Lets talk Payment Recovery When the Movement Control Order is - - PowerPoint PPT Presentation

Let’s talk ‘Payment Recovery…’

When the Movement Control Order is lifted, the full extent of its impact on the construction industry will begin to surface. Cashflow constraints is

• inevitable. This may lead to payment disputes. Professionals in the

construction industry are not immune to payment disputes. A survey within the industry already shows hundreds in millions of ringgit in outstanding professional fees. The MCO and its attendant impact on the construction industry may make this problem more acute.

Is this a wider industry problem?

Today we will § look at what has caused the build up of outstanding professional fees; § what are the best practices in the industry that may avoid these circumstances; § examine the remedies available to the practitioners on a construction project for recovery of the outstanding payments.

• Ar. Anthony Lee Tee

Group Chief Operating Officer and Transformation Officer Bina Puri Holdings Berhad

• Ar. Anthony Lee Tee has been a Registered Practising Architect since 1995, and

continues to practice as an Accredited Architect, Independent Building Inspector, Forensics Building Inspector and Certified Trainer. He is a director of Architect Centre Sdn Bhd. He has 30 years’ experience in project coordination and in bridging communication with foreign-based client, consultants and with Japanese, Korean, Malaysian, Australian, India and Chinese contractors/sub-contractors. He is involved in projects in Thailand, Brunei, Sabah and Sarawak. Anthony’s experience has seen him being appointed as an expert witness in numerous dispute resolution matters in and outside Malaysia, including in international arbitrations. Anthony has now taken on the position as the Group Chief Operating Officer and Transformation Officer of Bina Puri Holdings Berhad. He oversees the entire operations for the Bina Puri Group of Companies, particularly its property and construction

• businesses. In this position, Anthony sees the impact of disputes on an industry player

and appreciates the importance of a competent and efficient dispute resolution process. Having been on the side of a claimant as well as a respondent in a number of dispute resolution processes including CIPAA adjudications, Anthony has experienced the benefits and disadvantages of dispute resolution processes first-hand.

• Mr. Foo Joon Liang

FCIArb Partner, Gan Partnership Advocate & Solicitor High Court of Malaya Foo Joon Liang is a partner at Gan Partnership, a firm he co-founded in 2011. He is a Fellow of the Chartered Institute of Arbitrators (CIArb), United Kingdom and is presently the Chairman of the Malaysian Branch of CIArb. He sits on the panel of arbitrators and adjudicators of the Asian International Arbitration Centre (AIAC) and is one of the first 10 Malaysian appointees to the panel of arbitrators of the Hainan International Arbitration

• Court. He is listed as a Future Leader in Construction by Who’s Who Legal.

Since his admission to the Malaysian Bar in 2000, Joon Liang has held an active dispute resolution portfolio in litigation, arbitration, and adjudication. He regularly appears as a counsel at all levels of Malaysian courts as well as in domestic and international

• arbitrations. In the past 10 years, his focus has largely been on construction dispute

resolution and advisory. His forte is in complex engineering and geotechnical matters, particularly in engineering failures and collapses. He is also involved in disputes involving power plants and the full spectrum of other construction and infrastructure

• issues. His recent matters include the first Construction Industry Payment & Adjudication

Act 2012 (CIPAA) decided at the Malaysian apex court, the highly publicised hill slope failure that led to a State Commission Inquiry, and a series of disputes arising from the collapse of a bridge which involved leading engineering experts from Europe and Asia.

MCO Impact Survey

28-31 March 2020

MCO Impact Survey

28-31 March 2020

In your experience, how important recovering overdue payments in maintaining good cash flow?

RM500mi

l

CONTRACT VALUE

$ time

This is a standard S-Curve for a 3yr Construction Work

RM500mi

l

CONTRACT VALUE

RM450mi

l

COST OF CONST.

Point of Break Even?

$ time

This the S-Curve for the construction cost

mirrored negative chart earned value to positivity over time.

Workings of Construction cash flow 1) Preliminary Expenditure 2) Outflow to generate work done 3) Further Outflow to generate work done 4) First outflow claim only to receive 2mth later

RM500mi

l

CONTRACT VALUE

RM450mi

l

COST OF CONST.

RM50mil

PROFIT. Cost & Earning

• ver project

duration First Moiety (2.5%) Release

Point of Break Even?

$ time

The yellow sink indicate nearly ¾

• f construction period where

contractor in negative cash-flow.

RETENTION SUM 5%

$ COST

$ COST

Variation Order

The yellow sink indicate nearly ¾

• f construction period where

contractor in negative cash-flow.

RM550mi

l

CONTRACT VALUE

RM495mi

l

COST OF CONST.

RM55mil

PROFIT. Cost & Earning

• ver project

duration

$ time

Contractor pays 1st with their own money to execute VO, while waiting for VO to be reflected in the progress claim. The yellow sink indicate nearly ¾

• f construction period where

contractor in negative cash-flow.

$ COST

RM50mil

PROFIT. Cost & Earning

• ver project

duration

$ time

RM550mi

l

CONTRACT VALUE

RM495mi

l

COST OF CONST.

The yellow sink indicate nearly ¾

• f construction period where

contractor in negative cash-flow. Contractor pays 1st with their own money to execute VO, while waiting for VO to be reflected in the progress claim.

$ COST

This delay certification will lengthen the negative yellow sink beyond the construction period.

$ COST

DLP : 12mth

HC

COA

FC

Minimum vs Extended CIPAA

90d

EMPLOYER

CONTRACTOR

What are the key strategies and procedures in debt recovery?

Court / Arbitration / Adjudication? q What is the complaint – cause of action? q What remedies are being sought? q What is the most effective manner to achieve such remedies? q Any interim preservation steps required?

Key considerations for debt recovery

What are the options available for debt dispute resolution?

q Time frame § High Court § Subordinate Courts § Appeals The Courts

How about Arbitration? What is arbitration? § Mode of alternative dispute resolution § Private arrangement / mechanism for the resolution of disputes

Benefits of an Arbitration Arbitration v Litigation q Timelines q Cost q Autonomy of parties q Enforcement of Awards

What is Adjudication? q An interim measure to resolve contractual disputes under a written construction contract; q Complements other modes of dispute resolution (e.g. litigation, arbitration); q Manages disputes; q Decision within a short period.

CIPAA 2012

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 " - s.2, CIPAA § "construction contract" - means a "construction work contract or construction consultancy contract” § need the contract be in writing?

"construction work contract " defined: "means a contract to carry out construction work" - s.4, CIPAA "construction work" defined:

"means 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 ground level; b) Any road, harbour works, railway, cableway, canal or aerodrome; c) Any drainage, irrigation or river control work; d) Any electrical, mechanical, water, gas, oil, petrochemical or telecommunication work; or e) Any bridge, viaduct, dam, reservoir, earthworks, pipeline, sewer, aqueduct, culvert, drive, shaft, tunnel or reclamation work, and includes – (A) Any work which forms an integral part of, or are preparatory to or temporary for the works described in paragraphs (a) to (e), including site clearance, soil investigation and improvement, earth-moving, excavation, laying of foundation, site restoration and landscaping; and (B) Procurement of construction materials, equipment or workers, as necessarily required for any works described in paragraphs (a) to (e)" - s.4, CIPAA

"construction consultancy contract " defined: "means a contract to carry out consultancy services in relation to construction work and includes planning and feasibility study, architectural work, engineering, surveying, exterior and interior decoration, landscaping and project management services" - s.4, CIPAA "carried out wholly or partly within the territory of Malaysia“ – s.2, CIPAA Does CIPAA apply to a project in Pakistan between foreign parties, where engineering design is done in Malaysia?

10 days • Payment Claim 10 days • Payment Response

5 /

10 days

• Notice of Adjudication / Appointment of Adjudicator

10 days • Adjudicator to accept appointment 10 days • Adjudication Claim 10 days • Adjudication Response 5 days • Adjudication Reply (if any) 45 days • Adjudication - decision

[circa 100 days from commencement to decision]

Timelines

Enforcement of the adjudicator’s decision § Binding until set aside – s.13, CIPAA § Register in the High Court; enforced as a High Court judgment - s.28, CIPAA § Right of successful party to suspend works if adjudicated sum not paid - s.29, CIPAA § Direct payment from principal - s.30, CIPAA

Adjudication v Arbitration / Litigation

Adjudication Arbitration / Litigation

• Speedier – within weeks / months
• Lengthier – a more complete process
• Pay first, argue later – eases cash flow for

contractor / sub-contractor

• May potentially be a burden to the Employer
• Relatively taxing on parties’ finances,

especially in a situation where the contractor / sub-contractor is not paid / under-paid

• Less time available for evidence and

deliberation

• The traditional modes of adducing evidence,

examination of witnesses, etc generally would apply

• More comprehensive in terms of evidence

production

• Rough justice
• Higher possibility for errors / inaccuracies
• A more considered and informed decision
• Decision is intended to be interim; can be

reopened in a later arbitration / litigation

• Arbitration – generally, the decision would be

final; limited avenues for challenge.

• Litigation – avenues for appeal provided by

legislation

Adjudication v Arbitration / Litigation

Adjudication Arbitration / Litigation

• Manages brewing disputes
• Usually arises only when disputes are full-blown
• Mostly inquisitorial – allows for a more level

playing field

• Adversarial – depends largely on the competency
• f advisors and counsel
• Operation by statute – parties can be compelled to

adjudicate; no consent required

• Arbitration – only by agreement; cannot be

compelled

• Litigation – can be compelled; but in technical

matters, the court may not have the necessary expertise / experience

• Disciplines consultants
• Exposes consultants to professional liability vis a

vis the Employer

• The impact of under / over certification by

consultants likely to be felt less

• Confidential
• Confidential

Some statistics

• Number of CIPAA cases registered:
• As of 2014 – 29 cases
• 2015 – 181 cases
• 2016 – 447 cases
• 2017 – 704 cases
• 2018 – 772 cases
• As of 15.04.2019 – 229 cases

* source – AIAC’s CIPAA Statistical Report 2018

More statistics

Claimed Amount (RM)

• No. of cases from

16/04/2018 to 15/04/2019 Exceeding 15,000,000 42 10,000,001 - 15,000,000 15 5,000,001 - 10,000,000 42 3,300,001 - 5,000,000 41 2,800,001 - 3,300,000 23 2,300,001 - 2,800,000 20 1,800,001 - 2,300,000 25 1,300,001 - 1,800,000 57 800,001 - 1,300,000 76 300,001 - 800,000 165 150,001 - 300,000 96 Up to 150,000 162

Total 764

* source – AIAC’s CIPAA Statistical Report 2018

What are the tips to avoid bad debt reoccurring?

q Due Diligence on Employer q Proper Letter of Engagement q Know your Business & Profession q Charge Your Worth - strict on payment terms q Paperwork & Documents

Ethics & Professionalism

(Knowledge and Competence)

In Serious Decline ?

(forced discounted (unpaid*) Fees & reduced Scope of Architects)

‘Contract Administrators

(operating in Malaysia)

within a dispute prone industry due to fragmented and adversarial nature’

(Cheung and Yin 2007, Chong and Rosli 2009)

How to negotiate payment terms with clients?

Possible Payment Terms

An upfront deposit with milestone payments

• Deposit refundable?
• Milestones within your knowledge and control

Failing agreement, CIPAA s.36

• Frequency of payment
• Rate

Right to suspend works

How efficient can it be to have inhouse trained personnel to collect

• verdue payments ?

A dedicated debt collector? § Be real. Are you a professional or a business man? § Good cop v Bad cop § How much is outstanding? How much is a “debt collector’s” salary?

The AIAC’s CIPAA Statistical Report 2018

For the Claimant:

• 49.0% of Claimants were presented by law firms
• 24.7% of Claimants were represented by adjudication consultants
• 24.3% of Claimants were either unrepresented or self-represented
• 2% of Claimants were either represented by individuals or other types
• f representatives.

For the Respondent:

• 75.4% of Respondents were either unrepresented or self-represented,
• 23.4% of Respondents were represented by law firms, and the

remaining

• 1.2% of Respondents were either represented by the Attorney

General’s Chambers or by individuals.

Consider these: q Relationship with the clients – burning a bridge? q Benefits of professional advice q One-stop shop

KISAH BENAR

How to strike a balance between keeping clients warm and chasing

• verdue payments?

q Good clients q Good clients in bad times q Pro bono clients q Clients you don’t want

Might this be the answer?

Thank you