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Prompt payment laws are designed to ensure that contractors, subcontractors, and suppliers are paid on time for their work. These laws exist at both the federal and state levels, aiming to prevent payment delays that can create financial difficulties in the construction industry, and often include provisions for interest penalties on late payments.
Arizona’s prompt payment laws, like those in other states, establish specific timelines for payments at various stages of the construction process—from the owner to the prime (or general) contractor (GC) to the subcontractors and suppliers. Understanding Arizona's prompt pay timelines, allowable reasons for withholding payment, and the mechanisms for resolving payment disputes is essential for anyone working in construction in the state.
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Arizona prompt payment laws apply to both private and public projects. (This is not the case in every state.) Here’s a breakdown of specific regulations that apply to each type of project.
Private Projects
Arizona Revised Statutes (ARS) Title 32, Chapter 10, Article 5 (succinctly referred to as the Arizona Prompt Payment Act) governs prompt payment on private projects in this state. There are eight statutes in total outlining Arizona prompt payment deadlines, interest rates, termination of contracts, and more. All parties must adhere to these statutes regardless of whether they’re included in the contract.
Key provisions of Arizona’s prompt payment statutes for private projects include:
- Progress Payments: For construction contracts lasting 60 days or longer, owners must make progress payments to the contractor (unless mutually agreed otherwise).
- Invoice Review and Approval: Upon receiving a contractor’s invoice, the owner has 14 days to either approve it or provide a written statement explaining any reasons for non-approval. If the owner takes no action within 14 days, it is deemed approved.
- Owner to GC Payment Deadline: Once the invoice is approved (or deemed approved), the owner must pay the GC within seven days of the approval date.
- GC to Subcontractor Payment Deadline: GCs must pay their subcontractor within seven days of receiving payment from the owner for the subcontractor’s work, or within seven days of the subcontractor’s invoice date—whichever is later.
- Subcontractor to Sub-Tier Subcontractor/Supplier Payment Deadline: Subcontractors must pay their sub-tier subcontractors and suppliers within seven days of receiving payment from the GC, or within seven days of the sub-tier's invoice date—whichever is later.
- Late Payment Interest: Late payments accrue interest at a rate of 1.5% per month. The prevailing party in a payment dispute may also be awarded attorney's fees and court costs.
- Contractual Exception: These standard timeframes can be modified by contract, but only if the contract clearly specifies different deadlines and a prominent notice about the extended time is printed on every page of the project plans.
The above approval and payment deadlines apply to all payment types—progress payments, final payments, and retention releases—when invoices are submitted on a standard 30-day billing cycle. For information regarding alternate billing cycles, please refer to subsection C of ARS 32-1182.
Public Projects
Public projects in the state of Arizona are governed by four statutes:
- ARS 34-221 - contract requirements between public entities and contractors, including timelines, security, progress payments, and dispute resolution
- ARS 41-2576 - procurement and contract administration for public works, including administering progress and final payments
- ARS 41-2577 - compensation procedures for state construction projects
- ARS 28-6924 - highway contract regulations, including bidding, payments, and penalties for delays
Key provisions from Arizona’s prompt payment statutes for public projects include:
- Progress Payments: The public entity (owner) must make monthly progress payments on all contracts, except for those shorter than 90 days, where progress payments are made by mutual agreement.
- Invoice Review and Approval: Upon receiving a contractor’s payment application, the owner has seven days to either approve it or issue a specific written finding detailing any items not approved for payment. If the owner takes no action within seven days, the payment application is deemed approved.
- Owner to GC Payment Deadline: Once a payment application is approved (or deemed approved), the owner must pay the GC within 14 days of the approval date. Final payments are due to the GC within 60 days of the entire project’s completion and final acceptance.
- GC to Subcontractor Payment Deadline: GCs must pay their subcontractors within seven days of receiving payment from the owner, unless otherwise agreed to in writing.
- Subcontractor to Sub-Tier Subcontractor/Supplier Payment Deadline: Subcontractors must pay their sub-tiers and suppliers within seven days of receiving payment from the GC, unless otherwise agreed to in writing.
- Late Payment Interest (Owner to GC): Late payments from the owner to the GC accrue at a rate of 1% per month. The prevailing party in a payment dispute may also be awarded attorney's fees and court costs.
- Late Payment Interest (GC to Sub): If payment to a subcontractor is more than 7 days late after the GC receives payment, interest accrues at 1% per month. The prevailing party in a payment dispute may also be awarded attorney's fees and court costs.
- Contractual Modifications: Contracts for public projects have strict limitations on altering the prompt payment rights and deadlines set by Arizona law.
Additionally, subcontractors on Arizona public projects can request notifications from the owner within five days of any progress payment made to the GC. This helps them know when they can expect to be paid.
Invoices must be approved within 14 days of receipt unless otherwise specified.
Owners must pay GCs within 7 days after invoice approval.
Payment applications must be approved within seven days of receipt.
Owners must pay GCs within 14 days after payment application approval.
Final payments are due within 60 days of final acceptance for the entire project.
GCs must pay subcontractors within 7 days of receiving payment from the owner.
GCs must pay subcontractors within 7 days of receiving payment from the owner unless contractually agreed otherwise.
Subcontractors must pay sub-tiers and suppliers within 7 days of receiving payment from the GC.
Subcontractors must pay sub-tiers and suppliers within 7 days of receiving payment from the GC unless contractually agreed otherwise.
- 1.5% monthly interest fee
- Potential attorney fees and court costs
- 1% monthly interest fee (for subs receiving payment, this only kicks in once payment is 7 days or more late)
- Potential attorney fees and court costs
There are eight statutes in total (located within ARS Title 32, Chapter 10, Article 5) that govern Arizona's private construction projects. They include:
- ARS 32-1181: Defines key terms used in the following sections and explains who these rules apply to.
- ARS 32-1182: Explains how and when property owners must make payments as the project progresses (progress payments). It also covers penalties, including interest, for late payments.
- ARS 32-1183: Outlines the payment rules for contractors, subcontractors, and material suppliers. It also details potential penalties, including interest, for non-compliance.
- ARS 32-1184: Explains the circumstances under which a construction contract can be legally stopped or ended (interrupted or terminated), and how damages are handled in these situations.
- ARS 32-1185: Describes when contractors and subcontractors are allowed to stop work or terminate a contract.
- ARS 32-1186: Lists specific parts of construction contracts that are considered against public policy and are therefore invalid and unenforceable.
- ARS 32-1187: Specifies which parts of this law do not apply to the State of Arizona or its local governments.
- ARS 32-1188: Clarifies that the progress payment rules (ARS 32-1182) don't apply to homeowners building their own homes unless specific language is included in the contract.
Yes. Arizona prompt payment law recognizes certain legitimate reasons for withholding payment beyond the statutory deadlines, including:
- Unsatisfactory job progress
- Defective work or materials
- Disputed work
- Non-compliance with the contract
- Third-party claims
- Failure of the contractor/subcontractor to pay lower-tier parties
- Damage to the owner
No, there aren’t any specific documents to file. However, to claim prompt payment penalties or remedies on Arizona private projects, you must generally adhere to the notice and timing requirements outlined in ARS Title 32, Chapter 10, Article 5. This includes providing proper documentation (e.g., invoices and payment applications) and following the correct procedures for pursuing legal action if necessary (outlined in FAQ #5 below).
Therefore, it is crucial to maintain meticulous records of payment applications, compliance documents, and lien waivers, ideally through a dedicated system like Siteline. This is especially important when dealing with lien waivers, as they can significantly affect your rights to payment. To learn more about lien waivers and how they work in Arizona, check out this comprehensive guide.
Several remedies are available for late payment, including:
- Interest on the unpaid balance at a rate of 1.5% per month.
- The right to suspend work or terminate the contract for non-payment after providing written notice (seven days for GCs, three days for subcontractors in some circumstances, unless the contract specifies otherwise). Before resuming work, parties are entitled to payment for the completed work plus any costs incurred for shutting down and restarting the project.
- Attorney fees and court costs to the prevailing party if legal action is taken.
Note: Payment deadlines in construction contracts can sometimes be longer than those required by Arizona prompt payment law. However, for these extended deadlines to be valid, the contract must clearly state the new deadlines, and this information must be printed on every page of the contract. Always carefully review your contract to identify any modifications to your statutory rights and remedies.
To pursue remedies for late payment on private projects in Arizona:
- Send a written demand letter stating the amount owed, the payment deadline, and the applicable interest penalties. (This letter should be sent via certified mail or another method that provides proof of delivery.)
- If payment remains outstanding, provide written notice of intent to suspend work. You must wait seven days before stopping work if you’re the GC, or three days if you are a subcontractor (unless a shorter period is specified in your contract).
- Document all communications regarding payment and maintain records of when invoices were submitted, due dates, and the impact of delayed payment on your operations.
- Consider filing a mechanic's lien to secure your claim against the property. This is a separate process from prompt payment with strict deadlines, so consult with an attorney to ensure you preserve your lien rights.
- Pursue legal action to recover payment, interest, attorneys' fees, and any suspension-related costs. Consult with an experienced construction attorney for guidance on specific requirements and procedures.
No, interest and fees related to Arizona prompt payment cannot be included in a mechanic’s lien. These amounts must typically be recovered through a separate legal action, such as if the dispute goes to court or arbitration. Attorney fees and costs will also be awarded to the prevailing party.
There are four statutes governing Arizona’s public projects. They include:
- ARS 34-221: Governs contracts between public entities and contractors, focusing on payment schedules, security requirements, progress payments, and dispute resolution for public works projects.
- ARS 41-2576: Regulates procurement and contract administration for public works, including the approval and processing of progress and final payments.
- ARS 41-2577: Details payment procedures for state construction projects, ensuring timely payments to contractors and subcontractors.
- ARS 28-6924: Covers regulations for highway contracts, including bidding, payments, and penalties for construction delays.
Yes, Arizona's prompt payment law recognizes certain legitimate reasons for withholding payment beyond the statutory deadlines on public projects. These reasons include:
- Unsatisfactory job progress
- Defective work or materials
- Disputed work
- Non-compliance with the contract
- Third-party claims
- Failure of the contractor/subcontractor to pay lower-tier parties
- Damage to the public entity or other parties
No, there aren’t any specific documents to file. However, to claim prompt payment penalties or remedies on Arizona private projects, you must generally adhere to the notice and timing requirements outlined in ARS Title 32, Chapter 10, Article 5. This includes providing proper documentation (e.g., invoices and payment applications) and following the correct procedures for pursuing legal action if necessary (outlined in FAQ #5 below).
Therefore, it is crucial to maintain meticulous records of payment applications, compliance documents, and lien waivers, ideally through a dedicated system like Siteline. This is especially important when dealing with lien waivers, as they can significantly affect your rights to payment. To learn more about lien waivers and how they work in Arizona, check out this comprehensive guide.
Several remedies are available for late payment on public projects in Arizona, including:
- Interest penalties at 1% per month that accrue automatically
- The right to file a claim against the payment bond to recover unpaid amounts
- Attorney fees and court costs to the prevailing party if legal action is taken
These remedies apply to both state and local government projects, though it's important to properly document payment delays and follow notice requirements before exercising suspension rights.
Note: Payment deadlines in construction contracts for public projects can sometimes be longer than those required by Arizona prompt payment law. However, for these extended deadlines to be valid, the contract must clearly state the new deadlines, and this information must be printed on every page of the contract. Always carefully review your contract to identify any modifications to your statutory rights and remedies.
While Arizona prompt payment laws for public projects don’t specifically address suspending work, you may still have the right to do so under certain circumstances based on general legal principles. However, it’s crucial to follow proper notice requirements and consult with an experienced construction attorney before taking such action.
The primary remedy for unpaid parties on public construction projects in Arizona is filing a claim on a payment bond, as mechanics liens are not available on state, county, or municipal projects. This is due to the Arizona law relating to contractor claims on public buildings and improvements (ARS 34-222), known as the "Little Miller Act." It’s patterned after and generally consistent with the federal Miller Act, which governs contractor claims on federal buildings and improvements.
No, a bond claim cannot include interest and fees related to prompt payment. These amounts must typically be recovered through a separate legal action, such as if the dispute goes to court or arbitration. Attorney fees and costs will also be awarded to the prevailing party.
Disclaimer: This guide is for general informational purposes only and does not constitute legal advice. We recommend you consult a qualified attorney for advice specific to your situation.