Construction Industry of Malaysia
The construction industry remains a significant contributor to Malaysia’s economic development, infrastructure expansion, and industrial growth, supported by public-infrastructure investment, private industrial development, and regional connectivity projects. According to the Department of Statistics Malaysia (DOSM), the value of construction work done in Malaysia reached RM158.8 billion in 2024, representing a 20.2% increase year-on-year, with growth recorded across all subsectors, including civil engineering, residential buildings, non-residential buildings, and special trade activities.[1] Market-analysis data indicates that the Malaysian construction market is estimated at approximately USD 41.85 billion in 2025, with projections of sustained growth supported by infrastructure development and private investment.[2]
Major infrastructure projects continue to underpin growth in the construction sector. These include rail, highway, and cross-border connectivity projects such as the East Coast Rail Link (ECRL), Light Rail Transit 3 (LRT3), Pan Borneo Highway, and the Rapid Transit System (RTS) Link between Johor Bahru and Singapore. In addition to traditional infrastructure works, construction demand is increasingly driven by industrial parks, renewable-energy facilities, logistics hubs, and data-centre developments, reflecting Malaysia’s transition toward a digital and sustainable economy.
Government expenditure and fiscal policy continue to play an important role in supporting the construction sector. Under Budget 2025, the Government announced a record federal budget of approximately RM421 billion, with continued development-expenditure allocations supporting infrastructure projects, public housing, and transportation networks. Earlier fiscal allocations similarly emphasised infrastructure delivery, including approximately RM27 billion for infrastructure projects and RM24.7 billion for public-housing initiatives, reinforcing the construction sector’s role in national economic development.
A significant recent fiscal-policy development affecting the construction sector is the expansion of the Sales and Service Tax (SST) framework to include construction services. Effective 1 July 2025, construction-work services relating primarily to commercial and non-residential projects became subject to a 6% service tax, pursuant to the expansion of the Service Tax regime under the Service Tax Act 2018. Contractors providing taxable construction services are required to register for service tax where the value of taxable construction services exceeds RM1.5 million within a 12-month period. The service tax does not apply to the construction of residential buildings and public facilities related to residential housing, and the Government has introduced transitional exemptions for certain construction contracts signed before 1 July 2025, which have been extended until 30 June 2027.
Industry-development initiatives also continue to promote Industrialised Building Systems (IBS) and Building Information Modelling (BIM) adoption as part of Malaysia’s construction-sector modernisation. The construction industry remains a major source of employment. As of December 2024, approximately 1.1 million workers were registered in the construction sector, reflecting its continued importance to Malaysia’s labour market.[3]
Following the completion of the Construction Industry Transformation Programme 2016–2020 (CITP), industry-development efforts are now guided by the Construction 4.0 Strategic Plan (2021–2025). This framework focuses on digitalisation, sustainability, productivity improvement, adoption of Industrialised Building Systems (IBS), and strengthening the global competitiveness of Malaysian construction companies.
[1] Ministry of Economy Department of Statistics Malaysia, Construction Statistics, 4th Quarter 2024, https://www.dosm.gov.my/portal-main/release-content/construction-statistics-fourth-quarter-2024
[2] CIDB, Malaysia Construction Market Analysis, January 16, 2025, https://www.cidb.gov.my/eng/analisis-pasaran-pembinaan-malaysia/
[3] https://www.cidb.gov.my/eng/construction-industry-boosts-employment-and-sustainable-infrastructure/
The Construction Industry Development Board
The responsibility of coordinating the needs and wants of the construction industry, planning the direction of the construction industry, addressing the pertinent issues and problems faced by the construction industry, and making recommendations in the formulation of policies for the construction industry is entrusted to the Construction Industry Development Board (“CIDB”). The CIDB is a statutory body established by the Lembaga Pembangunan Industri Pembinaan Malaysia Act 1994 (“the CIDB Act“).
The CIDB plays a central role in regulating and developing Malaysia’s construction industry. The CIDB is responsible for contractor registration, construction-personnel certification, industry standards, training and accreditation, and the promotion of quality and productivity initiatives across the sector.
The functions of the CIDB is prescribed in Section 4 of the CIDB Act and includes, amongst other:
- regulating the conformance of standards for construction workmanship and materials;
- providing, promoting, reviewing and coordinating trainings in the construction industry;
- registering and accrediting contractors, as well as imposing any conditions of registration and accreditation of the contractors and revoking, suspending or reinstating the registration and accreditation;
- registering, accrediting and certifying construction personnel and to revoke, suspend or reinstate the registration, accreditation and certification of such construction personnel;
- regulating the implementation for quality and safe construction works; and
- attending to any complaint or report made in relation to any failure of construction works or completed construction works which affect public safety and taking appropriate actions to address it.[1]
[1] Section 4(1)(n) of the CIDB Act
Contractor Registration with the CIDB
The CIDB Act prohibits any person from carrying out or completing, undertaking to carry out or complete any construction works or hold himself out as a contractor unless such person is registered with the CIDB and holds a valid certificate of registration issued by the CIDB under the CIDB Act. Hence, all contractors, whether local or foreign, must register with the CIDB before carrying out any construction works.
The Guidelines for Contractor Registration Requirement and Procedure (“the Guidelines“) published by the CIDB sets out the requirements and steps in applying to be a registered contractor with the CIDB. The Guidelines provide differing requirements and process applicable depending on whether the applicant applies to be registered:
- as a local contractor;
- as a consortium or joint venture;
- as an international contractor;
- as a foreign contractor; or
- for the purposes of government work procurement.[1]
Non-registration is an offence punishable by a fine not less than RM10,000 but not more than RM100,000.[2] However, the consequence which may be of more concern is that under Section 30(1) of the CIDB Act, if the CIDB finds that construction works are being carried out or completed, or undertaken to be carried out or completed by an unregistered person, the CIDB may by serving a notice in writing, require such unregistered person to abstain from commencing or proceeding with the construction works or from undertaking to carry out or complete the construction works, with or without conditions. This would result in a delay in the project.
[1] http://www.cidb.gov.my/images/content/pdf/Kontraktor/CRL-TRANSLATION-14112016FINAL.pdf
[2] Section 29 of the CIDB Act
Local Contractor Registration
Under the Guidelines, a local contractor is a company incorporated in Malaysia which has a local equity of 70% or more with the exception of equity distribution as stated in Annex 8 of the Guidelines (Annex 8 of the Guidelines provides that foreign equity from the ASEAN countries is allowed provided that such foreign equity does not exceed 51% of the total paid up capital or net worth of the applicant company). Based on latest figures available, the number of contractors registered with the CIDB grew by 0.9% from 131,094 to 132,272 in 2023. [1]
A local contractor registered with the CIDB will be issued a Local Contractor Registration Certificate (“the PPK”). Each local contractor that applies be registered with the CIDB will be registered according to:
Grade
The Grade ranges from G1 to G7 and the Grade of the registered local contractor depends on the financial capacity of the contractor. The financial capacity of the contractor will be assessed by the CIDB based on the financial feasibility assessment. The Grade functions to limit the value of the tenders or works which the contractors may participate in or carry out.
Category
The Category reflects the academic qualification and experience of the technical person of the registered local contractor.
Specialisation
The Specialisation is based on the technical person of the registered local contractor and must comply with any law or written rule involving the activities which the registered local contractor intends to conduct or specialise in.
Classification Status
The Classification Status of the registered local contractor will be either ‘Active’ or ‘Dormant’ or ‘New’ depending on the information on the projects carried out with a valid certificate in the preceding 3 years.
[1] CIDB’s 27th Malasia Country Report, https://asiaconst.com/asiacwp/wp-content/uploads/2025/07/27th_Malaysia_Country-Report.pdf
Consortium or Joint Venture Registration
A joint venture contractor is defined under the Guidelines to be a merger of two companies or more, incorporated in Malaysia or abroad. The Guidelines provides that a consortium or joint venture contractor, appointed to carry out a construction project must be registered with the CIDB. The registration is project-based and is valid only for the contractor to carry out the project as stated in the Registration Certificate. Hence, the applicant will need to furnish a letter of award or agreement which provides that the company has been awarded the said project, together with the joint venture agreement.
Under the Guidelines, there are 2 types of consortium or joint venture registration with the CIDB which are:
Type | Description |
Consortium / joint venture between local contractor companies | At least one of the local contractors must be registered with the CIDB with the Grade appropriate for the value or the project. |
Consortium / joint venture between local and foreign contractor | The local contractor must be registered with the CIDB with the Grade appropriate for the value of the project. If the foreign equity in the joint venture agreement exceed 30%, the application for registration of such a consortium/joint venture between local and foreign contractor will have to be accompanied by a separate form known as Form R3. |
International Contractor Registration
An international contractor is a local contractor registered with the CIDB who will carry out or has carried out construction work outside of Malaysia. Under the Guidelines, a local contractor can only be registered as an international contractor with the CIDB, if such contractor has been previously registered with the CIDB for at least three years and the registration is classified as ‘Active’.
Foreign Contractor Registration
A foreign contractor is a company incorporated in Malaysia or in a foreign country which has a foreign equity holding of 30% or more, with the exception of equity distribution as stated in Annex 8 of the Guidelines (Annex 8 of the Guidelines provides that foreign equity from the ASEAN countries is allowed provided that such foreign equity does not exceed 51% of the total paid up capital or net worth of the applicant company). There are 2 types of foreign contractor registration with the CIDB which are the provisional registration of the foreign contractor and the foreign contractor registration which are applicable at different stages of a project:-
Provisional Registration
A foreign contractor must apply for the Provisional Registration Certificate before participating in any tenders in Malaysia. No foreign contractor is allowed to participate in any tender exercise without first obtaining a Provisional Registration Certificate from the CIDB. The Provisional Registration Certificate is not for carrying out construction works. If the applicant is awarded the works that it has tendered for, such applicant is required to submit a separate application to be registered as a foreign contractor with the CIDB in order to be allowed to carry out any construction works for the project.
Foreign Contractor Registration
A Foreign Contractor Certificate is only issued when the foreign contractor has been awarded the construction works and is issued for a specific project. An applicant for a foreign contractor registration will need to furnish a letter of award or tender document which provides that the company has been awarded the construction works for the said project. As the Foreign Contractor Certificate is project specific, the Foreign Contractor Certificate is only valid until the completion of the project stated therein and the registered foreign contractor is only allowed to carry out works for the projects stated in the Foreign Contractor Certificate.
Despite the fact that a foreign contractor is defined as a company incorporated in Malaysia or in a foreign country, the Guidelines expressly provides that the foreign contractor will need to attach a copy of its registration certificate from the CCM to its application to be registered as a foreign contractor. An applicant is also required to have financial resources of at least RM750,000 and must employ at least two Malaysians holding a local degree in the field of construction, and one of the employees must have more than 5 years of experience in the construction industry
Government Work Procurement Registration
A contractor registered for the purposes of government work procurement will be issued a Government Work Procurement Certificate (“the SPKK”) and as stated in the Treasury Circular No. 6, 2012 and the Treasury Bill Directive, Amendment No. 3, 2012 such SPKK certificate holder will be eligible to participate in any government work procurement in construction. Only contractors with valid PPK may apply for the SPKK and the SPKK must be renewed annually with the renewal of the PPK. The SPKK is contingent upon the validity of the PPK, as such, if the PPK expires, is cancelled, withdrawn, or suspended, the SPKK will automatically become void. A contractor with the SPKK will be subjected to additional terms and conditions as set out in Guidelines which includes a restriction on change in shareholding.
The CIDB Circular 1/2025 replaces CIDB Circular 1/2015 and refines the SPKK regime to align with current procurement and integrity standards. The updated framework applies to SPKK and Sijil Perolehan Kerja Kerajaan Kontraktor Ekuiti Asing (“SPKKA”). Key operational consequences include minimum Program Penilaian Keupayaan dan Kemampuan Kontraktor (“SCORE”) ratings now required at renewal (with a failure to meet the minimum being met with a withholding of re-registration), acceptance of Contractor Quality Management System (“CQMS”) as an alternative to ISO 9001 and a requirement that G7 contractors must hold MS ISO 37001 Anti-Bribery Management System (“ABMS”) certification for new and renewal SPKK applications from January 2027.
The circular also restructures disciplinary measures for breaches, for example specified suspension periods, revocation for repeat offences, and director/owner blacklisting, with defined windows for review applications. It should be noted that SPKK suspension/revocation does not, by itself, affect the PPK unless separate action is taken. The implementation guidance is to be read with the updated conditions and the disciplinary matrix annexed to the circular, with processes administered through CIDB Integrated Management System (“CIMS”) and subject to the applicable processing fees.
Construction Personnel Registration with CIDB
Unless a construction personnel is registered with the CIDB and holds a valid certificate of registration issued by the CIDB, such person is prohibited from being involved in or engaging or undertaking to be involved in or engaged as a construction personnel. A “construction personnel” means:
- general construction workers;
- semi-skilled construction workers;
- skilled construction workers;
- construction site supervisors;
- construction project managers; and
- any other employee in construction industry as may be determined by the CIDB.
Non-compliance is an offence and the CIDB Act imposes personal liability on each person who is in contravention where it is provided that on conviction, such person found guilty shall be liable to a fine not exceeding RM5,000.
In addition, CIDB has issued operational measures governing the administration of construction personnel cards. With effect from 12 May 2025, any card that remains uncollected at a CIDB State or Branch Office for more than 6 months from the date the card reaches the counter will be disposed of and can no longer be claimed, and with effect from 4 August 2025, where cards under an employer’s name remain uncollected for more than 30 days, system restrictions will be applied in the CIDB online system and a RM200 administrative fee is payable to lift the restriction; employers and personnel should therefore monitor card‑collection status and manage all applications and enquiries through the CIMS portal to avoid disruption to site access and compliance.[1]
Further, Section 33A of the CIDB Act provides that only construction site supervisor or skilled construction worker, who are accredited and certified by the CIDB and holds a valid certificate issued by the CIDB under the CIDB Act may be involved in or engaged or undertake to be involved or engaged as a construction site supervisor or skilled construction worker. A contravention of Section 33A(1) of the CIDB Act is an offence. The CIDB Act imposes personal liability on each person who is in contravention and any person who engages such construction site supervisor or skilled construction worker who is not accredited and certified by the CIDB. In both instances, on conviction, such person found guilty shall be liable to a fine not exceeding RM5,000.
[1] https://www.cidb.gov.my/eng/tindakan-sekatan-sistem-cims-berkaitan-tuntutan-kad-pendaftaran-personel-binaan-kad-hijau/
Payment of Levy to CIDB
Every registered contractor must declare and submit to the CIDB the contract for any construction works awarded to the registered contractor except where the contract sum does not exceed RM500,000. The failure to declare and submit the contract for construction works is an offence and on conviction, the registered contractor shall be liable for a fine not exceeding RM50,000.
Following from the declaration and submission of the contract with the CIDB, the CIDB will impose a levy, calculated as percentage of the contract sum, before the commencement of construction works by the registered contractor. The failure to pay any levy due to the CIDB is an offence and any registered contractor guilty of such offence shall on conviction, be liable to a fine not exceeding RM50,000 or 4 times the amount of levy payable on the contract, whichever is higher. The amount of any levy payable to the CIDB is recoverable as a civil debt due to the CIDB.
Initially, the levy is calculated by the CIDB as 0.25% of the contract sum. However, the Minister of Works issued an order, Lembaga Pembangunan Industri Pembinaan Malaysia (Imposition of Levy) Order 2024 (P.U.(A) 93/2024) which reduced the rate of levy to 0.125% of the contract sum.[1]
[1] CIDB Imposition of Levy (No.2) Order 2024, https://www.cidb.gov.my/wp-content/uploads/2024/04/PUA-93-2024.pdf
Safety
In Malaysia, there is an overlap of jurisdiction in respect of ensuring safety in construction between the CIDB and the DOSH.
The official statistics published by the Department of Occupational Safety and Health Malaysia (DOSH) indicate that the construction industry continues to present significant occupational safety risks. Based on national occupational accident data for 2023, the construction sector recorded 5,379 occupational injury cases and 88 fatal injuries, making it the single largest contributor to workplace fatalities in Malaysia. These figures underscore persistent deficiencies in workplace safety practices within the construction industry, which are commonly attributed to weak safety culture and continued non-compliance with the Occupational Safety and Health Act 1994 (“OSHA”).[1]
The OSHA applies to the construction industry throughout Malaysia. Under the OSHA, every employer and every self-employed person shall have the duty to ensure, so far as is practicable, the safety, health and welfare at work of all his employees. Some general duties under the OSHA are set out below:
- the provision and maintenance of plant and systems of work that are, so far as is practicable, safe and without risks to health;
- the making of arrangements for ensuring, so far as is practicable, safety and absence of risks to health in connection with the use or operation, handling, storage and transport of plant and substances; and
- to prepare and as often as may be appropriate, revise a written statement of his general policy with respect to the safety and health at work of his employees and the organization and arrangements for the time being in force for carrying out that policy, and to bring the statement and any revision of it to the notice of all of his employees
Construction sites create a risk not only for the construction worker, but also for the public who move around the site or who may live nearby. In this respect, the OSHA imposes statutory obligation on every employer and self-employed person to persons other than their employees. For example, every employer and self-employed is:
- to conduct his undertaking in such a manner as to ensure, so far as is practicable, that he and other persons, not being his employees, who may be affected thereby are not exposed to risks to their safety or health; and
- to give to persons, not being his employees, who may be affected by the manner in which he conducts his undertaking, the prescribed information on such aspects of the manner in which he conducts his undertaking as might affect their safety or health.
OSHA now applies to all places of work throughout Malaysia and the statutory framework has been strengthened in several material respects. For example there is a specific duty imposed on principals in relation to contractors and sub-contractors working under their undertaking, an express duty to conduct and implement a risk assessment has been introduced which requires the identification of safety and health risks and the implementation of appropriate controls. Furthermore, the Act recognises the right of employees to remove themselves from imminent danger without detriment. Correspondingly, the penalty regime has been enhanced where the previous ceiling was a fine up to RM50,000 or imprisonment up to two years or both, the amended Act now provides for fines up to RM500,000.00 with imprisonment up to two years where applicable.[2]
Besides the general provisions under the OSHA, pursuant to Section 66(1) and (2)(b) of the OSHA, the Human Resources Minister may make regulation for or with respect to the safety, health and welfare of persons at work in order to achieve the objects of the OSHA including prescribe the requirements with respect to design, construction, guarding, siting, installation, commissioning, examination, repair, maintenance, alteration, adjustment, dismantling, testing, marking or inspection of any plant. Some of the guidelines pertinent to construction are the Guidelines on Occupational Safety and Health in Construction Industry (Excavation Work) 2017, Guidelines of Occupational Safety and Health in Construction Industry 2017, Guidelines for Approval of Design Scaffolding 2016, Guidelines for Public Safety and Health at Construction Sites 2007, Guidelines for the Prevention of Falls at Workplaces 2007, Guidelines on Trenching for Construction Safety 2000 and Guidelines on Occupational Safety and Health in Tunnel Construction.
In addition to the OSHA, there are also provisions under the Uniform Building By-Laws 1984 which are relevant to safety standards of buildings, particularly fire safety.
[1] Ministry of Economy, Department of Statistics Malaysia, Occupation Accident, https://www.dosm.gov.my/portal-main/release-content/big-data-analytics-national-occupational-injury-and-disease-statistics-
[2] Section 19 of Occupational Safety and Health Act 1994
Quality Assessment System in Construction (QLASSIC)
Workmanship quality of a building construction work is vital for the industry players and the end-users of the construction work. Hence, industry players have been urged to adopt a quality-centric mindset to ensure quality of one’s workmanship and earn the public’s confidence in the quality of their construction work.
The CIDB had consistently called upon the industry players to submit their projects to be assessed according to the QLASSIC. One of the targeted key outcomes under the Quality, Safety and Professionalism strategic thrust of the CITP 2016-2020 was to achieve more than 50% of public projects to exceed the acceptable QLASSIC score. The CIDB went as far as signing a MOU with Bank Pembangunan Malaysia Berhad (“the BPMB”) in August 2018. Pursuant to the MOU, future infrastructure projects financed by the BPMB will undergo QLASSIC assessment progressively while the CIDB will provide QLASSIC training to enhance knowledge amongst the BPMB staffs.
Following CITP 2016–2020, CIDB introduced the Construction 4.0 Strategic Plan 2021–2025, which serves as the current national roadmap for transforming the Malaysian construction industry. The adoption of new technologies such as Cloud Computing, Mobile Information, Data Analytics, Artificial Intelligence, Augmented Reality and 3D printing is intended to enhance project coordination and collaboration, as well as to achieve higher productivity, better safety and a more sustainable approach. These initiatives complement and reinforce QLASSIC’s objective of systematically assessing and improving workmanship quality in construction projects.
In March 2019, the Ministry of Works had reiterated (in the National Housing Policy 2.0 (NHP2.0)) its commitment to making QLASSIC certification mandatory for all upcoming developments.[1] However, as of date, QLASSIC is not yet formally mandatory in practice and the CIS 7:2021 standard itself explicitly states that compliance with the standard is voluntary and does not of itself confer immunity from legal obligations.
Pursuant to the above, QLASSIC is a system and method to assess and evaluate the quality of workmanship of building projects based on the Construction Industry Standard (CIS 7), through a scoring system. [2] QLASSIC had categorised buildings to be assessed into these 4 categories, namely:-[3]
- Category A (Landed housing) – Detached, semi-detached, terrace and cluster houses.
- Category B (Stratified housing) – Flats, apartments, condominiums, service apartments, small office home office (SOHO) and town houses.
- Category C (Public/commercial/industrial buildings without centralised cooling system) – Office buildings, schools, factories, warehouses, workshops, hangers, small office flexible office (SOFO), small office virtual office (SOVO), religious buildings, stadiums, community halls, hospitals, airports, universities, colleges, police stations, etc.
- Category D (Public/commercial/industrial buildings with centralised cooling system) – Office buildings, schools, factories, warehouses, workshops, hangers, SOFO, small office virtual office (SOVO), religious buildings, stadiums, community halls, hospitals, airports, universities, colleges, police stations, etc.
Marks will be awarded if the workmanship of the building complies with the standard under the QLASSIC. These marks will subsequently be used to calculate the QLASSIC score of the building. Since its inception, the average national QLASSIC score rose from 69% in 2014 to 72% in 2020, signifying increased inclination of quality of workmanship among the industry stakeholders.[4]
[1] https://www.nst.com.my/business/2019/03/471636/works-ministrymake-qlassic-certification-mandatory-2020-onwards
[2] https://www.cidb.gov.my/wp-content/uploads/2023/08/PREVIEW-CIS7_2021.pdf
[3] https://www.cidb.gov.my/kualiti-qlassic-quality-assessment-system-for-building-construction-works/
[4] https://smart.cidb.gov.my/my-MS/article/mark-of-workmanship-quality-qlassic-43
Adjudication under Construction Industry Payment and Adjudication Act
Timely payment and proper cash flow are perhaps the two most important issues faced by players in the construction industry. The Construction Industry Payment and Adjudication Act 2012 (“CIPAA”) came into force in Malaysia on 15 April 2014. One of the key features of the CIPAA is the facilitation of regular and timely payment through an adjudication mechanism.
The adjudication mechanism under CIPAA is administered by the Asian International Arbitration Centre (“AIAC”). The AIAC describes adjudication as a summary procedure for resolution of disputes under a construction contract. It allows a party who is owed monies under a construction contract (the claimant) to have the disputes resolved with the non-paying party (the respondent) in a quick and cheap manner. Disputes which may be referred to adjudication under the CIPAA must only relate to payment for work done and services rendered under the express terms of a construction contract. Adjudication is a statutory right in that any party to a construction contract who is neither excluded nor exempted under the CIPAA has the right to resort to adjudication for an interim solution.
The Construction Industry Payment and Adjudication (Amendment) Act 2024 (“Amendment Act”), which came into effect on 1 January 2026, amended certain provisions of CIPAA, including updating institutional references to formally reflect the Asian International Arbitration Centre’s (“AIAC”) structure and its change of name from the Kuala Lumpur Regional Centre for Arbitration (KLRCA). Accompanying the Amendment Act is the Construction Industry Payment and Adjudication (Amendment) Regulations 2025, gazetted on 13 October 2025 and also in force from 1 January 2026, which introduce consequential regulatory updates under CIPAA.
In addition to introducing an adjudication mechanism, the CIPAA also prohibits the enforcement of conditional payment provision in a construction contract. Under Section 35(2) of the CIPAA, conditional payment provisions are clauses which provide that:
- the obligation of one party to make payment is conditional upon that party having received payment from a third party; and
- the obligation of one party to make payment is conditional upon the availability of funds or drawdown of financing facilities of that party.
Thus, the CIPAA removes the pervasive and prevalent practice of ‘pay when paid’, ‘pay if paid’ and ‘back to back payment’ which have sometimes caused standstills in construction projects and even insolvencies of parties involved in the construction projects.
It is to be noted that the Court of Appeal in SPM Energy Sdn Bhd & Anor v Multi Discovery Sdn Bhd [2025] MLJU 515 held that the prohibition of conditional payment clause under Section 35 of CIPAA 2012 is not limited to adjudication proceedings but applies to disputes before courts and in arbitral proceedings as well.
AIAC’s published statistics demonstrate the continued utilisation of adjudication under CIPAA. According to the AIAC CIPAA Statistics Report 2023, covering 15 April 2021 to 14 April 2023, a total of 523 cases were registered in the fiscal year 2022 to 2023, with 249 adjudication decisions released in that year alone. Since the implementation of CIPAA in 2014, a cumulative total of 4,727 adjudication matters has been registered with AIAC. The analysis of the statistics on adjudication by the AIAC shows that there has been a remarkable rise in adjudication since the implementation of the CIPAA, indicating that the construction industry embraces the statutory mechanisms of the CIPAA.
The success of the regime under the CIPAA is also facilitated by the Malaysian judiciary. The Malaysian Courts are interpreting the CIPAA in its context as an interim solution to resolve the cash flow problem in the construction industry and approaching adjudication decisions as being ‘binding but not final’. As such, the Malaysian Courts have been reluctant to interfere with the decisions of an adjudicator by setting aside the adjudication decisions save and except on the limited ground expressly set out in Section 15 of the CIPAA which includes that the adjudication decision was improperly procured through fraud or bribery, there was a denial of natural justice, and/or that the adjudicator had not acted independently or impartially and/or was in excess of his jurisdiction.
The CIPAA does not apply to construction contracts entered into prior to 15 April 2014. The Federal Court of Malaysia has recently ruled that the CIPAA only applies prospectively. In other words, it only applies to construction contracts entered into subsequent to the CIPAA coming into force on 15 April 2014.[1]
[1] Federal Court Decision in Ireka Engineering & Construction Sdn Bhd v. PWC Corporation Sdn Bhd [2019] 1 LNS 1567 ; Jack-In Pile (M) Sdn Bhd v Bauer (M) Sdn Bhd and another appeal [2020] 1 MLJ 174
For more information, click here to read more Doing Business Guide.
Notice
The contents of this Guide are owned by CLO and subject to copyright protection under the laws of Malaysia and, through international treaties, in other countries. No part of this Guide may be reproduced, licensed, sold, published, transmitted, modified, adapted, publicly displayed, broadcast (including storage in any medium by electronic means whether or not transiently for any purpose) without the prior written permission of CLO.
Please note also that whilst the information in this Guide is correct to the best of our knowledge and belief at the time of writing, it is only intended to provide a general guide to the subject matter and should not be treated as a substitute for specific professional advice for any particular course of action as such information may not suit your specific business or operational requirements. It is to your advantage to seek legal advice for your specific situation.
Disclaimer
Rajah & Tann Asia is a network of member firms with local legal practices in Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. Our Asian network also includes our regional office in China as well as regional desks focused on Brunei, Japan and South Asia. Member firms are independently constituted and regulated in accordance with relevant local requirements.
