HB2336 - 521R

Be it enacted by the Legislature of the State of Arizona:

Section 1. Section 28-411, Arizona Revised Statutes, is amended to read:

START_STATUTE28-411. Prompt payment; progress payment; consultants and contractors; subconsultants and subcontractors

A. The department shall make progress payments pursuant to the terms of an agreement with a consultant or contractor on the basis of an invoice for work already performed. All progress payments shall be paid on or before the twenty‑first day after the date the department receives the invoice unless the department does not approve and certify the invoice pursuant to subsection B of this section.

B. Any invoice from a consultant or contractor for progress payments shall be deemed approved and certified by the department unless within seven days from the date the department receives the invoice the department sends the consultant or contractor written notice by first class mail or by electronic means of those items that the department does not approve and certify under the terms of the agreement.

C. On or before the seventh day after the date the department makes a progress payment, if the consultant or contractor contracted with subconsultants or subcontractors to perform the work for which the department made the progress payment, the consultant or contractor shall pay the subconsultants or subcontractors for the work performed to the extent of each subconsultant's or subcontractor's contractual interest in the progress payment. If any subconsultant or subcontractor contests the amount paid by a consultant or contractor from a progress payment made under subsection A of this section, the subconsultant or subcontractor shall notify the department in writing within thirty days after receiving the payment from the consultant or contractor. This subsection does not apply if the contract between the consultant or contractor and the subconsultant or subcontractor expressly provides that the prompt payment provisions of this subsection do not apply to the agreement between the consultant or contractor and the subconsultant or subcontractor.

D. If a consultant or contractor fails to pay a subconsultant or subcontractor within seven days of receiving a progress payment from the department, the consultant or contractor shall pay the subconsultant or subcontractor interest on the unpaid balance, beginning on the eighth day at the rate of one per cent percent per month or fraction of a month. This subsection does not apply if the contract between the consultant or contractor and the subconsultant or subcontractor expressly provides that the prompt payment provisions of this subsection do not apply to the agreement between the consultant or contractor and the subconsultant or subcontractor.

E. A subconsultant or subcontractor may submit a written request to the department asking the department to notify the subconsultant or subcontractor of each subsequent progress payment made to the consultant or contractor. If the department receives a written request under this subsection, the department shall send the requesting party a written notice by first class mail of each subsequent progress payment within five days of making the progress payment.

F. Agreements with the department for consultant or contractor services do not alter the rights of any consultant or contractor to receive prompt and timely payment as provided under this section.

G. Subject to the requirements of this section, the department shall pay the agreed or reasonable value of all labor, materials, work or services furnished, installed or performed by a design professional pursuant to a limited notice to proceed from the department's authorized agent before the execution of a contract or contract modification applicable to the labor, materials, work or services. The unit prices, contract sum, hourly rates or other cost or pricing formula of the contract or contract modification applicable to the labor, materials, work or services is the fair and reasonable cost for purposes of this section unless the department and its contractor or consultant otherwise agree in writing. If the parties fail to successfully negotiate and sign a contract or contract modification, the contractor or consultant shall be paid for costs incurred pursuant to the limited notice to proceed and subject to the department's cost allowability guidelines. For the purposes of this section, "Design professional" means an individual or firm registered by the board to practice architecture, engineering, geology, landscape architecture or land surveying or any combination of those professions and persons employed by the registered individual or firm.

G. H. To the extent that this section conflicts with section 28‑6924, section 28‑6924 controls any agreement between the department and a contractor for highway construction projects. END_STATUTE

Sec. 2. Section 34-221, Arizona Revised Statutes, is amended to read:

START_STATUTE34-221. Contract with successful bidder; payments to contractor and design professional; security; recovery of damages for delay; progress payments; definitions

A. The agent shall enter into a contract with the lowest responsible bidder whose proposal is satisfactory, except that in determining the lowest responsible bidder under this section, the board of supervisors may consider, for no more than five projects, the time of completion proposed by the bidder, the value over time of completed services and facilities and the value over time of interrupted services if the board determines that this procedure will serve the public interest by providing a substantial fiscal benefit or that the use of the traditional awarding of contracts is not practicable for meeting desired construction standards or delivery schedules and if the formula for considering the time of completion is specifically stated in the bidding information.

B. In determining the lowest responsible bidder for a horizontal construction project using the design‑bid‑build project delivery method, an agent may consider the time of completion proposed by the bidder if the agent determines that this procedure will serve the public interest by providing a substantial fiscal benefit or that the use of the traditional awarding of contracts is not practicable for meeting desired construction standards or delivery schedules and if the formula for considering the time of completion is specifically stated in the bidding information.

C. The terms of a contract entered into pursuant to subsection A of this section shall include the following items:

1. A surety company bond or bonds as required under this article.

2. The owner by mutual agreement may make progress payments on contracts of less than ninety days and shall make monthly progress payments on all other contracts as provided for in this paragraph. Payment to the contractor on the basis of a duly certified and approved estimate of the work performed during the preceding calendar month under such contract may include payment for material and equipment, but to insure ensure the proper performance of such contract, the owner shall retain ten per cent percent of the amount of each estimate until final completion and acceptance of all material, equipment and work covered by the contract. An estimate of the work submitted shall be deemed approved and certified for payment after seven days from the date of submission unless before that time the owner or owner's agent prepares and issues a specific written finding setting forth those items in detail in the estimate of the work that are not approved for payment under the contract. The owner may withhold an amount from the progress payment sufficient to pay the expenses the owner reasonably expects to incur in correcting the deficiency set forth in the written finding. The progress payments shall be paid on or before fourteen days after the estimate of the work is certified and approved. The estimate of the work shall be deemed received by the owner on submission to any person designated by the owner for the submission, review or approval of the estimate of the work.

3. When the contract is fifty per cent percent completed, one‑half of the amount retained including any securities substituted under paragraph 5 of this subsection shall be paid to the contractor upon the contractor's request provided if the contractor is making satisfactory progress on the contract and there is no specific cause or claim requiring a greater amount to be retained. After the contract is fifty per cent percent completed, no more than five per cent percent of the amount of any subsequent progress payments made under the contract may be retained providing if the contractor is making satisfactory progress on the project, except that if at any time the owner determines satisfactory progress is not being made, ten per cent percent retention shall be reinstated for all progress payments made under the contract subsequent to the determination.

4. Upon completion and acceptance of each separate building, public work or other division of the contract on which the price is stated separately in the contract, except as qualified in paragraph 5 of this subsection, payment may be made in full, including retained percentages thereon, less authorized deductions. In preparing estimates, the material and equipment delivered on the site to be incorporated in the job shall be taken into consideration in determining the estimated value by the architect or engineer.

5. Ten per cent percent of all estimates shall be retained by the agent as a guarantee for complete performance of the contract, to be paid to the contractor within sixty days after completion or filing notice of completion of the contract. Retention of payments by a purchasing agency longer than sixty days after final completion and acceptance requires a specific written finding by the purchasing agency of the reasons justifying the delay in payment. No purchasing agency may retain any monies after sixty days which that are in excess of the amount necessary to pay the expenses the purchasing agency reasonably expects to incur in order to pay or discharge the expenses determined by the purchasing agency in the finding justifying the retention of monies. In lieu of the retention provided in this section, the agent, at the option of the contractor, shall accept as a substitute an assignment of time certificates of deposit of banks licensed by this state, securities of or guaranteed by the United States of America, securities of this state, securities of counties, municipalities and school districts within this state or shares of savings and loan associations authorized to transact business in this state, in an amount equal to ten per cent percent of all estimates, which shall be retained by the agent as a guarantee for complete performance of the contract. In the event the agent accepts substitute security as described in this paragraph for the ten per cent percent retention, the contractor shall be entitled to receive all interest or income earned by such security as it accrues and all such security in lieu of retention shall be returned to the contractor by the agent within sixty days after final completion and acceptance of all material, equipment and work covered by the contract if the contractor has furnished the agent satisfactory receipts for all labor and material billed and waivers of liens from any and all persons holding claims against the work. In no event shall the agent accept a time certificate of deposit of a bank or shares of a savings and loan association in lieu of the retention specified unless accompanied by a signed and acknowledged waiver of the bank or savings and loan association of any right or power to setoff against either the agent or the contractor in relationship to the certificates or shares assigned.

6. In any instance where the agent has accepted substitute security as provided in paragraph 5 of this subsection, any subcontractor undertaking to perform any part of such public work shall be entitled to provide substitute security to the contractor upon terms and conditions similar to those described in paragraph 5 of this subsection, and such security shall be in lieu of any retention under the subcontract.

D. No contract for construction or design professional services may materially alter the rights of any contractor, subcontractor, design professional or material supplier to receive prompt and timely payment required to be included in the contract under subsection C of this section.

E. The contract shall be signed by the agent and the contractor.

F. A contract for the procurement of construction shall include a provision which that provides for negotiations between the agent and the contractor for the recovery of damages related to expenses incurred by the contractor for a delay for which the agent is responsible, which is unreasonable under the circumstances and which was not within the contemplation of the parties to the contract. This section shall not be construed to void any provision in the contract which that requires notice of delays, or provides for arbitration or other procedure for settlement or provides for liquidated damages.

G. The contractor shall pay to the contractor's subcontractors, design professionals or material suppliers and each subcontractor shall pay to the subcontractor's subcontractor, design professional or material supplier, within seven days of receipt of each progress payment, unless otherwise agreed in writing by the parties, the respective amounts allowed the contractor, or subcontractor or design professional on account of the work performed by subordinate subcontractors or design professionals, to the extent of each such subcontractor's or design professional's interest therein, except that no contract for construction may materially alter the rights of any contractor, subcontractor, design professional or material supplier to receive prompt and timely payment as provided under this section. Such payments to subcontractors, design professionals or material suppliers shall be based on payments received pursuant to this section. Any diversion by the contractor or subcontractor of payments received for work performed on a contract, or failure to reasonably account for the application or use of such payments, constitutes grounds for disciplinary action by the registrar of contractors. The subcontractor or material supplier shall notify the registrar of contractors and the purchasing agency in writing of any payment less than the amount or percentage approved for the class or item of work as set forth in this section.

H. A subcontractor or design professional may notify the purchasing agency in writing requesting that the subcontractor or design professional be notified by the purchasing agency in writing within five days from payment of each progress payment made to the contractor. The subcontractor's or design professional's request remains in effect for the duration of the subcontractor's or design professional's work on the project.

I. Nothing in this chapter prevents the contractor or subcontractor, at the time of application and certification to the owner or contractor, from withholding such application and certification to the owner or contractor for payment to the subcontractor, design professional or material supplier for unsatisfactory job progress, defective design professional services or construction work or materials not remedied, disputed design professional services, work or materials, third-party claims filed or reasonable evidence that a claim will be filed, failure of a subcontractor or design professional to make timely payments for design professional services, labor, equipment and materials, damage to the contractor or another subcontractor or design professional, reasonable evidence that the subcontract or design professional service contract cannot be completed for the unpaid balance of the subcontract or design professional service contract sum or a reasonable amount for retention that does not exceed the actual percentage retained by the owner.

J. If any payment to a contractor is delayed after the date due, interest shall be paid at the rate of one per cent percent per month or fraction of a month on such unpaid balance as may be due.

K. If any periodic or final payment to a subcontractor or design professional is delayed by more than seven days after receipt of the periodic or final payment by the contractor or subcontractor, the contractor or subcontractor shall pay a subordinate subcontractor, design professional or material supplier interest, beginning on the eighth day, at the rate of one per cent percent per month or a fraction of a month on such unpaid balance as may be due.

L. For the purposes of this section:

1. "Design professional service contract" means a written agreement relating to the planning, design, construction administration, study, evaluation, consulting, inspection, surveying, mapping, material sampling, testing or other professional, scientific or technical services furnished in connection with any actual or proposed study, planning, survey, environmental remediation, construction, improvement, alteration, repair, maintenance, relocation, moving, demolition or excavation of a structure, street or roadway, appurtenance, facility, development or other improvement to land.

2. "Design professional services" means architect services, engineer services, land surveying services, geologist services or landscape architect services or any combination of those services performed by or under the supervision of a design professional or an employee or subconsultant of the design professional.

3. "Subconsultant" means any person, firm, partnership, corporation, association or other organization, or a combination of any of them, that has a direct contract with a design professional or another subconsultant to perform a portion of the work under a design professional service contract.END_STATUTE

Sec. 3. Section 34-227, Arizona Revised Statutes, is amended to read:

START_STATUTE34-227. Construction contracts; design professional service contracts; void provisions

A provision, covenant, clause or understanding in, collateral to or affecting a construction contract or a design professional service contract, as defined in section 34-226, that makes the contract subject to the laws of another state or that requires any litigation, arbitration or other dispute resolution proceeding arising from the contract to be conducted in another state is against this state's public policy and is void and unenforceable.END_STATUTE

Sec. 4. Section 41-2571, Arizona Revised Statutes, is amended to read:

START_STATUTE41-2571. Definitions

As used In this article, unless the context otherwise requires:

1. "Architect services", "engineer services", "land surveying services", "assayer services", "geologist services" and "landscape architect services" means those professional services within the scope of the practice of those services as provided in title 32, chapter 1, article 1.

2. "Cost" means the aggregate cost of all materials and services, including labor performed by force account.

3. "Design professional service contract" means a written agreement relating to the planning, design, construction administration, study, evaluation, consulting, inspection, surveying, mapping, material sampling, testing or other professional, scientific or technical services furnished in connection with any actual or proposed study, planning, survey, environmental remediation, construction, improvement, alteration, repair, maintenance, relocation, moving, demolition or excavation of a structure, street or roadway, appurtenance, facility or development or other improvement to land.

4. "Design professional services" means architect services, engineer services, land surveying services, geologist services or landscape architect services or any combination of those services performed by or under the supervision of a design professional or employees or subconsultants of the design professional.

5. "Subconsultant" means any person, firm, partnership, corporation, association or other organization, or a combination of any of them, that has a direct contract with a design professional or another subconsultant to perform a portion of the work under a design professional service contract. END_STATUTE

Sec. 5. Section 41-2577, Arizona Revised Statutes, is amended to read:

START_STATUTE41‑2577. Progress payments

A. Progress payments may be made by this state to the contractor on the basis of a duly certified and approved estimate of the work performed during a preceding period of time as set by rule, except that a percentage of all estimates shall be retained as provided in section 41‑2576. The progress payments shall be paid on or before fourteen days after the estimate of the work is certified and approved. The estimate of the work shall be deemed received by the owner on submission to any person designated by the owner for the submission, review or approval of the estimate of the work. An estimate of the work submitted under this section shall be deemed approved and certified after seven days from the date of submission unless before that time the owner or owner's agent prepares and issues a specific written finding detailing those items in the estimate of the work that are not approved and certified under the contract or design professional service contract. The owner may withhold an amount from the progress payment sufficient to pay the expenses the owner reasonably expects to incur in correcting the deficiency set forth in the written finding. On completion and acceptance of separate divisions of the contract or design professional service contract on which the price is stated separately in the contract or design professional service contract, payment may be made in full including retained percentages, less deductions, unless a substitute security has been provided pursuant to section 41‑2576. No contract for construction or design professional services may materially alter the rights of any contractor, subcontractor, design professional or material supplier to receive prompt and timely payment as provided under this section.

B. The contractor shall pay to the contractor's subcontractors, design professionals or material suppliers and each subcontractor shall pay to the subcontractor's subcontractor, design professional or material supplier, within seven days of receipt of each progress payment, unless otherwise agreed in writing by the parties, the respective amounts allowed the contractor, or subcontractor or design professional on account of the work performed by the contractor's or subcontractor's subcontractors or design professionals, to the extent of each such subcontractor's or design professional's interest therein, except that no contract for construction may materially alter the rights of any contractor, subcontractor, design professional or material supplier to receive prompt and timely payment as provided under this section. These payments to subcontractors, design professionals or material suppliers shall be based on payments received pursuant to this section. Any diversion by the contractor, or subcontractor or design professional of payments received for work performed on a contract, or failure to reasonably account for the application or use of such payments, constitutes grounds for disciplinary action by the registrar of contractors. The subcontractor, design professional or material supplier shall notify the registrar of contractors and the purchasing agency in writing of any payment less than the amount or percentage approved for the class or item of work or design professional services as set forth in this section.

C. A subcontractor or design professional may notify the purchasing agency in writing requesting that the subcontractor or design professional be notified by the purchasing agency in writing within five days from payment of each progress payment made to the contractor. The subcontractor's or design professional's request remains in effect for the duration of the subcontractor's or design professional's work on the project.

D. Nothing in this chapter prevents the contractor or subcontractor, at the time of application and certification to the owner or contractor, from withholding such application and certification to the owner or contractor for payment to the subcontractor, design professional or material supplier for unsatisfactory job progress, defective construction work or design professional services or materials not remedied, disputed work or materials, third-party claims filed or reasonable evidence that a claim will be filed, failure of a subcontractor or design professional to make timely payments for labor, equipment and materials or design professional services, damage to the contractor or another subcontractor or design professional, reasonable evidence that the subcontract or design professional service contract cannot be completed for the unpaid balance of the subcontract or design professional service contract sum or a reasonable amount for retention that does not exceed the actual percentage retained by the owner.

E. If any payment to a contractor is delayed after the date due, interest shall be paid at the rate of one per cent percent per month or a fraction of the month on such unpaid balance as may be due.

F. If any periodic or final payment to a subcontractor or design professional is delayed by more than seven days after receipt of periodic or final payment by the contractor or subcontractor, the contractor or subcontractor shall pay the contractor's or subcontractor's subcontractor, design professional or material supplier interest, beginning on the eighth day, at the rate of one per cent percent per calendar month or a fraction of a calendar month on such unpaid balance as may be due.

G. Notwithstanding anything to the contrary in this section, this section applies only to amounts payable in a construction services contract for construction and in a contract for design services and does not apply to amounts payable in a construction services contract for design services, preconstruction services, finance services, maintenance services, operations services or any other related services included in the contract. END_STATUTE

Sec. 6. Section 41-2583, Arizona Revised Statutes, is amended to read:

START_STATUTE41-2583. Construction contracts; design professional service contracts; void provisions

A provision, covenant, clause or understanding in, collateral to or affecting a construction contract or design professional service contract that makes the contract subject to the laws of another state or that requires any litigation, arbitration or other dispute resolution proceeding arising from the contract to be conducted in another state is against this state's public policy and is void and unenforceable.END_STATUTE

Sec. 7. Applicability

Section 28-411, Arizona Revised Statutes, as amended by this act, and sections 34-221, 34‑227, 41-2571, 41-2577 and 41-2583, Arizona Revised Statutes, as amended by this act, do not apply to design professional service contracts entered into before the effective date of this act.

Sec. 8. Short title

This act shall be known and may be cited as "The Arizona Design Professional Prompt Pay Act".