The Malaysian construction industry operates under a legal framework that has evolved considerably over the past decade. The Construction Industry Payment and Adjudication Act 2012 (“CIPAA”), together with its 2024 amendments now in force, has fundamentally altered how payment disputes are resolved, while the courts continue to refine the principles governing delay claims, liquidated damages, and contractual remedies. Parties engaged in construction projects — whether as employers, contractors, subcontractors, or consultants — must navigate these developments with precision.
This publication examines the key mechanisms available to resolve construction disputes under Malaysian law, with particular attention to CIPAA adjudication, extension of time claims, liquidated ascertained damages, and the remedies available upon termination or default of contract.
The Scope and Application of CIPAA
CIPAA received royal assent on 18 June 2012 and came into force on 15 April 2014. It established a statutory right to fast-track adjudication founded on the principle of “pay now, argue later” — ensuring that payment disputes do not bring construction projects to a standstill while underlying legal issues are resolved through arbitration or litigation.
The CIPAA (Amendment) Act 2024 (Act A1738) came into force on 1 January 2026, alongside the Construction Industry Payment and Adjudication (Amendment) Regulations 2025. The amendments complete the institutional transition to the Asian International Arbitration Centre (“AIAC”) as the sole named statutory adjudication administrator.
Who May Invoke CIPAA?
CIPAA applies to written construction contracts carried out wholly or partly in Malaysia. The requirement that a contract be “written” is interpreted broadly — formal execution is not necessary; correspondence, emails, or purchase orders evidencing an agreement are sufficient. Purely oral contracts remain outside CIPAA’s scope.
Those entitled to invoke adjudication include main contractors, subcontractors and nominated subcontractors, suppliers of construction materials or equipment, and construction consultants — including architects, engineers, quantity surveyors, and project managers. The right extends across the entire contractual chain. CIPAA expressly excludes a construction contract entered into by a natural person for any construction work in respect of any building which is less than four storeys high and intended for his occupation.
CIPAA applies prospectively to contracts entered into after 15 April 2014. The Federal Court confirmed this position in Jack-In Pile (M) Sdn Bhd v Bauer (Malaysia) Sdn Bhd [2019], holding that contracts predating commencement remain outside the Act’s scope.
A further significant protection was confirmed by the Court of Appeal in SPM Energy Sdn Bhd & Anor v Multi Discovery Sdn Bhd [2025]. Section 35 of CIPAA, which voids pay-when-paid clauses, was held to extend beyond adjudication proceedings to encompass court and arbitral proceedings as well — a significant expansion of the prohibition’s reach.
What Disputes Fall Within CIPAA’s Scope?
CIPAA’s jurisdiction is confined to payment disputes arising from written construction contracts. This encompasses progress payment claims, variation amounts, final account disputes, retention sums, and loss and expense claims expressed as a monetary amount. General contractual breach and non-payment tort claims fall outside the Act’s scope.
The adjudicator’s jurisdiction is equally circumscribed. In Anas Construction Sdn Bhd v JKP Sdn Bhd [2024], the court confirmed that an adjudicator’s jurisdiction is limited to matters referred pursuant to the payment claim and notice of adjudication. An adjudicator who decides matters falling outside the referred scope acts without jurisdiction, exposing the decision to challenge.
The Adjudication Process Under CIPAA
The adjudication process unfolds in prescribed statutory stages administered by the AIAC. From service of the payment claim to delivery of the adjudicator’s decision, the process takes approximately 95 to 100 working days.
Prescribed Timelines
The claimant initiates the process by serving a written payment claim on the respondent, identifying the contract, the work performed or services rendered, the amount claimed, and supporting documentation. The respondent must serve a written payment response within 10 working days or otherwise the respondent is deemed to have disputed the entire payment claim.
If the claim remains unpaid, the claimant serves a notice of adjudication and files it with the AIAC after the expiry of the period of 10 working days to serve a payment response. Parties have 10 working days to agree on an adjudicator from the AIAC’s accredited panel; failing agreement, the President of the AIAC appoints one within 5 working days of receiving an application to do so by either party.
Following the adjudicator’s acceptance, the claimant serves the adjudication claim within 10 working days. The respondent files an adjudication response within a further 10 working days, and the claimant may file an adjudication reply within 5 working days. The adjudicator delivers a written decision within 45 working days from the last submission received.
Enforcement of Adjudication Decisions
An adjudication decision is immediately binding upon both parties. Where the losing party fails to comply, the successful party may:
- Register the decision in the High Court and enforce it as a court judgment;
- Invoke the right to suspend or reduce the rate of performance under the contract, after 14 days’ notice, without constituting a repudiatory breach; or
- Apply, in the case of subcontractors, for direct payment from the project principal.
The Court of Appeal confirmed in Bludream City Development Sdn Bhd v Pembinaan Bina Bumi Sdn Bhd [2024] that once a debt has been adjudicated under CIPAA, it ceases to be disputable until the decision is set aside or the dispute is finally resolved in arbitration or litigation.
Adjudication decisions are interim in nature. Either party may re-open the dispute before an arbitral tribunal or the courts for a final and binding determination. The decision must, however, be complied with in the interim.
Grounds to Set Aside a Decision
The High Court’s jurisdiction to set aside an adjudication decision is deliberately narrow. A decision may be challenged only on the grounds of fraud or bribery, denial of natural justice, the adjudicator not acting independently or impartially, or the adjudicator acting in excess of his jurisdiction. Errors of fact or law — however serious — do not constitute grounds for setting aside.
Delay Claims: Extension of Time and Loss and Expense
Delay is among the most contested issues in Malaysian construction disputes. Contractors affected by employer-caused delay may pursue two interlocking remedies: an extension of time (“EOT”) and a loss and expense claim.
Extension of Time
Standard Malaysian construction contracts — including the PAM 2018 Form, the AIAC Standard Form, and the PWD forms — entitle contractors to an extension of the contract completion date where delay is caused by a defined employer-risk event. Qualifying events typically include changes instructed by the architect or engineer, late issuance of design information, force majeure, acts of prevention by the employer, and, in some forms, exceptionally adverse weather.
The Critical Importance of Notice
Most standard forms impose written notice requirements as a condition of entitlement. Under PAM 2018 and the AIAC Standard Form, notice must be served within 28 days of the delay event arising. Failure to comply operates as a waiver of the right to claim — the notice requirement is a condition precedent, not a mere procedural step.
Key consideration: A contractor who fails to serve timely written notice of a delay event may lose the right to an EOT in its entirety, even where the employer-risk event clearly and substantially caused the delay. There are limited circumstances in which an employer’s conduct may amount to a waiver of strict compliance, but these exceptions are fact-specific and should not be assumed.
Loss and Expense Claims
Where an EOT is granted, the contractor may also claim additional costs caused by the extension — typically referred to as loss and expense or prolongation costs. Recoverable heads of claim include extended site preliminaries and supervision costs, additional labour and plant, head office overhead contributions calculated using established formulae, and, in certain circumstances, finance charges.
Loss and expense claims must be particularised with precision. Malaysian courts follow English jurisprudence in disfavouring global claims — that is, claims presented as a single lump sum without itemisation tracing each head of loss to its causative event. Such claims frequently fail. Contemporary documentary evidence is essential.
Concurrent Delays
Concurrent delay arises when both a contractor-risk event and an employer-risk event cause delay to the same period of completion simultaneously. Malaysian courts have endorsed the approach in Walter Lilly & Company Limited v Giles Patrick Cyril Mackay [2012], holding that where an employer-risk event is an effective concurrent cause of delay, the contractor is entitled to a full extension for that period.
On costs, however, the position is more restrictive. Where both parties’ causes operate concurrently, the contractor generally obtains an EOT — thereby avoiding exposure to liquidated damages — but is not ordinarily entitled to loss and expense for that same period unless the employer-caused element can be particularised and distinguished from the contractor-caused element by evidence.
Liquidated Ascertained Damages
Where a contractor fails to complete works by the contract completion date, the employer may deduct Liquidated Ascertained Damages (“LAD”) — a pre-agreed daily or weekly sum specified in the contract. LAD clauses are governed by Section 75 of the Contracts Act 1950.
The Federal Court clarified the applicable principles in Cubic Electronics Sdn Bhd (in liquidation) v Mars Telecommunications Sdn Bhd [2019]. An employer does not need to prove actual loss to recover LAD. It is sufficient to establish that the contract has been breached and that a valid LAD clause exists. The burden then shifts to the defaulting party to demonstrate that the stipulated sum is wholly disproportionate to probable loss — a threshold that is usually difficult to discharge.
Key consideration: LAD deductions may be rendered unenforceable where the employer’s own acts or omissions have caused or contributed to delay without a contractual mechanism to extend time — a situation referred to as “time at large.” Where time is at large, the contractor’s obligation becomes one of completion within a reasonable time and the employer’s right to deduct LAD is generally lost. Additionally, many standard forms require the architect or engineer to issue a certificate of delay / non-completion before deductions may validly commence.
Contract Remedies
Termination
Construction contracts provide for termination on specified grounds in favour of both employer and contractor. Typical grounds for the employer to terminate include contractor abandonment, insolvency, persistent failure to comply with instructions, and assignment without consent. Contractors may ordinarily terminate where the employer fails to make payment within the prescribed period or where employer acts prevent performance.
Common law termination — by acceptance of a repudiatory breach — remains available alongside contractual grounds, unless the contract specifically states otherwise. The exercise of a contractual termination right requires strict compliance with the prescribed notice requirements in form, timing, and service. A termination notice that is procedurally defective renders the purported termination wrongful, and a wrongful termination is itself a repudiatory breach — exposing the terminating party to substantial damages such as the contractor’s claim for loss of profit on the unperformed portion of the works, and the employer’s claim for additional costs to complete the unperformed works.
Defects Liability
The Defects Liability Period (“DLP”) — typically 12 to 36 months from practical completion — entitles the employer to require the contractor to remedy identified defects without additional cost. Retention money, ordinarily 5% of the contract sum, is released in two tranches: the first half upon practical completion and the second upon the Certificate of Making Good Defects or expiry of the DLP, whichever is later.
Where defects emerge after the DLP, Section 6A of the Limitation Act 1953 provides that a claimant has 3 years from the date of discovery of a latent defect to commence proceedings, subject to a longstop period of 15 years from the date on which the cause of action accrued.
Choosing the Appropriate Forum
The resolution of construction disputes in Malaysia typically proceeds through three principal forums:
CIPAA adjudication provides fast-track, interim resolution of payment disputes within approximately 100 to 105 working days. The decision is enforceable as a court judgment and is administered exclusively by the AIAC.
Arbitration is the primary forum for the final determination of construction disputes. Most standard Malaysian contracts — PAM, PWD, AIAC, and CIDB — contain arbitration clauses. Arbitration before the AIAC offers confidential proceedings, specialist tribunals, and awards enforceable in over 170 jurisdictions under the New York Convention.
Litigation before the High Court — including the dedicated Construction Courts in Kuala Lumpur and Shah Alam — is appropriate where there is no arbitration clause, where matters fall outside the scope of the arbitration clause, where injunctive relief is required, or where the arbitration clause is null and void, inoperative or incapable of being performed.
In practice, the typical path for a substantial Malaysian construction dispute is adjudication under CIPAA to restore cashflow, followed by arbitration to achieve a final and binding resolution of the underlying disagreement.
Conclusion
The legal landscape governing construction disputes in Malaysia is substantive and in active development. CIPAA’s adjudication framework has materially improved the position of unpaid parties throughout the construction chain. At the same time, the strict requirements governing delay claims — in particular, the condition precedent notice obligations under standard form contracts — continue to produce outcomes that are unforgiving of procedural error.
Contractors, employers, consultants, and developers would benefit from seeking legal advice at the earliest opportunity when disputes arise. Timely action on payment claims, notice of delay events, and the choice of dispute resolution forum can substantially affect the outcome of a construction dispute.
Shearn Delamore & Co.’s Engineering and Construction practice advises clients across the full spectrum of construction matters, from contract structuring and project advisory to adjudication, arbitration, and litigation. With extensive experience in disputes in adjudication, arbitration and the Malaysian courts, the firm is well placed to assist parties navigating the complexities of Malaysian construction law with confidence, clarity, and foresight.
