Construction

(1) Who needs to register with the Construction Industry and Development Board (CIDB)?

Since 20 July 1995, it is mandatory for all contractors (both local and foreign construction companies) to register with the CIDB before undertaking construction works in Malaysia. Without such registration, the construction company cannot accept or conduct any construction works in Malaysia.

“Construction works” refers to the construction, extension, installation, repair, maintenance, renewal, removal, renovation, alteration, dismantling, or demolition of:
(a) Any building, erection, edifice, structure, wall, fence or chimney, whether constructed wholly or partly above or below the ground level;
(b) Any road, harbour works, railway, cableway, canal or aerodrome;
(c) Any irrigation, drainage or river control works;
(d) Any electrical, mechanical, water, gas, petrochemical, or telecommunication work; or
(e) Any bridge, viaduct, dam, reservoir, earthworks, pipeline, sewer, aqueduct, culvert, drive, shaft, tunnel, or reclamation works.

The definition also includes any works which form an integral part of, or are preparatory to or temporary for the works described in paragraphs (a) to (e) above, including site clearance, soil investigation and improvement, earth-moving, excavation, laying of foundation, site restoration and landscaping.

(2) Who is CIDB?

CIDB is a national body established under Lembaga Pembangunan IndustriPembinaan Malaysia Act 1994 (Act 520) to oversee the sustainability and growth of construction enterprises across the country.

(3) How do I register as a contractor with the CIDB?

There are two ways to register as a contractor with CIDB:
(a) via the CIDB website; or
(b) use the “Contractor Registrations Requirements and Procedures” guidebook and Registration Application Form (R1). Each form costs RM5, and are available at all CIDB offices.
Please note that companies are able to access CIDB’s online registration portal at http://smb.cidb.gov.my/. However, the option of manual registration is still available at the counter at CIDB’s office.
There are two broad categories of CIDB registration:
(a) registration as a local contractor; and
(b) registration as a foreign contractor.

For the purposes of CIDB registration, a ‘local contractor’ is loosely defined as a Malaysian incorporated company with a Malaysian equity holding of 70% and above, whilst a ‘foreign contractor’ is loosely defined as either a foreign incorporated company or Malaysian incorporated company with a non-Malaysian equity shareholding of more than 30%.

(4) What about the registration of a foreign company?

CIDB only allows the registration of a Foreign Contractor on a project basis and based on the invitation of tender in which the companies wishes to tender for. A Foreign Company is not permitted to tender for any project without firstly obtaining a provisional registration certificate from CIDB.

A Foreign Contractor must firstly obtain a provisional registration certificate for the tender period before it is allowed to tender for a project in Malaysia.

(5) Are there any registration criteria that need to be complied with before registration with the CIDB?

Yes. Below are, amongst others, the general criteria required by the CIDB before a company is eligible for registration as a foreign contractor:
(a) registration with the CCM;
(b) a work offer letter/ invitation to tender in Malaysia;
(c) the employment of two Malaysian citizens holding a Malaysian accredited Malaysian degrees related to construction and one of those two employees must have more than five (5) years of experience in the construction industry;
(d) financial reserves of a minimum of RM750,000; and
(e) a track record displaying relevant construction experience.

(6) Would one need to register a consortium or joint venture?

Yes. A joint venture/consortium that is awarded any construction project is required to be registered with CIDB as a joint venture/consortium. As with individual registration, registration as a joint venture is divided into registration as a local joint venture or registration as a foreign joint venture.

To register as a local joint venture, the parties must have an agreement to complete a project where all the joint venture members are local contractors or where a local contractor is contracted to complete at least 70% of the whole project, the joint venture must have a letter of offer or an agreement to complete a project and at least one contractor within the joint venture must already possess a valid CIDB registration certificate.

A foreign joint venture will typically mean a joint venture involving only foreign contractors. However, where the joint venture includes both local and foreign contractors and a foreign contractor is contracted to complete more than 30% of the project, then the joint venture of which it is a member will also be classified as a foreign joint venture. A foreign joint venture must adhere to the prerequisites to foreign contractor registration as set out in Item 5 (Registration Criteria) above.

(7) What are some of the common standard forms of contract used in Malaysia?

The principal standard forms in common use in the Malaysian Construction Industry include those published by the various institutions e.g. the Institution of Engineers Malaysia (“IEM”) for engineering contracts and the PertubuhanAkitek Malaysia (“PAM”) for architectural/superstructure contracts.

For public sector contracts, the Public Works Department (“JKR”) has drafted and published an employer’s specific ‘standard’ set of forms of contract. The CIDB has also issued a standard form of contract for building works.

Some of these standard forms include a Main Contract Form and one for Nominated Sub-Contractor/Supplier. These forms of contract may be used as published, but they are frequently amended.

(8) What are, amongst others, the usual methods of contract procurement adopted in Malaysia?

The usual methods of contract procurement in Malaysia are:

(a) Traditional Procurement Contracts,
(b) Design and Build Contracts, and
(c) Management Contracts.

(9) What are the common dispute resolution methods adopted by parties for construction disputes in Malaysia?

Traditionally, the usual standard forms of construction contract have favoured the use of arbitration. Arbitration refers to the resolution of a dispute, on a final basis, pursuant to a consensual mechanism under which the disputed will be decided by a private tribunal (usually sole arbitrator) in a similar manner to how a court decides on matters before it. This process takes place as a result of both parties to a contract agreeing to resolve their disputes by way of arbitration. As such, most standard form of construction contracts in Malaysia have an arbitration clause. Parties may agree to an arbitrator or request for an appointment of an arbitrator by the Kuala Lumpur Regional Centre for Arbitration.

Arbitration and litigation are alternatives. Parties may also opt to resolve their disputes by litigating their matter in the local courts. Several specialised construction courts have been set up to deal with construction and engineering disputes. Although most standard forms of contract contain an arbitration clause, parties may agree and choose to resolve their disputes by going to the courts.

Another recent mode of dispute resolution process for construction disputes is statutory adjudication. The Construction Industry Payment and Adjudication Act 2012 (”CIPAA”) came into force on 15 April 2014 which to a large extent imposes a regime of rights and obligations on contracting parties. The main objective of the Act is to attempt to improve cash flow in the construction industry through the creation of a statutory right to periodic or interim payments. The adjudication process is a faster and generally a cheaper mode of resolving payment disputes.

In Malaysia, adjudication may only be commenced by the person who claims to be entitled to progress payments for works done and/or services rendered under a construction contract. Once adjudication is commenced, it would be mandatory for the opposing party to defend the claim. CIPAA expressly allows a dispute in respect of payment under a construction contract to be referred concurrently to adjudication, arbitration or the court.

It should also be noted that the decision of the adjudicator is binding until and unless it is set aside by the High Court, or the subject matter of the decision is settled by a written agreement between the parties, or the dispute is finally decided by arbitration or the court.

(10) Can parties choose to contract out of CIPAA?

No. Section 2 of the Act states that “this Act applies to every construction contract made in writing relating to construction work carried out wholly or partly within the territory of Malaysia including a construction contract entered into by the Government.”

(11) How long does arbitral proceedings last in Malaysia?

The length of arbitral proceedings varies greatly. For a relatively straightforward dispute, it may take up to a year to conclude the arbitration proceedings. In a substantial arbitration involving complex facts, many witnesses and experts and post-hearing briefs, the arbitration could take a much longer period. A reasonably complex arbitration dispute may take between two and three years to conclude.

(12) What is the general attitude of the Malaysian Courts towards Arbitration Awards/Adjudication Decision?

The Malaysian courts are generally supportive of arbitration and the enforcement of arbitral awards and adjudication decisions. Once an arbitral award or adjudication decision is enforced by the High Court as a court judgment, then the beneficiary of the award / decision can enforce the judgment in accordance with the rules on execution of the orders or judgment of the High Court.

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