction / work contract

• proof of work completion (site reports, photographs, delivery orders)

• all progress claims submitted

• payment certificates (if applicable)

• site instructions and variation orders

• correspondence regarding delays or non-payment, and

Once documents are compiled, the claimant may commence with service of a Payment Claim.

Payment Claim process

Ideally, the service of a CIPAA Payment Claim is a simple two-step process similar to sending a letter of demand.

1. Service of Payment Claim

The claimant issues a formal Payment Claim stating:

• the amount claimed

• the due date

• supporting documentation (listed above)

• description of work or services performed, and

• a formal statement that it is made under CIPAA

Here is a sample Payment Claim for readers to use.

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 (treated as disputing the claim)

Ideally, the respondent pays the claim in full or begins genuine negotiations.

However, as Payment Claims are often used as a mandatory step in the larger CIPAA adjudication process, the claimant should be prepared to have the claim disputed, at which point they can initiate adjudication by serving a Notice of Adjudication.

Be warned however, that this shifts a simple matter to a relatively protracted affair.

CIPAA adjudication overview

For the purposes of this guide, we'll provide an abridged version, so claimants expecting a brawl may want to read our full guide to CIPAA adjudication.

CIPAA adjudication follows a tightly regulated timeline with four main stages:

1. Service of Notice of Adjudication

2. Appointment of adjudicator

3. Pleadings

4. Final adjudicator decision

As the final decision is immediately and legally binding, it is akin to a creditor securing a court judgement in their favour but without the lengthy time period of a civil suit.

That said, it still usually takes just under 90 working days to go from service of Payment Claim to final adjudication decision, which is still a considerable amount of time for a contractor.

Alternative to CIPAA

In our experience, statutory demands under the Companies Act 2016 have been ideal to secure payment for uncontested construction debts involving operational corporate debtors.

A statutory demand is a formal notice requiring the debtor to pay within 21 days. Failure allows the creditor to petition for a compulsory winding-up - incentivising immediate settlement without having to go through the relatively lengthy adjudication process.

In a nutshell, definitely start with a CIPAA Payment Claim, and if that doesn't work, consider a statutory demand instead of defaulting to adjudication proceedings.

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

Let Rule & Co handle your construction debt recovery

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If you’ve sent reminders and been ignored or simply don’t want the hassle of chasing payments, Rule & Co is a debt recovery law firm that focuses on helping creditors recover debts via legal strategies that minimise upfront cost, maximise recovery, and protect your reputation.