Security of Payment in Malaysian Construction Industry: Issues on Sub-Contract's Direct Payment

Abstract

In Malaysia, sub-contractors have to bear with the current structure of payment mechanisms in the standard forms of contract, which are payment upon certification, direct payment from the employer, and contingent or conditional payment. However, "direct payment" provision is applied for in most of the nominated sub-contracts and not to the domestic sub-contractors; thus the Construction Industry Payment and Adjudication (CIPA) Act is proposed. This paper, though, is to disclose the findings on legal cases and sub-contractors" perspective on direct payment, by preliminary analyzing the quantitative questionnaire survey to the first 81 from the identified 1,500 sub-contractors throughout the country. Before that, from 186 cases, only 5 selected cases are analysed that thoroughly addressed the judgment of direct payment. It is found out that the particularly small sized subcontractors are definitely need to enhance their knowledge of the so-called the "Security of Payment" Regime to benefits from the proposed Act.

Determining Critical Contributory Factors of Payment Default in Residential Construction Projects

“…The findings of this study are in line with the results from the previous research in which standard forms of contract, and implementation of CIPAA 2012 were the effective ways to remedy the payment default issues (Judi & Rashid, 2010;Supardi et al, 2011;Din & Ismail, 2014). However, based on the findings of this study, most of the respondents agreed that standard forms of contract is the most effective ways to remedy the issues due to they are lack of the knowledge in implementing of CIPAA 2012.…”

“…Unfortunately, there were two (2) sets of questionnaires was not valid to be used for further analysis. According to Saunder, Lewis & Thomhill (2009), the total number of respondents which exceeding thirty (30) respondents are adequate to obtain desire information for the study (Saunder et al, 2009).…”

“…Besides that, according to the pilot test results, the respondents also agreed that payment bonds was the effective remedies for the payment issues and also is what they practicing in the current construction industry. Furthermore, Supardi, Adnan & Mohammad (2011) also cited that payment bonds was one of the effective remedies offered to contractor to remedy the payment issues (Supardi et al, 2011).…”

“…Nevertheless, according to Supardi, Adnan, & Mohammad (2011), the payment bonds is the one of the best remedies offered to contractors. Moreover, the performance bond that the contractors have to give to the developer, the contractors also has to provide payment bonds to their sub-contractors, and suppliers (Supardi et al, 2011).…”

Impact Factors on Subcontractor's Cash Flow Management

“…The project's success depends upon delivery on contracted time, budget, and quality which require effective management decisions regarding budget and cash flow [10,11]. A project contract is a tool that binds the owner and contractor, provides rules and guidelines for the parties involved to cooperate, describes the work scope and the main contractor's responsibility to provide services, and in return, the owner provides compensation for the services received, in the form of money [12,13]. Subcontractor firms' financial performance success in the construction sector relies upon several factors, including subcontracting agreements, cash inflows, and outflows.…”