Summary of Arizona’s Prompt Payment Law

By Suzette S. Doody

Arizona’s Prompt Payment Act (A.R.S. § 32-1129 et seq.) is a statutory scheme that governs the timing of payments from an owner to the general contractor; from the general contractor to the subcontractors; and from subcontractors to its suppliers for all private construction projects longer than sixty (60) days. The Act requires that an owner identify and disapprove those items that need to be corrected early in the construction process so that contractors, subcontractors and suppliers receive prompt payment for their work.

Central to the Act’s goal of prompt payment is a statutorily limited period of fourteen (14) days to object to any amounts in a general contractor’s payment application. If the owner does not object within fourteen (14) days, the pay application is deemed “approved and certified” and the owner is legally obligated to pay the contractor within seven (7) days. Following payment by the owner, every contractor or subcontractor must pay its licensed subs and suppliers for their labor or materials within seven (7) days of receipt. An owner and general contractor and/or its subcontractors can agree to modify the statutory payment terms only if the contract clearly states the alternative billing cycle.

An owner may decline to approve and certify a billing or estimate or portion of a billing or estimate 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 a subcontractor to make timely payments for labor, equipment and materials, damage to the owner, or reasonable evidence that the construction contract cannot be completed for the unpaid balance of the construction contract sum or a reasonable amount for retention.

Late payment penalties include interest payments at the rate of 1.5 % per month (18% per annum) on the unpaid balance, for attorney’s fees in the event of litigation or arbitration and also possible suspension of a contractor’s license by the Arizona Registrar of Contractors. In addition, the act allows a general contractor or subcontractor to suspend performance or terminate a contract if the owner fails to timely pay the certified and approved amount.

A general contractor may suspend performance or terminate the contract after providing seven (7) days’ written notice to the owner. Similarly, a subcontractor may suspend performance or terminate a subcontract if: (a) the owner fails to timely pay the certified and approved amount for the subcontractor’s work, and (b) the general contractor also fails to pay for that work after providing three (3) days’ written notice. After complying with the notice requirements, a general contractor or subcontractor that suspends work is not required to provide further services or materials until it receives payment of the certified and approved amount plus demobilization and remobilization costs.

For more information contact Suzette Doody at sdoody@holmwright.com or 480-961-0040.