Prompt Payment Act
Summary of the 2010 Amendments
Updated June 5, 2013
Following are some of the significant 2010 changes and additions to the Arizona Prompt Payment Act. These revisions apply only to construction contracts where (a) the owner first distributed bid plans, specifications or contract documents to a contractor or subcontractor on or after January 1, 2011, or (b) the owner and contractor enter into their contract on or after January 1, 2012.
See also: Arizona Prompt Payment Act: Current Overview and Summary of the Law Before the 2010 Amendments
HIGHLIGHTS
Residential contractors that build for owner-occupants are required to place a specific notice (below) on their bids and all invoices; otherwise, the Act will not apply, and contractors will not benefit from the Act’s increased protection.
With respect to retention, the "old" Act requires prompt payment of progress invoices, but it does not provide for prompt payment of retention and final invoices. The new law requires owners to promptly pay retention and final payments on the same 21-day basis that has applied to progress payments in the past.
The Prompt Payment Act defines “substantial completion” and provides that contractors are to bill for retention when the owner occupies or begins to use all or part of the project or receives a temporary certificate of occupancy. Contractors must submit final invoices upon “final completion,” when the project receives a final certificate of occupancy. The law further protects subcontractors from having retention or final payment wrongly withheld for defects when the subcontractor is not at fault.
Owner retainage at the end of the project is limited to 150% of punch-list items, as opposed to a percentage of the total contract value.
General contractors and subcontractors are required to pay their subcontractors and suppliers unless the contractor promptly notifies them in writing why the invoices they have submitted are disapproved. Disapproval must be based on one of the reasons set forth in A.R.S. § 32-1183(C).
A contractor must pay its subcontractors and material suppliers within seven days after receipt of payment from the owner. In addition, every contractor is responsible for paying its subcontractors and suppliers if their work or materials are satisfactory.
Finally, if the owner declines to pay a portion of a contractor’s billing and pays the contractor less than is required to pay all of its subcontractors, the contractor is still required to pay everyone whose work was satisfactory and whose performance was not the basis for the owner’s disapproval. Payment must be made within 21 days of the date when payment would otherwise have been due from the owner.
The following is the notice that must be placed on bids and invoices for construction of an owner-occupied dwelling:
NOTICE TO OWNER OF APPLICABILITY OF ARIZONA PROMPT PAY ACT
(NOTICE REQUIRED BY ARIZONA REVISED STATUTES SECTION 32-1129.07)
ATTENTION: YOUR OBLIGATIONS TO PAY YOUR CONTRACTOR ARE SUBJECT TO THE ARIZONA PROMPT PAY ACT. THAT ACT IS SET FORTH IN SECTION 32-1129, ARIZONA REVISED STATUTES, AND SECTIONS 32-1129.01 THROUGH 32-1129.07, ARIZONA REVISED STATUTES. THE FULL TEXT OF THE STATUTES ARE AVAILABLE AT YOUR LOCAL PUBLIC LAW LIBRARY OR THE INTERNET. UNDER THAT ACT, YOU HAVE THE RIGHT TO WITHHOLD ALL OR A PORTION OF A PAYMENT TO A CONTRACTOR FOR A VARIETY OF REASONS, INCLUDING DEFECTIVE CONSTRUCTION WORK THAT HAS NOT BEEN CORRECTED. HOWEVER, IN ORDER TO DO SO, YOU MUST ISSUE A WRITTEN STATEMENT SETTING FORTH IN REASONABLE DETAIL YOUR REASONS FOR WITHHOLDING PAYMENTS WITHIN FOURTEEN (14) DAYS AFTER THE DATE YOU RECEIVE A BILLING OR ESTIMATE. IF YOU FAIL TO ISSUE THE WRITTEN STATEMENT WITHIN THAT PERIOD, THE BILLING OR ESTIMATE WILL BE DEEMED APPROVED. ONCE THE BILLING OR ESTIMATE IS DEEMED APPROVED, YOU MUST PAY THE BILLING OR ESTIMATE WITHIN SEVEN (7) DAYS. GENERALLY, YOU ARE LIMITED BY THE CT TO WITHHOLDING ONLY AN AMOUNT THAT IS SUFFICIENT TO PAY THE DIRECT COSTS AND EXPENSES YOU REASONABLY EXPECT TO INCUR TO PROTECT YOU FROM LOSS FOR WHICH THE CONTRACTOR IS RESPONSIBLE. YOU ARE ENCOURAGED TO READ THE ACT IN FULL TO KNOW YOUR OBLIGATIONS AND RIGHTS.