Construction Industry Payment and Adjudication Act

One other issue that was also touched on in the BIPC meeting held on 22 August 2011 was on the proposed Construction Industry Payment and Adjudication Act (CIPAA). On the said matter, the construction industry has been and is still fraught with payment problems, i.e. late payment, under payment and non-payment.  Consequently, in the early 2000’s, forums and discussions were held to resolve the issue.  By the end of 2005, the CIDB under the Ministry of Works formed a task force to formulate the CIPAA.  The objectives are to facilitate regular and timely payment, provide a mechanism for speedy dispute resolution through adjudication and provide remedies for receiving of payment.  The CIPAA formulated by the CIDB task force however, encountered opposition from the Bar Council and Malaysian Institute of Arbitrators. The Attorney General had in September 2010 himself issued two (2) directives, i.e. adjudication is confined to progress payment disputes and KLRCA is charged with nomination of adjudicators. 

In the midst of the concerned developments over the aforementioned issue, KLRCA too came out with its own proposed CIPAA. In gist, KLRCA’s proposed CIPAA, amongst others, seek to exclude consultancy and construction supplies contracts from the coverage of CIPAA, apart from excluding oil and gas, defense and low rise owner occupied residential construction projects.  In addition it seeks to exclude construction contract not made in writing as well as confining adjudication under the CIPAA to only progress payment disputes.  Apart from that, it seeks to negate the right to a dispute to adjudication if the same subject matter between parties is commenced in court or arbitration.  The Ministry of Works too does not appear to have a role to supervise the implementation of CIPAA.

However, the stand of BIPC is that the Ministry of Works’ proposed CIPAA should be accepted. We consider that it is a compromise, after taking into account the experiences and views as well as consensus of the construction industry stakeholders. On the progress, we took note that the matter has been referred to the Chief Secretary to the Government (as the PEMUDAH Chairman) through a letter dated 5 August 2011 sent by REHDA.  The letter requested the assistance of the Chief Secretary to help finalize and approve CIPAA (as amended from the Ministry of Works’ version), and to date there has yet to be a reply to the said letter.

Visit to Johor Branch

One of the matters that require needful attention is the state of affairs of RISM branches.  This had been raised by some Councillors in the previous sessions’ Council meetings as well as in the last RISM Annual General Meeting on 25^th June 2011.  The need for secretariat staffs, proper office space and premise are among the issues raised, but in the final analysis it apparently boils down to money matters in providing the concerned resource and facilities.

In conjunction with attending the invitational annual dinner of SISV in Singapore on 9^th September 2011, I and the Treasurer General had subsequently made a visit to the Southern Branch on 10^th September 2011, to better appreciate Branch operations. We were hosted to the visit by some of the Branch Excos including the Branch Chairman himself. From my observation, the office is something which the branch could be proud of – clean and orderly – a reflection of it being well taken care of.  If only other “deprived” Branches could have at least the kind of office space and facilities, then I believe there wouldn’t be much of a grouse coming from some of them, but obviously much has to be done to own such an office space.

Next, we visited the new office space that will be taken up at Universiti Teknologi Malaysia (UTM) in Skudai.  This is located in a bungalow and is well placed to conduct professional activities of the branch, the only flaw probably being its distance from Johor Bahru city centre, where many Exco members probably reside.  Anyway, its proximity to UTM would certainly attract the attention and interest of students, which should be one of the target groups of RISM.  It would also appear timely for the Johor Branch office to be moved to the UTM campus, whilst income could be generated by renting out the existing office space in Johor Bharu.

The Johor Branch apparently has clearly lined up their activities for the 2011/2012 session. This should be applauded as it evidently is very well-planned.  The finances too is in very good shape as the branch had carried out and had meticulously plan to undertake income generating activities.  These without doubt were among the good practices which could serve as a model for other branches to adopt as well. In a nutshell, the Johor Branch has done well, and I hope they could at least sustain this, whilst endeavouring to move forward.

Building Industry Presidents Council Meet

            I had chaired the BIPC (Building Industry Presidents Council) meeting on 22 August 2011, upon request for having one from the BIPC Secretariat, to discuss issues affecting the industry. There were 5 issues tabled and discussed, i.e. on:

·       Construction Industry Payment and Adjudication Act

·       Role of Malaysian Service Providers Confederation (MSPC)

·       Joint Response for the Amended CIDB Act

·       Federal Agency on Housing

·       Build Then Sell (BTS) Concept

The issues on BTS Concept and role of MSPC had to be referred to the RISM Council for a stand to be adopted by RISM. This was made during the 2^nd RISM Council Meeting on 25 August 2011.

On the role of MSPC, MBAM (Master Builders Association of Malaysia) had raised their concern over the lack of effectiveness of MSPC (in which RISM is a member as well).  The main criticism was that MSPC did not perform its role of mobilizing service providers to prepare for the full liberalization of services. Thus, it was felt that BIPC should withdraw its membership from MSPC and that members of BIPC should have a common stand on this matter.

Evidently, there are two sides of the coin.  On the one hand, if withdrawal of membership is made, RISM would no longer need to pay the yearly subscription to MSPC. Additionally, concerns regarding the liberalization of professional services could be taken up through our own (RISM), as well as through BIM (in which we are also a member; noting that our Past President John Loh, is currently President of BIM).  Furthermore, the large scope of services covered by MSPC, including in business and professional, logistics, ICT, construction, education and training, environmental, healthcare, advertising, tourism and distributive trade services had rendered it ineffective, as a platform in formulating common strategies to deal with government. On the other hand, with continued membership, RISM could have another avenue to channel its grievances, at a cost of paying annual membership fee, which is not that very significant.

After due deliberation by the Councillors in its 2^nd RISM Council Meeting, it was decided that the proposal made by MBAM be supported and that withdrawal from MSPC be made en bloc by BIPC and its members.

As known to many, the BTS is a new concept introduced by government where housing developers have to complete a housing project before selling it to buyers.  The concept is supposed to be a panacea to prevent the incidence of abandoned projects to the detriment of buyers. The Ministry of Housing and Local Government has announced that the BTS implementation, as a sole system in housing development, will be made mandatory by 2015 despite objections from many parties, including REHDA. This issue was discussed at the BIPC Meeting to seek the possibility of BIPC coming up with a joint stand of objecting the government’s decision.

The BTS approach in fact is not entirely sound.  While it protects consumers from being stuck in case a development project is abandoned, it however cannot prevent a development project from being abandoned in the first place. Risks associated with property development would still exist with or without BTS approach.  These include increases in project cost, capacity of contractors, etc.  Under the BTS approach, the developer does not receive progressive payment from end-financiers and therefore requires higher financing from the bridge-financier in order to fund the project.

In the absence of progressive payments from end-financiers, it means that the developer would most likely require higher bridge-financing to complete the project.  To lessen the likelihood of project abandonment, the financier would most likely fund only experienced developers with adequate financial strength.  This invariably means that smaller developers would have great difficulty obtaining financing for a BTS project. The higher risk of financing a BTS project too can mean that the bridge-financier will increase its loan pricing. Since the purchaser/end-financier no longer part-finances the project construction, the developer would most likely pass this higher financing cost to the purchaser.

Furthermore, under the BTS approach, the developer has to shoulder the bulk of project financing.  This will likely lead to a smaller number of projects being launched as well as reduce the quantum involved given the smaller scale of launches.  On the whole, the aforementioned situation could lead to a higher price of houses that may be beyond the means of many.

Considering the above scenario and the fact that there maybe the introduction of an insurance scheme to protect house buyers in the case of abandoned projects, the 2^nd RISM Council Meeting had then decided that RISM take a position that the current practice of two systems, i.e. BTS and STB (Sell Then Build) be continually allowed to exist side by side.

WISHING YOU ALL SELAMAT HARI RAYA AIDILFITRI. MAAF ZAHIR & BATIN.