Can a Contractor Stop Work for Non-Payment in Malaysia?

A contractor does not automatically have the right to stop work simply because payment is late. Unless the construction contract gives a right to suspend, or the contractor has completed the adjudication process and qualifies for the statutory right under section 29 of the Construction Industry Payment and Adjudication Act 2012, stopping work can itself amount to a serious breach of contract.

The practical lesson is therefore to check the contract and the legal route before leaving site or slowing down the works. Non-payment may be a breach by the employer, but that does not necessarily give the contractor an immediate right to suspend performance.

There is no automatic right to suspend work

The starting point under Malaysian construction law is Kah Seng Construction Sdn Bhd v Selsin Development Sdn Bhd [1996] 1 MLRH 600.

The contractor suspended work after payment was withheld. The court held that, in the absence of a contractual right to suspend, the contractor could not simply stop performing its own obligations while keeping the contract alive.

The distinction is important. If the employer breaches the contract, the contractor may have rights to claim the outstanding payment and damages. If the breach is sufficiently serious to amount to repudiation, the contractor may potentially terminate the contract.

Suspension is different. The contractor is saying that the contract remains in force, but that it will temporarily stop performing its obligations. Unless there is a contractual or statutory basis for doing so, that decision may itself amount to repudiatory breach.

The Court of Appeal recently reaffirmed the danger in MS Elevators Engineering Sdn Bhd v Fairview International School Nusajaya Sdn Bhd [2025] MLRAU 223, where the contractor's unilateral suspension formed part of the dispute that ultimately resulted in substantial liability, including RM940,000 in liquidated damages and rectification costs.

First route: check whether your contract allows suspension

The first place to look is the construction contract.

Some standard forms and bespoke contracts expressly allow the contractor to suspend work where the employer fails to make payment by the contractual due date.

If such a clause exists, it must be followed carefully.

The clause may require the contractor to give written notice, wait for a specified period, identify the unpaid certificate or amount, and serve the notice in a particular manner. Missing one of those steps can turn what might otherwise have been a lawful suspension into a contractual breach.

Kembang Serantau Sdn Bhd v YBK Usahasama Sdn Bhd [2020] 2 MLRA 679 provides a useful example. The contractor relied on the suspension provisions in the PAM 2006 form following non-payment. The Court of Appeal held that the suspension was lawful under the contractual machinery and allowed the contractor to recover RM610,000 in idling costs.

The case shows why the wording of the contract matters. A contractor who has an express suspension right is in a very different position from one who simply decides that continued work is commercially impossible.

Before suspending, check the payment due date, notice requirement, cure period and method of service.

Second route: suspension under section 29 CIPAA

CIPAA provides another route, but it is commonly misunderstood.

Section 29 does not allow a contractor to suspend work immediately when an invoice or progress claim is unpaid.

The statutory right only arises after the contractor has gone through adjudication and obtained a decision requiring payment.

The sequence is broadly as follows:

The unpaid party serves a valid payment claim under section 5 CIPAA. The payment dispute is referred to adjudication. The adjudicator makes a decision requiring the other party to pay. The adjudicated amount remains unpaid. The successful party serves written notice of its intention to suspend or reduce the rate of progress. The other party is given 14 calendar days after receiving the notice to make payment. If payment is still not made, the successful party may suspend performance or reduce the rate of progress.

This is therefore a post-adjudication right.

If a progress payment became overdue yesterday, section 29 does not allow the contractor to stop work today simply because CIPAA exists.

What protection do you get if section 29 is followed?

The advantage of using section 29 correctly is that CIPAA expressly protects the party exercising the statutory right.

A party that suspends or reduces progress in accordance with section 29 is not treated as being in breach of contract because of that suspension.

The party is also entitled to a fair and reasonable extension of time and may recover loss and expenses caused by the suspension or reduction in progress.

There is also an obligation once payment is finally made.

The contractor must resume performance in accordance with the contract within 10 working days after receiving the adjudicated amount, or an amount later determined by arbitration or the court.

The statutory protection therefore works both ways. The contractor obtains a lawful right to suspend, but must follow the procedure before suspension and resume within the required period once payment is received.

What if the employer simply refuses to pay?

There is an important difference between ordinary late payment and conduct showing that the employer no longer intends to honour the contract.

In Ban Hong Joo Mines Ltd v Chen & Yap Ltd [1968] 1 MLRA 792, the employer deliberately refused to make payments that were already due and also directed the contractor to stop work. The conduct was sufficiently serious for the contractor to treat the contract as repudiated.

That does not create a general rule that every late payment allows work to be suspended.

The legal question is whether the employer's conduct is serious enough to show an intention not to perform the contract. A genuine disagreement about valuation, set-off or contractual interpretation, including over a disputed variation order, may not reach that threshold.

If repudiation exists, the contractor may have a right to accept the repudiation and terminate the contract. That is legally different from suspending the works while continuing to treat the contract as alive.

A contractor should therefore be particularly careful before treating persistent non-payment as justification for walking off site.

What happens if you suspend unlawfully?

The consequences can be substantial.

An unlawful suspension may amount to repudiatory breach. The employer may then accept that breach, terminate the contractor's employment and claim the additional costs caused by having to complete the project through someone else.

The contractor may also become exposed to liquidated damages for delay, rectification costs and other contractual losses.

Timing can be especially damaging.

In Boulevard Pillar Sdn Bhd v Goh Hardware & Construction Sdn Bhd [2025] MLRHU 687, the contractor stopped work when the contractual payment period had not yet expired. The court found that no payment was actually outstanding at the relevant time and treated the contractor's conduct as a breach.

The distinction is simple but important: an amount expected to become payable is not yet an overdue payment.

Before taking any action, the contractor should calculate the contractual due date correctly.

What if the main contractor says, "I haven't been paid either"?

That does not necessarily answer the payment claim.

Section 35 CIPAA renders conditional payment provisions void in qualifying construction contracts. This includes the familiar "pay-when-paid" arrangement where a main contractor says that it only has to pay the subcontractor after receiving payment from the employer.

The subcontractor's entitlement should therefore be assessed based on its own construction contract and the applicable law, rather than simply on whether money has flowed down from the party above.

However, section 35 does not itself create an immediate right to suspend work. If the subcontractor wants to rely on section 29, it must still first obtain an adjudication decision and follow the statutory notice process.

What should you do before stopping work?

If payment has not been received, first confirm that the amount is genuinely due under the contract and that the payment period has expired.

Then review the contract for any express suspension or termination rights and follow the notice requirements precisely.

If there is no contractual right to suspend, consider whether the unpaid amount can be pursued through CIPAA, which first requires checking that the contract and the claim fall within the Act. A successful adjudication can ultimately give the contractor the statutory suspension rights under section 29 if the adjudicated amount remains unpaid.

Where the employer's conduct appears sufficiently serious to amount to repudiation, obtain advice before treating the contract as terminated. The consequences of getting that assessment wrong can be significantly greater than the original unpaid certificate.

Frequently Asked Questions

Can I stop work immediately if my progress claim is unpaid?

Generally, no. Check whether the contract expressly gives you a right to suspend. Otherwise, the statutory suspension right under section 29 CIPAA only arises after an adjudication decision has been obtained and remains unpaid.

How long must I wait after a section 29 notice?

You must allow 14 calendar days after service of the written notice. If the adjudicated amount remains unpaid after that period, the statutory right to suspend or reduce progress may be exercised.

Can I claim my costs during a lawful CIPAA suspension?

Yes. Section 29 provides an entitlement to recover loss and expenses resulting from a suspension or reduction in progress carried out in accordance with the Act.

What happens when the employer finally pays?

The contractor must resume performance in accordance with the contract within 10 working days after receiving the adjudicated amount or the amount later determined by arbitration or the court.

Final takeaway

Non-payment does not automatically give a contractor the right to suspend work.

A lawful suspension will usually depend on one of two routes: an express suspension right in the construction contract, exercised strictly according to its terms, or the statutory right under section 29 CIPAA after a successful adjudication decision remains unpaid.

Serious non-payment may sometimes amount to repudiation and justify termination, but termination and suspension are legally different remedies.

Before stopping work, check when payment actually became due, what the contract allows, what notices are required and whether CIPAA provides a safer route to recover the money.

Speak to JPP LAW

Justin, Poh & Partners, also known as JPP LAW, assists employers, main contractors, subcontractors and consultants with construction payment disputes, suspension and termination issues, CIPAA adjudication, enforcement and construction litigation in Malaysia.

If payment has been withheld and you are considering suspending work, reducing progress or terminating the contract, you may contact us to assess the contractual and statutory position before taking action.

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Disclaimer: This article is for general information only and does not constitute legal advice. Suspension and termination rights depend heavily on the construction contract, payment due dates, notices served, surrounding conduct and the particular facts of each project.