Prompt Payment: Which Applies, State or Federal Statute?

Prompt Payment: Which Applies, State or Federal Statute?

In Arizona, prompt payment statute generally dictates that a project owner should remit payment to the General Contractor within seven days after the approved billing cycle. The General Contractor should, in turn, pay its subcontractors/suppliers within seven days of receipt of the owner’s payment.

Here’s an excerpt from Arizona’s statute (Ariz. Rev. Stat. Ann. 32-1129 et seq.):

32-1129.01. A. Progress payments by owner; conditions; interest

…Except as provided in subsection C of this section, the owner shall make progress payments to the contractor within seven days after the date the billing or estimate is certified and approved pursuant to subsection D of this section…

32-1129.02. B. Performance and payment by contractor, subcontractor or material supplier; conditions; interest

…[T]he contractor shall pay to its subcontractors or material suppliers and each subcontractor shall pay to its subcontractors or material suppliers, within seven days of receipt by the contractor or subcontractor of each progress payment, retention release or final payment, the full amount received…

This Statute Doesn’t Apply to Subcontractors Furnishing to Federal Projects – Unfortunately

Keep in mind, the information provided above is Arizona’s statute, not the Federal Government’s statute.

Prompt pay statutes differ, much like securing bond claim rights on a public project may differ from securing bond claim rights on a federal project.

The Project: Provide & Install Road Signs at Grand Canyon National Park

In short, the owner hired a contractor to provide materials & installation services. The contractor hired a subcontractor to furnish the materials.

The contractor received its payment from the owner, but withheld some funds from the subcontractor due to performance issues. The subcontractor proceeded with a suit action, claiming the contractor violated the prompt pay statute.

The superior court agreed with the subcontractor, but the appeals court reversed the superior court ruling, based on how statute defines a project owner.

“The Court of Appeals reasoned that an “owner,” as defined in the Act, does not include the federal government or its agencies, and thus found the Act inapplicable when the contract at issue is a federal work project.” – quote from  Arizona Prompt Pay Act Held Inapplicable to Federal Construction Project, authors P. Douglas Folk & Zara Torosyan

The Lesson

Don’t assume anything. Recognize that statutes vary by state and project type. If you have concerns about which statutes apply to a project, contact us!

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