Arizona Prompt
Payment Act
A.R.S. § 32-1129.02 (commonly known as the Arizona Prompt Payment Act
or prompt pay law), provides that a licensed contractor, licensed
subcontractor, or material supplier who has performed according to its contract
is entitled to prompt payment from the party with which it contracted.
Contractor’s prompt
payment obligation. Pursuant to the Arizona prompt pay act, every contractor or subcontractor must pay its licensed
subs and suppliers for their labor or materials within seven days of its own
receipt of payment from the owner. Unlicensed contractors and subcontractors
cannot enforce the prompt payment law.
A general contractor is
not required to submit a subcontractor’s invoice to the owner for payment if he
disputes the sufficiency of the work performed or the materials supplied. A
general contractor can withhold certification of the subcontractor’s work for
unsatisfactory job progress; defective construction work or material; disputed
work; failure to comply with material provisions of the construction contract;
failure of the subcontractor to make timely payments for labor, equipment and
materials; damage to another tradesman; or reasonable evidence that the
subcontract cannot be completed for the unpaid balance of the subcontract price.
However, a general
contractor is not entitled to apply for and receive payment for a
subcontractor’s work and then withhold payment from the subcontractor or
supplier. A subcontractor or supplier who is not paid within the seven-day
period is entitled to interest on the unpaid amount at 18% per annum.
Non-payment is also grounds for disciplinary action by the Registrar of
Contractors against the non-paying contractor or subcontractor.
Owner’s prompt payment
obligation. Another provision of the Arizona prompt payment law,
A.R.S. § 32-1129.01 requires a project owner to promptly pay the general
contractor. In most cases, the project owner is required to make monthly
progress payments to the general contractor based upon the general contractor’s
billing or estimate of work performed during the preceding 30-day billing cycle.
Each monthly billing or
estimate is deemed approved 14 days after receipt by the owner, unless the owner
issues a written statement detailing the items that are not approved and
certified. The owner must issue the progress payment to the general contractor
within seven days thereafter. Late payments bear interest at 18% per annum. The
owner and general contractor can agree to modify the statutory payment terms
only if notice of an alternative billing cycle appears plainly on each page of
the project plans, including bid plans.
An owner can decline to
approve and certify any billing or portion of a billing, and withhold a
reasonable amount from the progress payment, for the following reasons:
-
unsatisfactory job
progress;
-
defective construction
work or materials not remedied;
-
disputed work or
materials;
-
failure to comply with
other material provisions of the construction contract;
-
third party claims
filed or reasonable evidence that a claim will be filed;
-
failure of the
contractor or subcontractor to make timely payments for labor, equipment and
materials;
-
damage to the owner;
-
reasonable evidence
that the construction contract cannot be completed for the unpaid balance of
the construction contract sum; or
-
retention.
The owner may withhold
only an amount sufficient to pay the direct expenses it reasonably expects to
incur to correct the items set forth in its written notice.
Contractor’s right to
stop work. A contractor may suspend performance or terminate the construction
contract if the owner fails to timely pay the amount certified and approved,
provided the contractor gives seven days’ prior written notice to the owner.
A.R.S.
§ 32-1129.04(A)
Subcontractor’s right to
stop work. Similarly, a subcontractor may suspend performance or terminate a
subcontract if (a) the owner fails to timely pay the amount certified and
approved for the subcontractor’s work, and (b) the general contractor also fails
to pay for that work. Before suspending performance or terminating the
subcontract for this reason, a subcontractor must give three days’ prior written
notice to the general contractor and the owner.
A.R.S. § 32-1129.04(B)
A subcontractor also may
suspend performance or terminate a subcontract if the owner timely pays the
general contractor for the subcontractor’s work but the general contractor fails
to pay the subcontractor. In this instance the subcontractor must give seven
days’ prior written notice to the general contractor and the owner.
A.R.S. §
32-1129.04(C)
A subcontractor may
suspend performance or terminate a subcontract if the owner declines to certify
and approve payment for the subcontractor’s work, but the reason for refusal is
not the fault of the subcontractor or directly related to the subcontractor’s
work. In this instance the subcontractor must give seven days’ prior written
notice to the general contractor and the owner.
A.R.S. § 32-1129.04(D)
Notice. The written
notice required by this section must be personally delivered to an individual,
to a member of a limited liability company, or to an officer of a corporation,
or delivered by any means that gives written, third-party verification of
delivery to the business address of the recipient, e.g., by courier or Federal
Express.
A.R.S. § 32-1129.04(G)
In each case, the
contractor or subcontractor cannot be considered in breach of the contract
because it lawfully suspends work or terminates the contract according to the
statute. A contractor or subcontractor that suspends performance in compliance
with the statute is not required to provide further services or materials until
it receives payment of the amount certified and approved, together with the
mobilization costs of shutting down and starting up the project.
A.R.S. §
32-1129.04(E)
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