- Baxter, Todd A.
- Industry Alerts
The Arizona Court of Appeals recently denied a contractor’s claim that the owner had violated Arizona’s prompt pay act (“Prompt Pay”) despite the owner’s admission that it had not paid the contractor or objected to the payment application within the statutory time.1 The court’s reason for denying the claim? The payment application included items not supplied within “the preceding thirty day billing cycle.”2 That’s it.
The contractor explained that imposing a strict thirty-day billing cycle would up-end the usual dealings between contractors and subcontractors and create problematic situations regarding materials that are often acquired, stored, and installed during different billing cycles.3 The court did not disagree, but stated that such a potential impact made no difference to its ruling. Instead, it noted that if a statute’s “plain language” “results in awkward procedures, or leads to a harsh result” (as it seemed to acknowledge happened here)4, it is up to the legislature to correct the language, not the court.
Most surprising, though, is not that the court found the owner had a right to object to being billed for labor and materials supplied more than thirty days ago (which might be justified), but that it found the owner was not obligated to object or explain its reasons for withholding payment. Despite paying lip service to Prompt Pay’s primary purpose of requiring owners to object to problems early so that those involved in the work (contractors, subcontractors, and suppliers) receive, yes, “prompt payment,”5 the court concluded that the thirty-day billing cycle referenced in the statute imposes an obligation on the contractor in order to “benefit from” Prompt Pay.6 If labor or materials are supplied, but are not billed until after the next regular billing or estimate, the owner may withhold payment for those items – without objecting to them – and not violate Prompt Pay.7
A billing cycle that requires owners to either make payment or state objections within a specified time after each billing is in keeping with Prompt Pay’s purpose; depriving contractors entirely of Prompt Pay’s protections – 18% interest and attorneys’ fees – for work not billed within thirty days of performance, is not.
The court may be right that the legislature needs to revise the language of Prompt Pay to avoid the potential for awkward procedures and harsh results. Until that happens (and don’t hold your breath), contractors should be careful to include in every “billing or estimate” 8 all work performed and materials supplied during any given thirty-day billing cycle, and shift the burden to the owner to object to any items it believes should not have been included.
1 SK Builders, Inc. v. Smith, Ariz. Adv. Rep. 15 (App. 2019).
2 Id. at 16, ¶ 12-14.
3 Id. at 16-17, ¶ 15.
4 Id. at 17, ¶ 18.
5 Id. Quoting Stonecreek Bldg. Co. v. Shure, 216 Ariz. 36, ¶ 16 (App. 2007) (quotation and internal citation omitted).
6 Id. at 16-17.
7 An owner would still be required to pay for non-defective work, and potentially be exposed to contract rate interest, but the contractor’s leverage under Prompt Pay is removed.
8 Id. At 16, ¶ 12 (quoting Prompt Pay)
This client alert is published by Dickinson Wright PLLC to inform our clients and friends of important developments in the field of Construction law. The content is informational only and does not constitute legal or professional advice. We encourage you to consult a Dickinson Wright attorney if you have specific questions or concerns relating to any of the topics covered in here.
- Industry Alerts Court Finds That “Marijuana” Is Distinct And Separate From “Cannabis”
- June 16, 2020 In the News Dickinson Wright Recognized in Legal 500 United States 2020 Edition
- April 2020 Industry Alerts Province Releases Updated List of “Essential” Workplaces, Directing Additional Closures and Restrictions During COVID-19 State of Emergency
- March 10, 2020 Industry Alerts Contractors: Are You Protected From The Coronavirus Infecting The Project Schedule?
- February 18, 2020 In the News Ryan Lee Joins Dickinson Wright's Nashville Office
- July 09, 2019 Industry Alerts Avoiding The Tennessee Retainage Requirements
- June 25, 2019 Media Mentions Greg Cahill Quoted in Construction Dive on Commercial General Liability Insurance Coverage
- June 3, 2019 In the News Dickinson Wright Recognized in Legal 500 United States 2019 Edition
- May 2019 Industry Alerts Recent Statutory Changes Governing the Arizona Registrar of Contractors