SB1403 - 532R

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

Section 1. Section 28-6924, Arizona Revised Statutes, is amended to read:

START_STATUTE28-6924. Progress payments; final payments; release of retention; definitions

A. The following apply to the department's highway construction projects awarded pursuant to section 28‑6923, 28‑7365 or 28‑7366:

1. Progress payments may be made by the department to the contractor on the basis of a duly certified and approved estimate of the work performed during a preceding period of time. 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 department on submission to the person designated by the department 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 department prepares and issues a specific written finding detailing those items in the department's reasons for not approving all or a portion of the estimate of the work that are not approved and certified for payment under the contract. The department may withhold an amount from the progress payment sufficient to pay the expenses the department reasonably expects to incur in correcting the deficiency set forth in the written finding. On completion and acceptance of separate divisions of the contract on which the price is stated separately in the contract, payment may be made in full including retained percentages, less deductions, unless a substitute security has been provided.

2. The contractor shall pay to the contractor's subcontractors or material suppliers and each subcontractor shall pay to the subcontractor's subcontractors or material suppliers, 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 on account of the work performed by the contractor's or subcontractor's subcontractors or material suppliers, to the extent of each subcontractor's or material supplier's interest in the amount. These payments to subcontractors or material suppliers shall be based on payments received pursuant to this section. Any diversion by the contractor or subcontractor of payment received for work performed on a contract or failure to reasonably account for the application or use of the payments constitutes grounds for disciplinary action by the registrar of contractors. A subcontractor or material supplier shall notify the registrar of contractors and the department in writing of any payment less than the amount of percentage approved for the class or item of work as set forth in this section.

3. A subcontractor may notify the department in writing requesting that the subcontractor be notified by the department in writing within five days after payment of each progress payment made to the contractor. The subcontractor's request under this paragraph remains in effect for the duration of the subcontractor's work on the project.

2. The department may decline to certify and approve an estimate or portion of a billing or estimate for any of the following reasons:

(a) Unsatisfactory job progress.

(b) Defective construction work or materials not remedied.

(d) Failure to comply with other material provisions of the construction contract.

(e) Third-party claims filed or reasonable evidence that a claim will be filed.

(f) Failure of the contractor or a subcontractor to make timely payments for labor, equipment and materials.

(g) Damage to the department.

(h) Reasonable evidence that the construction contract cannot be completed for the unpaid balance of the construction contract sum.

3. 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 department on submission to any person designated by the department for the submission, review or approval of the estimate of the work.

4. The department may retain five percent of all estimates as a guarantee for complete performance of the contract.

5. After the effective date of a construction contract, the department and contractor may change the number of specified days after certification and approval for the department to pay the contractor or within which a billing or estimate must be certified and approved. Any contractor or subcontractor that does not provide written consent to the change shall continue to be paid as previously agreed.

6. On substantial completion of the work, a contractor shall submit a billing or estimate for release of retention. The billing or estimate for release of retention shall be deemed certified and approved within seven days after the department receives the billing or estimate, unless before that time the department or the department's agent issues a written statement stating in reasonable detail the department's reasons for not certifying or approving all or a portion of the billing or estimate. The department is deemed to have received the billing or estimate when the billing or estimate is submitted to any person designated by the department for receipt or for certification and approval of the billing or estimate. The department may either:

(a) Decline to certify and approve a billing or estimate for release of retention or a portion of a billing or estimate for release of retention for failure of the contractor to complete a material requirement of the construction contract or to complete portions of the work or for any reason allowed under paragraph 2 of this subsection.

(b) Withhold from retention to be released only an amount not to exceed one hundred fifty percent of the direct costs and expenses the department reasonably expects to incur to protect the department from loss for which the contractor is responsible and that results from the contractor's failure to complete portions of the work at the time of substantial completion or for any reasons set forth in writing pursuant to this subsection.

7. The department shall pay the retention to the contractor within fourteen days after the date the billing or estimate for release of retention is certified and approved. If the department declines to certify or approve a billing or estimate for release of retention or a portion of a billing or estimate for release of retention pursuant to paragraph 6 of this subsection, when any reason as stated in the department's written statement has been removed, the contractor may submit a supplemental billing or estimate for all or a portion of the withheld amounts of retention pursuant to paragraph 6 of this subsection. Unless otherwise agreed, the contractor may submit only one billing or estimate during each billing cycle.

8. On final completion of the work, the contractor shall submit a billing or estimate for final payment, which shall be deemed certified and approved seven days after the department receives the billing or estimate unless before that time the department or department's agent prepares and issues a written statement stating in reasonable detail the reasons the billing or estimate has not been certified or approved. The department is deemed to have received the billing or estimate for final payment when the billing or estimate is submitted to any person designated by the department for receipt of or for certification and approval of the billing or estimate. The department may either:

(a) Decline to certify or approve a billing or estimate for final payment or a portion of a billing or estimate for final payment for the contractor's failure to complete a requirement of the construction contract or to complete portions of the work or for any reason allowed under paragraph 2 of this subsection.

(b) Withhold from final payment only an amount not to exceed one hundred fifty percent of the direct costs and expenses the department reasonably expects to incur to protect the department from loss for which the contractor is responsible and that results from any reasons set forth in writing pursuant to this subsection.

9. The department shall make final payment to the contractor within fourteen days after the date the billing or estimate for final payment is certified and approved. If the department declines to certify or approve a billing or estimate for final payment or a portion of a billing or estimate for final payment pursuant to paragraph 8 of this subsection, when any reason as stated in the department's written statement has been removed, the contractor may submit a billing or estimate for all or a portion of the withheld amounts of final payment pursuant to paragraph 8 of this subsection. Unless otherwise agreed, the contractor may submit only one billing or estimate during each billing cycle.

10. Payment is not required pursuant to this section unless the contractor provides the department with a billing or estimate in accordance with the terms of the construction contract between the parties.

11. In any action or arbitration brought to collect payments or interest pursuant to this section, the successful party shall be awarded reasonable attorney fees and costs.

4. 12. 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 the unpaid balance.

5. If any periodic or final payment to a subcontractor or material supplier 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 the subcontractor or material supplier interest, beginning on the eighth day, at the rate of one per cent per month or a fraction of a month on the unpaid balance.

B. A contract for construction shall not materially alter the rights of any contractor, subcontractor or material supplier to receive prompt and timely payment as provided under this section.

C. Nothing in this section prevents a contractor or subcontractor, at the time of application and certification to the department or contractor, from withholding the application and certification to the department or contractor for payment to the subcontractor or material supplier for unsatisfactory job progress, defective construction work 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 to make timely payments for labor, equipment and materials, damage to the contractor or another subcontractor, reasonable evidence that the subcontract cannot be completed for the unpaid balance of the subcontract amount or a reasonable amount for retention that does not exceed the annual percentage retained by the department.

D. This section creates no duty of the department to a subcontractor or material supplier other than the duty to notify pursuant to subsection A, paragraph 3 of this section and creates no cause of action in favor of a subcontractor or material supplier against this state, the department or any state employee or agent.

C. A contract for the procurement of construction may not include a provision that limits or precludes the contractor's recovery of damages related to expenses incurred by the contractor for a delay for which the agent is responsible, that is unreasonable under the circumstances and that was not within the contemplation of the parties to the contract. This section does not void any provision in the contract that requires notice of delays or provides for arbitration or another procedure for settlement or for liquidated damages.

D. For the purposes of this section:

1. "Construction contract" means a written or oral agreement relating to the construction, alteration, repair, maintenance, moving or demolition of any building, structure or improvement or relating to the excavation of or other development or improvement to land.

2. "Contractor" means any person, firm, partnership, corporation, association or other organization, or a combination of any of those entities, that has a direct contract with the department to perform work under a construction contract.

3. "Final completion" means the earliest of the following:

(a) The date the work, or the work under a portion of a construction contract for which the contract states a separate price, has been completed in accordance with the terms and conditions of the construction contract.

(b) The date of final inspection and final written acceptance by the governmental body that issues the building permit for the building, structure or improvement.

4. "Retention" means a portion of a progress payment otherwise due from the department to the contractor that is withheld pursuant to the terms and conditions of a construction contract to ensure proper performance of the construction contract.

5. "Subcontractor" means any person, firm, partnership, corporation, association or other organization, or a combination of any of those entities, that has a direct contract with a contractor or another subcontractor to perform a portion of the work under a construction contract.

6. "Substantial completion" means the earliest of any of the following events:

(a) The stage in the progress of the work on a construction contract when the work, or the work under a portion of a construction contract for which the contract states a separate price, is sufficiently complete in accordance with the terms and conditions of the construction contract so that the department can occupy and use the work or portion of the work for its intended purpose. When substantial completion occurs for a portion of a construction contract for which the contract states a separate price, substantial completion occurs only to the work under that portion of the contract.

(b) The stage in the progress of the work on a construction contract when the contractor has sufficiently completed the work or the work under a portion of a construction contract for which the contract states a separate price in accordance with the terms and conditions of the construction contract to allow the department to occupy and use the work or portion of the work for its intended purpose, but the department is unable to or does not occupy or use the work or portion of the work for its intended purpose through no fault of the contractor.

(c) The date on which the governmental body that issues the building permit, if any, for a building, structure or improvement issues the written acceptance allowing the department to occupy and use the work under a construction contract.

7. "Work" means the labor, materials, equipment and services to be provided by a contractor or subcontractor under a construction contract. END_STATUTE

Sec. 2. Title 28, chapter 20, article 2, Arizona Revised Statutes, is amended by adding sections 28-6924.01 and 28-6924.02, to read:

START_STATUTE28-6924.01. Performance and payment by contractor, subcontractor or material supplier; conditions; interest; definitions

A. Notwithstanding any other provision of this article, performance by a contractor, subcontractor or material supplier in accordance with the provisions of a construction contract entitles the contractor, subcontractor or material supplier to payment from the party with whom the contractor, subcontractor or material supplier contracts.

B. If a subcontractor or material supplier has performed in accordance with the provisions of a construction contract, the contractor shall pay to its subcontractors or material suppliers, and each subcontractor shall pay to its subcontractors or material suppliers, within seven days after receipt by the contractor or subcontractor of each progress payment, retention release or final payment, the full amount received for subcontractor's work and materials supplied based on work completed or materials supplied under the subcontract. Payment is not required pursuant to this subsection unless the subcontractor or material supplier provides to the contractor or subcontractor a billing or invoice for the work performed or materials supplied in accordance with the terms of the construction contract between the parties. Any diversion by the contractor or subcontractor of payments received for work performed pursuant to 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. A violation of this subsection is grounds for suspension or revocation of a license or other disciplinary action by the registrar of contractors pursuant to section 32-1154, subsections B, C and D. The subcontractor or material supplier may notify the registrar of contractors and the department 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.

C. This chapter does not prevent the contractor or subcontractor, at the time of application and certification to the department or contractor, from withholding such application and certification to the department or contractor for payment to the subcontractor or material supplier for any of the following:

1. Unsatisfactory job progress.

2. Defective construction work or materials not remedied.

3. Disputed work or materials.

4. Third-party claims filed or reasonable evidence that a claim will be filed.

5. Failure of a subcontractor to make timely payments for labor, equipment and materials.

6. Damage to the contractor or another subcontractor.

7. Reasonable evidence that the subcontract cannot be completed for the unpaid balance of the subcontract.

8. A reasonable amount for retention that does not exceed the actual percentage retained by the department.

D. A contractor or subcontractor may not withhold retention from a subcontractor in an amount greater than the actual amount of the retention retained by the department pertaining to the work of the subcontractor.

E. If the contractor or subcontractor chooses to withhold the application or certification for all or a portion of a subcontractor's or material supplier's billing or estimates as provided by subsection C of this section, the contractor or subcontractor must prepare and issue a written statement within fourteen days to the applicable subcontractor or material supplier stating in reasonable detail the contractor's or subcontractor's reasons for withholding the application or certification from the department or contractor.

F. If the department issues a written statement pursuant to section 28-6924, subsection A, paragraph 1, 6 or 8 stating that the department declines to certify or approve all or a portion of the contractor's billing or estimate and if the amounts to be paid from that billing or estimate by the contractor to any subcontractor or material supplier are affected by the department's decision not to certify or approve, the contractor shall send a copy of that written statement within seven days after receipt to any affected subcontractor or material supplier. If the contractor sends a copy of the department's written statement to a subcontractor and if the amounts to be paid from that billing or estimate by a subcontractor to any of its subcontractors or material suppliers are affected by the department's decision not to certify or approve, the subcontractor shall send a copy of that written statement within seven days after receipt to any of its affected subcontractors or material suppliers.

G. If the department issues a written statement pursuant to section 28-6924, subsection A, paragraph 1, 6 or 8 stating that the department declines to certify or approve a billing or estimate or a portion of a billing or estimate for defective construction work or materials not remedied and if the contractor as a result does not receive sufficient payment from the department to pay any subcontractor or material supplier for work included in the contractor's billing or estimate, the contractor shall nevertheless pay any subcontractor or material supplier whose work was not the basis of the department's withholding for defective construction work or materials not remedied within twenty-one days after payment would otherwise have been made by the department under section 28-6924. This subsection does not limit a subcontractor's rights to suspend performance under a construction contract or terminate a construction contract under section 28-6924.02, subsection D.

H. If a progress or final payment or release of retention to a subcontractor or material supplier is delayed by more than seven days after receipt of the progress or final payment or release of retention by the contractor or subcontractor pursuant to this section, the contractor or subcontractor shall pay its subcontractor or material supplier interest, except for periods of time during which payment is withheld pursuant to subsection C of this section, beginning on the eighth day, at the rate of one percent per month or a fraction of a month on the unpaid balance or at such higher rate as the parties agree.

I. Any licensed contractor, licensed subcontractor or material supplier that files a complaint with the registrar of contractors under this section shall post a surety bond or cash deposit of five hundred dollars or one-half of the amount due, whichever is less, with the registrar of contractors to secure the payment of claims under this section. If the complaint is determined by the registrar of contractors to be without merit and frivolous, the registrar of contractors shall order the person who filed the complaint to pay one-half of the amount of the required surety bond or cash deposit to the respondent and one-half to the registrar of contractors for deposit in the state general fund. If no claim may be made under this section against the surety bond or cash deposit, the surety bond or cash deposit shall be returned to the complainant. The surety bond or cash deposit shall be in the name of the licensee or material supplier that files the complaint and is subject to claims by the registrar of contractors and the respondent licensee as provided in this section. The surety bond or cash deposit shall be conditioned on and provide for payment on the presentation of a certified copy of the order of the registrar of contractors and a certification by the complainant of nonpayment within thirty days after the order becomes final. The surety bond shall be executed by the complainant as principal with a corporation that is duly authorized to transact surety business in this state. Evidence of the surety bond shall be submitted to the registrar of contractors in a form acceptable to the registrar of contractors. The cash deposit shall be deposited, pursuant to sections 35-146 and 35-147, by the registrar in the contractors prompt pay complaint fund and shall be held for the payment of claims.

J. A subcontractor or material supplier may notify the department in writing requesting that the subcontractor or material supplier be notified by the department in writing within five days after payment of each progress payment made to the contractor. The subcontractor's or material supplier's request remains in effect for the duration of the subcontractor's or material supplier's work on the project.

K. This section does not create a duty of the department to a subcontractor or material supplier other than the duty to notify pursuant to subsection J of this section and does not create a cause of action in favor of a subcontractor or material supplier against this state, the department or any state employee or agent.

L. In any action or arbitration brought to collect payments or interest pursuant to this section, the successful party shall be awarded reasonable attorney fees and costs.

M. For the purposes of this section:

2. "Contractor" means any person, firm, partnership, corporation, association or other organization, or a combination of any of those entities, that has a direct contract with a department to perform work under a construction contract.

3. "Retention" means a portion of a progress payment otherwise due from the department to the contractor that is withheld pursuant to the terms and conditions of a construction contract to ensure proper performance of the construction contract.

4. "Subcontractor" means any person, firm, partnership, corporation, association or other organization, or a combination of any of those entities, that has a direct contract with a contractor or another subcontractor to perform a portion of the work under a construction contract.

5. "Work" means the labor, materials, equipment and services to be provided by a contractor or subcontractor under a construction contract. END_STATUTE

START_STATUTE28-6924.02. Construction contracts; suspension of performance; termination; definitions

A. A contractor may suspend performance under a construction contract or terminate a construction contract for failure by the department to make timely payment of the amount certified and approved pursuant to section 28-6924. A contractor shall provide written notice to the department at least seven calendar days before the contractor's intended suspension or termination unless a shorter notice period is prescribed in the construction contract between the department and contractor. A contractor is not deemed in breach of the construction contract for suspending performance or terminating a construction contract pursuant to this subsection. A construction contract may not extend the time period for a contractor to suspend performance or terminate a construction contract under this subsection.

B. A subcontractor may suspend performance under a construction contract or terminate a construction contract if the department fails to make timely payment of amounts certified and approved pursuant to section 28-6924 for the subcontractor's work and the contractor fails to pay the subcontractor for the certified and approved work. A subcontractor shall provide written notice to the contractor and department at least three calendar days before the subcontractor's intended suspension or termination unless a shorter notice period is prescribed in the construction contract between the contractor and subcontractor. A subcontractor is not deemed in breach of a construction contract for suspending performance or terminating a construction contract pursuant to this subsection. A construction contract may not extend the time period for a subcontractor to suspend performance or terminate a construction contract under this subsection.

C. A subcontractor may suspend performance under a construction contract or terminate a construction contract if the department makes timely payment of amounts certified and approved pursuant to section 28‑6924 for the subcontractor's work but the contractor fails to pay the subcontractor for the certified and approved work. A subcontractor shall provide written notice to the contractor and department at least seven calendar days before the subcontractor's intended suspension or termination unless a shorter notice period is prescribed in the construction contract between the contractor and subcontractor. A subcontractor is not deemed in breach of a construction contract for suspending performance or terminating a construction contract pursuant to this subsection. A construction contract may not extend the time period for a subcontractor to suspend performance or terminate a construction contract under this subsection.

D. A subcontractor may suspend performance under a construction contract or terminate a construction contract if the department declines to approve or certify portions of the contractor's billing or estimate pursuant to section 28-6924 for that subcontractor's work but the reasons for that failure by the department to approve and certify are not the fault of or directly related to the subcontractor's work. A subcontractor shall provide written notice to the contractor and the department at least seven calendar days before the subcontractor's intended suspension or termination unless a shorter notice period is prescribed in the construction contract between the contractor and subcontractor. A subcontractor is not deemed in breach of a construction contract for suspending performance or terminating a construction contract pursuant to this subsection. A construction contract may not extend the time period for a subcontractor to suspend performance or terminate a construction contract under this subsection.

E. A contractor or subcontractor that suspends performance as provided in this section is not required to furnish further labor, materials or services until the contractor or subcontractor is paid the amount that was certified and approved, together with any costs incurred for mobilization resulting from the shutdown or start-up of a project.

F. In any action or arbitration brought pursuant to this section, the successful party shall be awarded reasonable attorney fees and costs.

G. Written notice required under this section is deemed to be provided if either of the following occurs:

1. The written notice is delivered in person to the individual or a member of the entity or to an officer of the corporation for which it was intended.

2. The written notice is delivered at or sent by any means that provides written, third-party verification of delivery to the last business address known to the party giving notice.

H. For the purposes of this section:

2. "Contractor" means any person, firm, partnership, corporation, association or other organization, or a combination of any of those entities, that has a direct contract with a department to perform work under a construction contract.

3. "Subcontractor" means any person, firm, partnership, corporation, association or other organization, or a combination of any of those entities, that has a direct contract with a contractor or another subcontractor to perform a portion of the work under a construction contract.

4. "Work" means the labor, materials, equipment and services to be provided by a contractor or subcontractor under a construction contract.

END_STATUTE

Sec. 3. Repeal

Section 28-6926, Arizona Revised Statutes, is repealed.

Sec. 4. Title 28, chapter 20, article 2, Arizona Revised Statutes, is amended by adding a new section 28-6926, to read:

START_STATUTE28-6926. Construction contracts; void provisions; dispute resolution

A. The following are against this state's public policy and are void and unenforceable:

1. A provision, covenant, clause or understanding in, collateral to or affecting a construction contract that makes the contract subject to the laws of another state or that requires any litigation arising from the contract to be conducted in another state.

2. A provision, covenant, clause or understanding in, collateral to or affecting a construction contract stating that a party to the contract cannot suspend performance under the contract or terminate the contract if another party to the contract fails to make prompt payments under the contract pursuant to sections 28-6924, 28-6924.01 and 28-6924.02.

B. Any mediation, arbitration or other dispute resolution proceeding arising from a construction contract for work performed in this state shall be conducted in this state. END_STATUTE

Sec. 5. 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 ensure the proper performance of such contract, the owner shall retain ten five 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 owner's reasons for not approving all or a portion of 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 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 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 percent completed, no more than five percent of the amount of any subsequent progress payments made under the contract may be retained 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 percent retention shall be reinstated for all progress payments made under the contract subsequent to the determination.

3. An owner may decline to certify and approve an estimate or portion of a billing or estimate for any of the following reasons:

(a) Unsatisfactory job progress.

(b) Defective construction work or materials not remedied.

(d) Failure to comply with other material provisions of the construction contract.

(e) Third-party claims filed or reasonable evidence that a claim will be filed.

(f) Failure of the contractor or a subcontractor to make timely payments for labor, equipment and materials.

(g) Damage to the owner.

(h) Reasonable evidence that the construction contract cannot be completed for the unpaid balance of the construction contract sum.

4. 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 is 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.

4. 5. Upon On 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. 6. Ten Five percent of all estimates shall may 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 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 five 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 five 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. 7. In any instance where the agent has accepted substitute security as provided in paragraph 5 6 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 on terms and conditions similar to those described in paragraph 5 6 of this subsection, and such security shall be in lieu of any retention under the subcontract.

8. Notwithstanding any other provision of this section or any other law, the agent may elect to have no retention contract entered into pursuant to subsection A of this section.

D. No A contract for construction or design professional services may materially not 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 not include a provision that provides for negotiations between the agent and limits or precludes the contractor for the contractor's recovery of damages related to expenses incurred by the contractor for a delay for which the agent is responsible, which that is unreasonable under the circumstances and which that was not within the contemplation of the parties to the contract. This section shall not be construed to does not void any provision in the contract 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, 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.

G. After the effective date of a construction contract, an owner and contractor may change the number of specified days after certification and approval for the owner to make payment to the contractor or within which a billing or estimate must be certified and approved. Any contractor or subcontractor that does not provide written consent to the change shall continue to be paid as previously agreed.

H. On substantial completion of the work, a contractor shall submit a billing or estimate for release of retention. The billing or estimate for release of retention is deemed certified and approved within seven days after the owner receives the billing or estimate, unless before that time the owner or the owner's agent issues a written statement stating in reasonable detail the owner's reasons for not certifying or approving all or a portion of the billing or estimate. The owner is deemed to receive the billing or estimate when the billing or estimate is submitted to any person designated by the owner for receipt or for certification and approval of the billing or estimate. The owner may either:

1. Decline to certify or approve a billing or estimate for release of retention or a portion of a billing or estimate for release of retention for failure of the contractor to complete a material requirement of the construction contract or to complete portions of the work or for any reason allowed under subsection C, paragraph 3 of this section.

2. Withhold from retention to be released only an amount not to exceed one hundred fifty percent of the direct costs and expenses the owner reasonably expects to incur to protect the owner from loss for which the contractor is responsible and that results from the contractor's failure to complete portions of the work at the time of substantial completion or for any reasons set forth in writing pursuant to this subsection.

I. The owner shall pay the retention to the contractor within fourteen days after the date the billing or estimate for release of retention is certified and approved. If the owner declines to certify or approve a billing or estimate for release of retention or a portion of a billing or estimate for release of retention pursuant to subsection H of this section, when any reason as stated in the owner's written statement has been removed, the contractor may submit a supplemental billing or estimate for all or a portion of the withheld amounts of retention pursuant to subsection H of this section. Unless otherwise agreed, the contractor may submit only one billing or estimate during each billing cycle.

J. On final completion of the work, a contractor shall submit a billing or estimate for final payment. A billing or estimate for final payment is deemed certified and approved seven days after the owner receives the billing or estimate, unless before that time the owner or owner's agent prepares and issues a written statement stating in reasonable detail the reasons the billing or estimate has not been certified or approved. The owner is deemed to receive the billing or estimate for final payment when the billing or estimate is submitted to any person designated by the owner for receipt of or for certification and approval of the billing or estimate. The owner may either:

1. Decline to certify and approve a billing or estimate for final payment or a portion of a billing or estimate for final payment for failure of the contractor to complete a requirement of the construction contract or to complete portions of the work or for any reason permitted under subsection C, paragraph 3 of this section.

2. Withhold from final payment only an amount not to exceed one hundred fifty percent of the direct costs and expenses the owner reasonably expects to incur to protect the owner from loss for which the contractor is responsible and that results from any reasons set forth in writing pursuant to this subsection.

K. The owner shall make final payment to the contractor within fourteen days after the date the billing or estimate for final payment is certified and approved. If the owner declines to certify or approve a billing or estimate for final payment or a portion of a billing or estimate for final payment pursuant to subsection J of this section, when any reason as stated in the owner's written statement has been removed, the contractor may submit a billing or estimate for all or a portion of the withheld amounts of final payment pursuant to subsection J of this section. Unless otherwise agreed, the contractor may submit only one billing or estimate during each billing cycle.

L. Payment is not required pursuant to this section unless the contractor provides the owner with a billing or estimate in accordance with the terms of the construction contract between the parties.

M. In any action or arbitration brought to collect payments or interest pursuant to this section, the successful party shall be awarded reasonable attorney fees and costs.

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

L. O. For the purposes of this section:

2. "Contractor" means any person, firm, partnership, corporation, association or other organization, or a combination of any of them, that has a direct contract with an owner to perform work under a construction contract.

1. 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, development or other improvement to land.

2. 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 an employee or subconsultant of the design professional.

5. "Final completion" means the earliest of the following:

(a) The date the work, or the work under a portion of a construction contract for which the contract states a separate price, is completed in accordance with the terms and conditions of the construction contract.

(b) The date of final inspection and final written acceptance by the governmental body that issues the building permit for the building, structure or improvement.

6. "Retention" means a portion of a progress payment otherwise due from the owner to the contractor that is withheld pursuant to the terms and conditions of a construction contract to ensure proper performance of the construction contract.

3. 7. "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.

8. "Subcontractor" means any person, firm, partnership, corporation, association or other organization, or a combination of any of those entities, that has a direct contract with a contractor or another subcontractor to perform a portion of the work under a construction contract.

9. "Substantial completion" means the earliest of the following events:

(a) The stage in the progress of the work on a construction contract when the work, or the work under a portion of a construction contract for which the contract states a separate price, is sufficiently complete in accordance with the terms and conditions of the construction contract so that the owner can occupy and use the work or portion of the work for its intended purpose. When substantial completion occurs for a portion of a construction contract for which the contract states a separate price, substantial completion occurs only to the work under that portion of the contract.

(b) The stage in the progress of the work on a construction contract when the contractor has sufficiently completed the work or the work under a portion of a construction contract for which the contract states a separate price in accordance with the terms and conditions of the construction contract to allow the owner to occupy and use the work or portion of the work for its intended purpose, but the owner is unable to or does not occupy or use the work or portion of the work for its intended purpose through no fault of the contractor.

(c) The date on which the governmental body that issues the building permit, if any, for a building, structure or improvement issues the written acceptance allowing the owner to occupy and use the work under a construction contract.

10. "Work" means the labor, materials, equipment and services to be provided by a contractor or subcontractor under a construction contract. END_STATUTE

Sec. 6. Title 34, chapter 2, article 2, Arizona Revised Statutes, is amended by adding sections 34-221.01 and 34-221.02, to read:

START_STATUTE34-221.01. Performance and payment by contractor, subcontractor, design professional or material supplier; conditions; interest; definitions

A. Notwithstanding any other provision of this article, performance by a contractor, subcontractor, design professional or material supplier in accordance with the provisions of a construction contract or design professional service contract entitles the contractor, subcontractor, design professional or material supplier to payment from the party with whom the contractor, subcontractor, design professional or material supplier contracts.

B. If a subcontractor, design professional or material supplier has performed in accordance with the provisions of a construction contract or design professional service contract, the contractor shall pay to its subcontractors, design professionals or material suppliers, and each subcontractor or design professional shall pay to its subcontractors, subconsultants or material suppliers, within seven days after receipt by the contractor, design professional or subcontractor of each progress payment, retention release or final payment, the full amount received for the subcontractor's or design professional's work and materials supplied based on work completed or materials supplied under the subcontract. Payment is not required pursuant to this subsection unless the subcontractor, design professional or material supplier provides to the contractor, design professional or subcontractor a billing or invoice for the work performed or material supplied in accordance with the terms of the construction contract or design professional service contract between the parties. Any diversion by the contractor or subcontractor of payments received for work performed pursuant to 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. A violation of this subsection is grounds for suspension or revocation of a license or other disciplinary action by the registrar of contractors pursuant to section 32-1154, subsections B, C and D. The subcontractor or material supplier may notify the registrar of contractors and the owner in writing of any payment that is less than the amount or percentage approved for the class or item of work as set forth in this section.

C. This chapter does not prevent 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 any of the following:

1. Unsatisfactory job progress.

2. Defective design professional services or construction work or materials not remedied.

3. Disputed design professional services, work or materials.

4. Third-party claims filed or reasonable evidence that a claim will be filed.

5. Failure of a subcontractor or design professional to make timely payments for design professional services, labor, equipment and materials.

6. Damage to the contractor or another subcontractor or design professional.

7. 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.

8. A reasonable amount for retention that does not exceed the actual percentage retained by the owner.

D. A contractor or subcontractor may not withhold retention from a subcontractor in an amount greater than the actual amount of the retention retained by the owner pertaining to the work of the subcontractor.

E. If the contractor or subcontractor chooses to withhold the application or certification for all or a portion of a subcontractor's or material supplier's billing or estimates as provided by subsection C of this section, the contractor or subcontractor must prepare and issue a written statement within fourteen days to any applicable subcontractor, design professional or material supplier stating in reasonable detail the contractor's or subcontractor's reasons for withholding the application or certification from the owner or contractor.

F. If the owner issues a written statement pursuant to section 34‑221, subsection C, H or J stating that the owner declines to certify or approve all or a portion of the contractor's billing or estimate and if the amounts to be paid from that billing or estimate by the contractor to any subcontractor or material supplier are affected by the owner's decision not to certify or approve, the contractor shall send a copy of that written statement within seven days after receipt to any affected subcontractor or material supplier. If the contractor sends a copy of the owner's written statement to a subcontractor and if the amounts to be paid from that billing or estimate by a subcontractor to any of its subcontractors or material suppliers are affected by the owner's decision not to certify or approve, the subcontractor shall send a copy of that written statement within seven days after receipt to any of its affected subcontractors or material suppliers.

G. If the owner issues a written statement pursuant to section 34‑221, subsection C, H or J stating that the owner declines to certify or approve a billing or estimate or a portion of a billing or estimate for defective construction work or materials not remedied and if the contractor as a result does not receive sufficient payment from the owner to pay subcontractors and material suppliers for work included in the contractor's billing or estimate, the contractor shall nevertheless pay any subcontractor or material supplier whose work was not the basis of the owner's withholding for defective construction work or materials not remedied within twenty-one days after payment would otherwise have been made by the owner under section 34-221. This subsection does not limit a subcontractor's rights to suspend performance under a construction contract or terminate a construction contract under section 34-221.02, subsection D.

H. If a progress or final payment or release of retention to a subcontractor, design professional or material supplier is delayed by more than seven days after receipt of the progress or final payment or release of retention by the contractor, design professional or subcontractor pursuant to this section, the contractor, design professional or subcontractor shall pay its subcontractor, subconsultant or material supplier interest, except for periods of time during which payment is withheld pursuant to subsection C of this section, beginning on the eighth day, at the rate of one percent per month or a fraction of a month on the unpaid balance or at such higher rate as the parties agree.

I. Any licensed contractor, licensed subcontractor or material supplier that files a complaint with the registrar of contractors under this section shall post a surety bond or cash deposit of five hundred dollars or one-half of the amount due, whichever is less, with the registrar of contractors to secure the payment of claims under this section. If the complaint is determined by the registrar of contractors to be without merit and frivolous, the registrar of contractors shall order the person who filed the complaint to pay one-half of the amount of the required surety bond or cash deposit to the respondent and one-half to the registrar of contractors for deposit in the state general fund. If a claim is not made under this section against the surety bond or cash deposit, the surety bond or cash deposit shall be returned to the complainant. The surety bond or cash deposit shall be in the name of the licensee or material supplier that files the complaint and is subject to claims by the registrar of contractors and the respondent licensee as provided in this section. The surety bond or cash deposit shall be conditioned on and provide for payment on the presentation of a certified copy of the order of the registrar of contractors and a certification by the complainant of nonpayment within thirty days after the order becomes final. The surety bond shall be executed by the complainant as principal with a corporation that is duly authorized to transact surety business in this state. Evidence of the surety bond shall be submitted to the registrar of contractors in a form acceptable to the registrar of contractors. The cash deposit shall be deposited, pursuant to sections 35-146 and 35-147, by the registrar of contractors in the contractors prompt pay complaint fund and shall be held for the payment of claims.

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

K. In any action or arbitration brought to collect payments or interest pursuant to this section, the successful party shall be awarded reasonable attorney fees and costs.

L. For the purposes of this section:

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, 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 an employee or subconsultant of the design professional.

5. "Retention" means a portion of a progress payment otherwise due from the owner to the contractor that is withheld pursuant to the terms and conditions of a construction contract to ensure proper performance of the construction contract.

6. "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.

7. "Subcontractor" means any person, firm, partnership, corporation, association or other organization, or a combination of any of those entities, that has a direct contract with a contractor or another subcontractor to perform a portion of the work under a construction contract.

8. "Work" means the labor, materials, equipment and services to be provided by a contractor or subcontractor under a construction contract. END_STATUTE

START_STATUTE34-221.02. Construction contracts; suspension of performance; termination; definitions

A. A contractor may suspend performance under a construction contract or terminate a construction contract for failure by the owner to make timely payment of the amount certified and approved pursuant to section 34-221. A contractor shall provide written notice to the owner at least seven calendar days before the contractor's intended suspension or termination unless a shorter notice period is prescribed in the construction contract between the owner and contractor. A contractor is not deemed in breach of the construction contract for suspending performance or terminating a construction contract pursuant to this subsection. A construction contract may not extend the time period for a contractor to suspend performance or terminate a construction contract under this subsection.

B. A subcontractor may suspend performance under a construction contract or terminate a construction contract if the owner fails to make timely payment of amounts certified and approved pursuant to section 34‑221 for the subcontractor's work and the contractor fails to pay the subcontractor for the certified and approved work. A subcontractor shall provide written notice to the contractor and owner at least three calendar days before the subcontractor's intended suspension or termination unless a shorter notice period is prescribed in the construction contract between the contractor and subcontractor. A subcontractor is not deemed in breach of a construction contract for suspending performance or terminating a construction contract pursuant to this subsection. A construction contract may not extend the time period for a subcontractor to suspend performance or terminate a construction contract under this subsection.

C. A subcontractor may suspend performance under a construction contract or terminate a construction contract if the owner makes timely payment of amounts certified and approved pursuant to section 34-221 for the subcontractor's work but the contractor fails to pay the subcontractor for the certified and approved work. A subcontractor shall provide written notice to the contractor and owner at least seven calendar days before the subcontractor's intended suspension or termination unless a shorter notice period is prescribed in the construction contract between the contractor and subcontractor. A subcontractor is not deemed in breach of a construction contract for suspending performance or terminating a construction contract pursuant to this subsection. A construction contract may not extend the time period for a subcontractor to suspend performance or terminate a construction contract under this subsection.

D. A subcontractor may suspend performance under a construction contract or terminate a construction contract if the owner declines to approve or certify portions of the contractor's billing or estimate pursuant to section 34-221 for that subcontractor's work but the reasons for that failure by the owner to approve and certify are not the fault of or directly related to the subcontractor's work. A subcontractor shall provide written notice to the contractor and the owner at least seven calendar days before the subcontractor's intended suspension or termination unless a shorter notice period is prescribed in the construction contract between the contractor and subcontractor. A subcontractor is not deemed in breach of a construction contract for suspending performance or terminating a construction contract pursuant to this subsection. A construction contract may not extend the time period for a subcontractor to suspend performance or terminate a construction contract under this subsection.

F. In any action or arbitration brought pursuant to this section, the successful party shall be awarded reasonable attorney fees and costs.

G. Written notice required under this section is deemed to be provided if either of the following occurs:

1. The written notice is delivered in person to the individual or a member of the entity or to an officer of the corporation for which it was intended.

2. The written notice is delivered at or sent by any means that provides written, third-party verification of delivery to the last business address known to the party giving notice.

H. For the purposes of this section:

4. "Work" means the labor, materials, equipment and services to be provided by a contractor or subcontractor under a construction contract. END_STATUTE

Sec. 7. Repeal

Section 34-227, Arizona Revised Statutes, is repealed.

Sec. 8. Title 34, chapter 2, article 2, Arizona Revised Statutes, is amended by adding a new section 34-227, to read:

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

A. The following are against this state's public policy and are void and unenforceable:

1. A provision, covenant, clause or understanding in, collateral to or affecting a construction contract or a design professional services contract, as defined in section 34-226, that makes the contract subject to the laws of another state or that requires any litigation arising from the contract to be conducted in another state.

2. a provision, covenant, clause or understanding in, collateral to or affecting a construction contract or a design professional services contract, as defined in section 34-226, stating that a party to the contract cannot suspend performance under the contract or terminate the contract if another party to the contract fails to make prompt payments under the contract pursuant to sections 34-221, 34-221.01 and 34-221.02.

B. Any mediation, arbitration or other dispute resolution proceeding arising from a construction contract or a design professional services contract, as defined in section 34-226, for work performed in this state shall be conducted in this state. END_STATUTE

Sec. 9. Section 34-609, Arizona Revised Statutes, is amended to read:

START_STATUTE34-609. Contracts for construction‑manager‑at‑risk, design‑build and job‑order‑contracting construction services; payments to contractor; security; recovery of damages by contractor for delay; progress payments; final payments; release of retention; definitions

A. An agent shall enter into a contract with the selected person or firm for construction‑manager‑at‑risk construction services, design‑build construction services or job‑order‑contracting construction services.

B. 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 by this chapter.

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 the contract may include payment for material and equipment, but to ensure the proper performance of the contract, the owner shall retain ten per cent five 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 owner's reasons for not approving all or a portion of 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 completed, one‑half of the amount retained including any securities substituted under paragraph 5 shall be paid to the contractor on the contractor's request provided 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 completed, no more than five per cent of the amount of any subsequent progress payments made under the contract may be retained providing 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 retention shall be reinstated for all progress payments made under the contract after the determination.

3. An owner may decline to certify and approve an estimate or portion of a billing or estimate for any of the following reasons:

(a) Unsatisfactory job progress.

(b) Defective construction work or materials not remedied.

(d) Failure to comply with other material provisions of the construction contract.

(e) Third-party claims filed or reasonable evidence that a claim will be filed.

(f) Failure of the contractor or a subcontractor to make timely payments for labor, equipment and materials.

(g) Damage to the owner.

(h) Reasonable evidence that the construction contract cannot be completed for the unpaid balance of the construction contract sum.

4. 5. On 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, payment may be made in full, including retained percentages, 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, engineer or other person, as specified in the contract.

5. 6. Ten per cent Five 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 an agent longer than sixty days after final completion and acceptance requires a specific written finding by the agent of the reasons justifying the delay in payment. No agent may retain any monies after sixty days that are in excess of the amount necessary to pay the expenses the agent reasonably expects to incur in order to pay or discharge the expenses determined by the agent 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 five percent of all estimates that are retained by the agent as a guarantee for complete performance of the contract. If the agent accepts substitute security as described in this paragraph for the ten per cent five percent retention, the contractor is entitled to receive all interest or income earned by this 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. 7. In any instance where the agent has accepted substitute security as provided in paragraph 5 6 of this subsection, any subcontractor undertaking to perform any part of this public work is entitled to provide substitute security to the contractor on terms and conditions similar to those described in paragraph 5 6 of this subsection, and this security is in lieu of any retention under the subcontract.

7. 8. Notwithstanding paragraphs 1 through 6 7 of this subsection, any other provision of this section and any other law, there is no retention for job‑order‑contracting construction services contracts and the agent may elect to have no retention for construction-manager-at-risk and design-build construction services contracts.

C. No A contract for construction services may materially not alter the rights of any contractor, subcontractor or material supplier to receive prompt and timely payment required to be included in the contract under subsection B of this section.

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

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

F. The contractor shall pay to the contractor's subcontractors or material suppliers and each subcontractor shall pay to the subcontractor's subcontractor 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 on account of the work performed by the subcontractors, to the extent of each subcontractor's interest, except that no contract for construction services may materially alter the rights of any contractor, subcontractor or material supplier to receive prompt and timely payment as provided under this section. The payments to subcontractors 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 those payments, constitutes grounds for disciplinary action by the registrar of contractors. The subcontractor or material supplier shall notify the registrar of contractors and the agent 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.

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

H. Nothing in this chapter prevents the contractor or subcontractor, at the time of application and certification to the owner or contractor, from withholding the application and certification to the owner or contractor for payment to the subcontractor or material supplier for unsatisfactory job progress, defective construction work 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 to make timely payments for labor, equipment and materials, damage to the contractor or another subcontractor, reasonable evidence that the subcontract cannot be completed for the unpaid balance of the subcontract sum or a reasonable amount for retention that does not exceed the actual percentage retained by the owner.

F. After the effective date of a construction contract, an owner and contractor may change the number of specified days after certification and approval for the owner to make payment to the contractor or within which a billing or estimate must be certified and approved. Any contractor or subcontractor that does not provide written consent to the change shall continue to be paid as previously agreed.

G. On substantial completion of the work, a contractor shall submit a billing or estimate for release of retention. The billing or estimate for release of retention is deemed certified and approved within seven days after the owner receives the billing or estimate, unless before that time the owner or the owner's agent issues a written statement stating in reasonable detail the owner's reasons for not certifying or approving all or a portion of the billing or estimate. The owner is deemed to receive the billing or estimate when the billing or estimate is submitted to any person designated by the owner for receipt or for certification and approval of the billing or estimate. The owner may either:

1. Decline to certify and approve a billing or estimate for release of retention or a portion of a billing or estimate for release of retention for failure of the contractor to complete a material requirement of the construction contract or to complete portions of the work or for any reason allowed under subsection B, paragraph 3 of this section.

H. The owner shall pay the retention to the contractor within fourteen days after the date the billing or estimate for release of retention is certified and approved. If the owner declines to certify or approve a billing or estimate for release of retention or a portion of a billing or estimate for release of retention pursuant to subsection G of this section, when any reason as stated in the owner's written statement has been removed, the contractor may submit a supplemental billing or estimate for all or a portion of the withheld amounts of retention pursuant to subsection G of this section. Unless otherwise agreed, the contractor may submit only one billing or estimate during each billing cycle.

I. On final completion of the work, a contractor shall submit a billing or estimate for final payment. A billing or estimate for final payment is deemed certified and approved seven days after the owner receives the billing or estimate, unless before that time the owner or owner's agent prepares and issues a written statement stating in reasonable detail the reasons the billing or estimate has not been certified or approved. The owner is deemed to receive the billing or estimate for final payment when the billing or estimate is submitted to any person designated by the owner for receipt of or for certification and approval of the billing or estimate. The owner may either:

J. The owner shall make final payment to the contractor within fourteen days after the date the billing or estimate for final payment is certified and approved. If the owner declines to certify or approve a billing or estimate for final payment or a portion of a billing or estimate for final payment pursuant to subsection I of this section, when any reason as stated in the owner's written statement has been removed, the contractor may submit a billing or estimate for all or a portion of the withheld amounts of final payment pursuant to subsection I of this section. Unless otherwise agreed, the contractor may submit only one billing or estimate during each billing cycle.

K. Payment is not required pursuant to this section unless the contractor provides the owner with a billing or estimate in accordance with the terms of the construction contract between the parties.

L. A construction contract may not alter the rights of any contractor, subcontractor or material supplier to receive prompt and timely payments as provided under this article.

M. In any action or arbitration brought to collect payments or interest pursuant to this section, the successful party shall be awarded reasonable attorney fees and costs.

I. N. 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 the unpaid balance as may be due.

J. If any periodic or final payment to a subcontractor 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 the subcontractor or material supplier interest, beginning on the eighth day, at the rate of one per cent per month or fraction of a month on the unpaid balance as may be due.

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

P. For the purposes of this section:

3. "Final completion" means the earliest of the following:

(b) The date of final inspection and final written acceptance by the governmental body that issues the building permit for the building, structure or improvement.

4. "Retention" means a portion of a progress payment otherwise due from the owner to the contractor that is withheld pursuant to the terms and conditions of a construction contract to ensure proper performance of the construction contract.

5. "Subcontractor" means any person, firm, partnership, corporation, association or other organization, or a combination of any of them, that has a direct contract with a contractor or another subcontractor to perform a portion of the work under a construction contract.

6. "Substantial completion" means the earliest of the following events:

(a) The stage in the progress of the work on a construction contract when the work, or the work under a portion of a construction contract for which the contract states a separate price, is sufficiently complete in accordance with the terms and conditions of the construction contract so that the owner can occupy and use the work or portion of the work for its intended purpose. When substantial completion occurs for a portion of a construction contract for which the contract states a separate price, substantial completion occurs only to the work under that portion of the contract.

(b) The stage in the progress of the work on a construction contract when the contractor has sufficiently completed the work or the work under a portion of a construction contract for which the contract states a separate price in accordance with the terms and conditions of the construction contract to allow the owner to occupy and use the work or portion of the work for its intended purpose but the owner is unable to or does not occupy or use the work or portion of the work for its intended purpose through no fault of the contractor.

7. "Work" means the labor, materials, equipment and services to be provided by a contractor or subcontractor under a construction contract. END_STATUTE

Sec. 10. Title 34, chapter 6, article 1, Arizona Revised Statutes, is amended by adding sections 34-609.01, 34-609.02 and 34-609.03, to read:

START_STATUTE34-609.01. Performance and payment by contractor, subcontractor or material supplier; conditions; interest; definitions

B. If a subcontractor or material supplier has performed in accordance with the provisions of a construction contract, the contractor shall pay to its subcontractors or material suppliers, and each subcontractor shall pay to its subcontractors or material suppliers, within seven days after receipt by the contractor or subcontractor of each progress payment, retention release or final payment, the full amount received for such subcontractor's work and materials supplied based on work completed or materials supplied under the subcontract. Payment may not be required pursuant to this subsection unless the subcontractor or material supplier provides to the contractor or subcontractor a billing or invoice for the work performed or material supplied in accordance with the terms of the construction contract between the parties. Any diversion by the contractor or subcontractor of payments received for work performed pursuant to 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. A violation of this subsection is grounds for suspension or revocation of a license or other disciplinary action by the registrar of contractors pursuant to section 32-1154, subsections B, C and D. The subcontractor or material supplier may notify the registrar of contractors and the owner 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.

1. Unsatisfactory job progress.

2. Defective construction work or materials not remedied.

3. Disputed work or materials.

4. Third-party claims filed or reasonable evidence that a claim will be filed.

5. Failure of a subcontractor to make timely payments for labor, equipment and materials.

6. Damage to the contractor or another subcontractor.

7. Reasonable evidence that the subcontract cannot be completed for the unpaid balance of the subcontract.

8. A reasonable amount for retention that does not exceed the actual percentage retained by the department.

F. If the owner issues a written statement pursuant to section 34‑609, subsection B, G or I stating that the owner declines to certify or approve all or a portion of the contractor's billing or estimate and if the amounts to be paid from that billing or estimate by the contractor to any subcontractors or material suppliers are affected by the owner's decision not to certify or approve, the contractor shall send a copy of that written statement within seven days after receipt to any affected subcontractor or material supplier. If the contractor sends a copy of the owner's written statement to a subcontractor and if the amounts to be paid from that billing or estimate by a subcontractor to any of its subcontractors or material suppliers are affected by the owner's decision not to certify or approve, the subcontractor shall send a copy of that written statement within seven days after receipt to any of its affected subcontractors or material suppliers.

G. If the owner issues a written statement pursuant to section 34‑609, subsection B, G or I stating that the owner declines to certify or approve a billing or estimate or a portion of a billing or estimate for defective construction work or materials not remedied and if the contractor as a result does not receive sufficient payment from the owner to pay subcontractor or material supplier for work included in the contractor's billing or estimate, the contractor shall nevertheless pay any subcontractor or material supplier whose work was not the basis of the owner's withholding for defective construction work or materials not remedied within twenty-one days after payment would otherwise have been made by the owner under section 34-609. This subsection does not limit a subcontractor's rights to suspend performance under a construction contract or terminate a construction contract under section 34-609.02, subsection D.

H. If a progress or final payment or release of retention to a subcontractor or material supplier is delayed by more than seven days after receipt of progress or final payment or release of retention by the contractor or subcontractor pursuant to this section, the contractor or subcontractor shall pay its subcontractor, subconsultant or material supplier interest, except for periods of time during which payment is withheld pursuant to subsection C of this section, beginning on the eighth day, at the rate of one percent per month or a fraction of a month on the unpaid balance or at such higher rate as the parties agree.

I. Any licensed contractor, licensed subcontractor or material supplier that files a complaint with the registrar of contractors under this section shall post a surety bond or cash deposit of five hundred dollars or one-half of the amount due, whichever is less, with the registrar of contractors to secure the payment of claims under this section. If the complaint is determined by the registrar of contractors to be without merit and frivolous, the registrar of contractors shall order the person who filed the complaint to pay one-half of the amount of the required surety bond or cash deposit to the respondent and one-half to the registrar of contractors for deposit in the state general fund. If no claim may be made under this section against the surety bond or cash deposit, the surety bond or cash deposit shall be returned to the complainant. The surety bond or cash deposit shall be in the name of the licensee or material supplier that files the complaint and is subject to claims by the registrar of contractors and the respondent licensee as provided in this section. The surety bond or cash deposit shall be conditioned on and provide for payment on the presentation of a certified copy of the order of the registrar of contractors and a certification by the complainant of nonpayment within thirty days after the order becomes final. The surety bond shall be executed by the complainant as principal with a corporation that is duly authorized to transact surety business in this state. Evidence of the surety bond shall be submitted to the registrar of contractors in a form acceptable to the registrar of contractors. The cash deposit shall be deposited, pursuant to sections 35-146 and 35-147, by the registrar of contractors in the contractors prompt pay complaint fund and shall be held for the payment of claims.

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

K. In any action or arbitration brought to collect payments or interest pursuant to this section, the successful party shall be awarded reasonable attorney fees and costs.

L. For the purposes of this section:

3. "Retention" means a portion of a progress payment otherwise due from the owner to the contractor that is withheld pursuant to the terms and conditions of a construction contract to ensure proper performance of the construction contract.

4. "Subcontractor" means any person, firm, partnership, corporation, association or other organization, or a combination of any of them, that has a direct contract with a contractor or another subcontractor to perform a portion of the work under a construction contract.

5. "Work" means the labor, materials, equipment and services to be provided by a contractor or subcontractor under a construction contract. END_STATUTE

START_STATUTE34-609.02. Construction contracts; suspension of performance; termination; definitions

A. A contractor may suspend performance under a construction contract or terminate a construction contract for failure by the owner to make timely payment of the amount certified and approved pursuant to section 34-609. A contractor shall provide written notice to the owner at least seven calendar days before the contractor's intended suspension or termination unless a shorter notice period is prescribed in the construction contract between the owner and contractor. A contractor is not deemed in breach of the construction contract for suspending performance or terminating a construction contract pursuant to this subsection. A construction contract may not extend the time period for a contractor to suspend performance or terminate a construction contract under this subsection.

B. A subcontractor may suspend performance under a construction contract or terminate a construction contract if the owner fails to make timely payment of amounts certified and approved pursuant to section 34‑609 for the subcontractor's work and the contractor fails to pay the subcontractor for the certified and approved work. A subcontractor shall provide written notice to the contractor and owner at least three calendar days before the subcontractor's intended suspension or termination unless a shorter notice period is prescribed in the construction contract between the contractor and subcontractor. A subcontractor is not deemed in breach of a construction contract for suspending performance or terminating a construction contract pursuant to this subsection. A construction contract may not extend the time period for a subcontractor to suspend performance or terminate a construction contract under this subsection.

C. A subcontractor may suspend performance under a construction contract or terminate a construction contract if the owner makes timely payment of amounts certified and approved pursuant to section 34-609 for the subcontractor's work but the contractor fails to pay the subcontractor for the certified and approved work. A subcontractor shall provide written notice to the contractor and owner at least seven calendar days before the subcontractor's intended suspension or termination unless a shorter notice period is prescribed in the construction contract between the contractor and subcontractor. A subcontractor is not deemed in breach of a construction contract for suspending performance or terminating a construction contract pursuant to this subsection. A construction contract may not extend the time period for a subcontractor to suspend performance or terminate a construction contract under this subsection.

D. A subcontractor may suspend performance under a construction contract or terminate a construction contract if the owner declines to approve or certify portions of the contractor's billing or estimate pursuant to section 34-609 for that subcontractor's work but the reasons for that failure by the owner to approve and certify are not the fault of or directly related to the subcontractor's work. A subcontractor shall provide written notice to the contractor and the owner at least seven calendar days before the subcontractor's intended suspension or termination unless a shorter notice period is prescribed in the construction contract between the contractor and subcontractor. A subcontractor is not deemed in breach of a construction contract for suspending performance or terminating a construction contract pursuant to this subsection. A construction contract may not extend the time period for a subcontractor to suspend performance or terminate a construction contract under this subsection.

F. In any action or arbitration brought pursuant to this section, the successful party shall be awarded reasonable attorney fees and costs.

G. Written notice required under this section is deemed to be provided if either of the following occurs:

1. The written notice is delivered in person to the individual or a member of the entity or to an officer of the corporation for which it was intended.

2. The written notice is delivered at or sent by any means that provides written, third-party verification of delivery to the last business address known to the party giving notice.

H. For the purposes of this section:

3. "Subcontractor" means any person, firm, partnership, corporation, association or other organization, or a combination of any of them, that has a direct contract with a contractor or another subcontractor to perform a portion of the work under a construction contract.

4. "Work" means the labor, materials, equipment and services to be provided by a contractor or subcontractor under a construction contract. END_STATUTE

START_STATUTE34-609.03. Construction contracts; void provisions; dispute resolution

A. The following are against this state's public policy and are void and unenforceable:

B. Any mediation, arbitration or other dispute resolution proceeding arising from a construction contract for work performed in this state shall be conducted in this state. END_STATUTE

Sec. 11. Section 41-2501, Arizona Revised Statutes, is amended to read:

START_STATUTE41-2501. Applicability

A. This chapter applies only to procurements initiated after January 1, 1985 unless the parties agree to its application to procurements initiated before that date.

B. This chapter applies to every expenditure of public monies, including federal assistance monies except as otherwise specified in section 41‑2637, by this state, acting through a state governmental unit as defined in this chapter, under any contract, except that this chapter does not apply to either grants as defined in this chapter, or contracts between this state and its political subdivisions or other governments, except as provided in chapter 24 of this title and in article 10 of this chapter. This chapter also applies to the disposal of state materials. This chapter and rules adopted under this chapter do not prevent any state governmental unit or political subdivision from complying with the terms of any grant, gift, bequest or cooperative agreement.

C. All political subdivisions and other local public agencies of this state may adopt all or any part of this chapter and the rules adopted pursuant to this chapter.

D. Notwithstanding any other law, sections 41‑2517 and 41‑2546 apply to any agency as defined in section 41‑1001, including the office of the governor.

E. The Arizona board of regents and the legislative and judicial branches of state government are not subject to this chapter except as prescribed in subsection F of this section.

F. The Arizona board of regents and the judicial branch shall adopt rules prescribing procurement policies and procedures for themselves and institutions under their jurisdiction. The rules must strictly follow the prompt payment requirements in sections 41-2576, 41-2577, 41-2577.01 and 41-2577.02 and be substantially equivalent to the other policies and procedures prescribed in this chapter.

G. The Arizona state lottery commission is exempt from this chapter for procurement relating to the design and operation of the lottery or purchase of lottery equipment, tickets and related materials. The executive director of the Arizona state lottery commission shall adopt rules substantially equivalent to the policies and procedures in this chapter for procurement relating to the design and operation of the lottery or purchase of lottery equipment, tickets or related materials. All other procurement shall be as prescribed by this chapter.

H. The Arizona health care cost containment system administration is exempt from this chapter for provider contracts pursuant to section 36‑2904, subsection A and contracts for goods and services, including program contractor contracts pursuant to title 36, chapter 29, articles 2 and 3 and contracts with regional behavioral health authorities pursuant to title 36, chapter 34. All other procurement, including contracts for the statewide administrator of the program pursuant to section 36‑2903, subsection B, shall be as prescribed by this chapter.

I. Arizona correctional industries is exempt from this chapter for purchases of raw materials, components and supplies that are used in the manufacture or production of goods or services for sale entered into pursuant to section 41‑1622. All other procurement shall be as prescribed by this chapter.

J. The state transportation board and the director of the department of transportation are exempt from this chapter other than sections 41‑2517 and 41‑2586 and are subject to title 28, chapter 20 and 2 Code of Federal Regulations section 200.317 for the procurement of the following:

1. All items of construction, reconstruction, rehabilitation, preservation or improvement undertaken on highway infrastructure.

2. Engineering services and any other work or activity to carry out engineering services related to highway infrastructure.

3. Right‑of‑way services related to land titles, appraisals, real property acquisitions, relocation services, property management and facility design.

4. Any other construction, reconstruction, rehabilitation, preservation or improvement work or activity that is required pursuant to title 28, chapter 20.

K. The Arizona highways magazine is exempt from this chapter for contracts for the production, promotion, distribution and sale of the magazine and related products and for contracts for sole source creative works entered into pursuant to section 28‑7314, subsection A, paragraph 5. All other procurement shall be as prescribed by this chapter.

L. The secretary of state is exempt from this chapter for contracts entered into pursuant to section 41‑1012 to publish and sell the administrative code. All other procurement shall be as prescribed by this chapter.

M. This chapter is not applicable to contracts for professional witnesses if the purpose of such contracts is to provide for professional services or testimony relating to an existing or probable judicial proceeding in which this state is or may become a party or to contract for special investigative services for law enforcement purposes.

N. The head of any state governmental unit, in relation to any contract exempted by this section from this chapter, has the same authority to adopt rules, procedures or policies as is delegated to the director pursuant to this chapter.

O. Agreements negotiated by legal counsel representing this state in settlement of litigation or threatened litigation are exempt from this chapter.

P. This chapter is not applicable to contracts entered into by the department of economic security:

1. With a provider licensed or certified by an agency of this state to provide child day care services.

2. With area agencies on aging created pursuant to the older Americans act of 1965 (P.L. 89‑73; 79 Stat. 218; 42 United States Code sections 3001 through 3058ff).

3. For services pursuant to title 36, chapter 29, article 2.

4. With an eligible entity as defined by Public Law 105‑285, section 673(1)(A)(i), as amended, for designated community services block grant program monies and any other monies given to the eligible entity that accomplishes the purpose of Public Law 105‑285, section 672.

Q. The Arizona health care cost containment system may not require that persons with whom it contracts follow this chapter for the purposes of subcontracts entered into for the provision of the following:

1. Mental health services pursuant to section 36‑189, subsection B.

2. Services for the seriously mentally ill pursuant to title 36, chapter 5, article 10.

3. Drug and alcohol services pursuant to section 36‑141.

R. The department of health services may not require that persons with whom it contracts follow this chapter for the purpose of subcontracts entered into for the provision of domestic violence services pursuant to title 36, chapter 30, article 1.

S. The department of health services is exempt from this chapter for contracts for services of physicians at the Arizona state hospital.

T. Contracts for goods and services approved by the board of trustees of the public safety personnel retirement system are exempt from this chapter.

U. The Arizona department of agriculture is exempt from this chapter with respect to contracts for private labor and equipment to effect cotton or cotton stubble plow‑up pursuant to rules adopted under title 3, chapter 2, article 1.

V. The Arizona state parks board is exempt from this chapter for purchases of guest supplies and items for resale such as food, linens, gift items, sundries, furniture, china, glassware and utensils for the facilities located in the Tonto natural bridge state park.

W. The Arizona state parks board is exempt from this chapter for the purchase, production, promotion, distribution and sale of publications, souvenirs and sundry items obtained and produced for resale.

X. The Arizona state schools for the deaf and the blind are exempt from this chapter for the purchase of textbooks and when purchasing products through a cooperative that is organized and operates in accordance with state law if such products are not available on a statewide contract and are related to the operation of the schools or are products for which special discounts are offered for educational institutions.

Y. Expenditures of monies in the morale, welfare and recreational fund established by section 26‑153 are exempt from this chapter.

Z. Notwithstanding section 41‑2534, the director of the state department of corrections may contract with local medical providers in counties with a population of less than four hundred thousand persons for the following purposes:

1. To acquire hospital and professional medical services for inmates who are incarcerated in state department of corrections facilities that are located in those counties.

2. To ensure the availability of emergency medical services to inmates in all counties by contracting with the closest medical facility that offers emergency treatment and stabilization.

AA. The department of environmental quality is exempt from this chapter for contracting for procurements relating to the water quality assurance revolving fund program established pursuant to title 49, chapter 2, article 5. The department shall engage in a source selection process that is similar to the procedures prescribed by this chapter. The department may contract for remedial actions with a single selection process. The exclusive remedy for disputes or claims relating to contracting pursuant to this subsection is as prescribed by article 9 of this chapter and the rules adopted pursuant to that article. All other procurement by the department shall be as prescribed by this chapter.

BB. The motor vehicle division of the department of transportation is exempt from this chapter for third‑party authorizations pursuant to title 28, chapter 13, only if all of the following conditions exist:

1. The division does not pay any public monies to an authorized third party.

2. Exclusivity is not granted to an authorized third party.

3. The director has complied with the requirements prescribed in title 28, chapter 13 in selecting an authorized third party.

CC. This section does not exempt third‑party authorizations pursuant to title 28, chapter 13 from any other applicable law.

DD. The state forester is exempt from this chapter for purchases and contracts relating to wildland fire suppression and pre‑positioning equipment resources and for other activities related to combating wildland fires and other unplanned risk activities, including fire, flood, earthquake, wind and hazardous material responses. All other procurement by the state forester shall be as prescribed by this chapter.

EE. The cotton research and protection council is exempt from this chapter for procurements.

FF. The Arizona commerce authority is exempt from this chapter, except article 10 for the purpose of cooperative purchases. The authority shall adopt policies, procedures and practices, in consultation with the department of administration, that are similar to and based on the policies and procedures prescribed by this chapter for the purpose of increased public confidence, fair and equitable treatment of all persons engaged in the process and fostering broad competition while accomplishing flexibility to achieve the authority's statutory requirements. The authority shall make its policies, procedures and practices available to the public. The authority may exempt specific expenditures from the policies, procedures and practices.

GG. The Arizona exposition and state fair board is exempt from this chapter for contracts for professional entertainment.

HH. This chapter does not apply to the purchase of water, gas or electric utilities.

II. This chapter does not apply to professional certifications, professional memberships and conference registrations.

JJ. The department of gaming is exempt from this chapter for problem gambling treatment services contracts with licensed behavioral health professionals.

KK. This chapter does not apply to contracts for credit reporting services.

LL. This chapter does not apply to contracts entered into by the department of child safety:

1. With a provider of family foster care pursuant to section 8‑503.

2. With an eligible entity as defined by Public Law 105‑285, section 673(1)(A)(i), as amended, for designated community services block grant program monies and any other monies given to the eligible entity that accomplishes the purpose of Public Law 105‑285, section 672.

MM. This chapter does not apply to contracts entered into by the department of economic security with a financial institution to serve as a program manager and depository under section 46‑903. END_STATUTE

Sec. 12. Section 41-2576, Arizona Revised Statutes, is amended to read:

START_STATUTE41-2576. Contract payment retention; partial payment

A. Ten per cent Five percent of all construction contract payments shall may be retained by this state as insurance of proper performance of the contract or, at the option of the contractor, a substitute security may be provided by the contractor in an authorized form pursuant to rules adopted by the director. The contractor is entitled to all interest from any such substitute security.

B. When the contract is fifty per cent completed, one‑half of the amount retained or securities substituted pursuant to this section shall be paid to the contractor upon the contractor's request provided 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 completed, no more than five per cent of the amount of any subsequent progress payments made under the contract shall be retained providing the contractor is making satisfactory progress on the project, except that if at any time the state determines satisfactory progress is not being made ten per cent retention shall be reinstated for all progress payments made under the contract subsequent to the determination.

C. B. Any retention shall be paid or substitute security shall be returned to the contractor within sixty days after final completion and acceptance of work under 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 finding justifying the retention of monies.

D. C. This state shall not accept any substitute security unless accompanied by a signed and acknowledged waiver of any right or power of the obligor to set off any claim against either the state governmental unit or the contractor in relationship to the security assigned. In any instance in which this state accepts substitute security as provided in this section, any subcontractor undertaking to perform any part of the contract is entitled to provide such security to the contractor.

E. D. Notwithstanding anything to the contrary in this section or in any other law:

1. There shall be no retention for job‑order‑contracting construction services contracts and the purchasing agency may elect to have no retention for construction-manager-at-risk and design-build construction services contracts.

2. This section applies only to amounts payable in a construction services contract for construction 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. 13. Section 41-2577, Arizona Revised Statutes, is amended to read:

START_STATUTE41-2577. Progress payments; final payments; release of retention; definitions

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 may 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 owner's reasons for not approving all or a portion of 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, 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, 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.

B. An owner may decline to certify and approve an estimate or portion of a billing or estimate for any of the following reasons:

1. Unsatisfactory job progress.

2. Defective construction work or materials not remedied.

3. Disputed work or materials.

4. Failure to comply with other material provisions of the construction contract.

5. Third-party claims filed or reasonable evidence that a claim will be filed.

6. Failure of the contractor or a subcontractor to make timely payments for labor, equipment and materials.

7. Damage to the owner.

8. Reasonable evidence that the construction contract cannot be completed for the unpaid balance of the construction contract sum.

C. After the effective date of a construction contract, an owner and contractor may change the number of specified days after certification and approval for the owner to make payment to the contractor or within which a billing or estimate must be certified and approved. Any contractor or subcontractor that does not provide written consent to the change shall continue to be paid as previously agreed.

D. On substantial completion of the work, a contractor shall submit a billing or estimate for release of retention. The billing or estimate for release of retention is deemed certified and approved within seven days after the owner receives the billing or estimate, unless before that time the owner or the owner's agent issues a written statement stating in reasonable detail the owner's reasons for not certifying or approving all or a portion of the billing or estimate. The owner is deemed to receive the billing or estimate when the billing or estimate is submitted to any person designated by the owner for receipt or for certification and approval of the billing or estimate. The owner may either:

E. The owner shall pay the retention to the contractor within fourteen days after the date the billing or estimate for release of retention is certified and approved. If the owner declines to certify or approve a billing or estimate for release of retention or a portion of a billing or estimate for release of retention pursuant to subsection D of this section, when any reason as stated in the owner's written statement has been removed, the contractor may submit a supplemental billing or estimate for all or a portion of the withheld amounts of retention pursuant to subsection D of this section. Unless otherwise agreed, the contractor may submit only one billing or estimate during each billing cycle.

F. On final completion of the work, a contractor shall submit a billing or estimate for final payment. A billing or estimate for final payment is deemed certified and approved seven days after the owner receives the billing or estimate, unless before that time the owner or owner's agent prepares and issues a written statement stating in reasonable detail the reasons the billing or estimate has not been certified or approved. The owner is deemed to receive the billing or estimate for final payment when the billing or estimate is submitted to any person designated by the owner for receipt of or for certification and approval of the billing or estimate. The owner may either:

G. The owner shall make final payment to the contractor within fourteen days after the date the billing or estimate for final payment is certified and approved. If the owner declines to certify or approve a billing or estimate for final payment or a portion of a billing or estimate for final payment pursuant to subsection F of this section, when any reason as stated in the owner's written statement has been removed, the contractor may submit a billing or estimate for all or a portion of the withheld amounts of final payment pursuant to subsection F of this section. Unless otherwise agreed, the contractor may submit only one billing or estimate during each billing cycle.

H. Payment is not required pursuant to this section unless the contractor provides the owner with a billing or estimate in accordance with the terms of the construction contract between the parties.

I. In any action or arbitration brought to collect payments or interest pursuant to this section, the successful party shall be awarded reasonable attorney fees and costs.

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

K. A contract for the procurement of construction may not include a provision that limits or precludes the contractor's recovery of damages related to expenses incurred by the contractor for a delay for which the agent is responsible, that is unreasonable under the circumstances and that was not within the contemplation of the parties to the contract. This section does not void any provision in the contract that requires notice of delays or provides for arbitration or another procedure for settlement or for liquidated damages.

G. L. 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 contract for preconstruction services, finance services, maintenance services, operations services or any other related services included in the contract.

M. For the purposes of this section:

5. "Final completion" means the earliest of the following:

(b) the date of final inspection and final written acceptance by the governmental body that issues the building permit for the building, structure or improvement.

7. "Subcontractor" means any person, firm, partnership, corporation, association or other organization, or a combination of any of them, that has a direct contract with a contractor or another subcontractor to perform a portion of the work under a construction contract.

8. "Substantial completion" means the earliest of the following events:

(a) The stage in the progress of the work on a construction contract when the work, or the work under a portion of a construction contract for which the contract states a separate price, is sufficiently complete in accordance with the terms and conditions of the construction contract so that the owner can occupy and use the work or portion of the work for its intended purpose. When substantial completion occurs for a portion of a construction contract for which the contract states a separate price, substantial completion occurs only to the work under that portion of the contract.

(b) The stage in the progress of the work on a construction contract when the contractor has sufficiently completed the work or the work under a portion of a construction contract for which the contract states a separate price in accordance with the terms and conditions of the construction contract to allow the owner to occupy and use the work or portion of the work for its intended purpose but the owner is unable to or does not occupy or use the work or portion of the work for its intended purpose through no fault of the contractor.

9. "Work" means the labor, materials, equipment and services to be provided by a contractor or subcontractor under a construction contract. END_STATUTE

Sec. 14. Title 41, chapter 23, article 5, Arizona Revised Statutes, is amended by adding sections 41-2577.01 and 41-2577.02, to read:

START_STATUTE41-2577.01. Performance and payment by contractor, subcontractor, design professional or material supplier; conditions; interest; definitions

B. If a subcontractor, design professional or material supplier has performed in accordance with the provisions of a construction contract or design professional service contract, the contractor shall pay to its subcontractors, design professionals or material suppliers and each subcontractor or design professional shall pay to its subcontractors, subconsultants or material suppliers, within seven days after receipt by the contractor, design professional or subcontractor of each progress payment, retention release or final payment, the full amount received for the subcontractor's or design professional’s work and materials supplied based on work completed or materials supplied under the subcontract. Payment is not required pursuant to this subsection unless the subcontractor, design professional or material supplier provides to the contractor, design professional or subcontractor a billing or invoice for the work performed or material supplied in accordance with the terms of the construction contract or design professional service contract between the parties. Any diversion by the contractor or subcontractor of payments received for work performed pursuant to 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. A violation of this section is grounds for suspension or revocation of a license or other disciplinary action by the registrar of contractors pursuant to section 32-1154, subsections B, C and D. The subcontractor or material supplier may notify the registrar of contractors and the owner in writing of any payment that is less than the amount or percentage approved for the class or item of work as set forth in this section.

1. Unsatisfactory job progress.

2. Defective design professional services or construction work or materials not remedied.

3. Disputed design professional services, work or materials.

4. Third-party claims filed or reasonable evidence that a claim will be filed.

5. Failure of a subcontractor or design professional to make timely payments for design professional services, labor, equipment and materials.

6. Damage to the contractor or another subcontractor or design professional.

7. 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.

8. A reasonable amount for retention that does not exceed the actual percentage retained by the owner.

E. If the contractor or subcontractor chooses to withhold the application or certification for all or a portion of a subcontractor's or material supplier's billing or estimates as permitted by subsection C of this section, the contractor or subcontractor must prepare and issue a written statement within fourteen days to any applicable subcontractor or material supplier stating in reasonable detail the contractor's or subcontractor's reasons for withholding the application or certification from the owner or contractor.

F. If the owner issues a written statement pursuant to section 41‑2577, subsection A, D or F stating that the owner declines to certify or approve all or a portion of the contractor's billing or estimate and if the amounts to be paid from that billing or estimate by the contractor to any subcontractor or material supplier are affected by the owner's decision not to certify or approve, the contractor shall send a copy of that written statement within seven days after receipt to any affected subcontractor or material supplier. If the contractor sends a copy of the owner's written statement to a subcontractor and if the amounts to be paid from that billing or estimate by a subcontractor to any of its subcontractors or material suppliers are affected by the owner's decision not to certify or approve, the subcontractor shall send a copy of that written statement within seven days after receipt to any of its affected subcontractors or material suppliers.

G. If the owner issues a written statement pursuant to section 41‑2577, subsection A, D or F stating that the owner declines to certify or approve a billing or estimate or a portion of a billing or estimate for defective construction work or materials not remedied and if the contractor as a result does not receive sufficient payment from the owner to pay subcontractors and material suppliers for work included in the contractor's billing or estimate, the contractor shall nevertheless pay any subcontractor or material supplier whose work was not the basis of the owner's withholding for defective construction work or materials not remedied within twenty-one days after payment would otherwise have been made by the owner under section 41-2577. This subsection does not limit a subcontractor's rights to suspend performance under a construction contract or terminate a construction contract under section 41-2577.02, subsection D.

H. If a progress or final payment or release of retention to a subcontractor, design professional or material supplier is delayed by more than seven days after receipt of progress or final payment or release of retention by the contractor, design professional or subcontractor pursuant to this section, the contractor, design professional or subcontractor shall pay its subcontractor, subconsultant or material supplier interest, except for periods of time during which payment is withheld pursuant to subsection C of this section, beginning on the eighth day, at the rate of one percent per month or a fraction of a month on the unpaid balance or at such higher rate as the parties agree.

I. Any licensed contractor, licensed subcontractor or material supplier that files a complaint with the registrar of contractors under this section shall post a surety bond or cash deposit of five hundred dollars or one-half of the amount due, whichever is less, with the registrar of contractors to secure the payment of claims under this section. If the complaint is determined by the registrar of contractors to be without merit and frivolous, the registrar of contractors shall order the person who filed the complaint to pay one-half of the amount of the required surety bond or cash deposit to the respondent and one-half to the registrar of contractors for deposit in the state general fund. If a claim is not made under this section against the surety bond or cash deposit, the surety bond or cash deposit shall be returned to the complainant. The surety bond or cash deposit shall be in the name of the licensee or material supplier that files the complaint and is subject to claims by the registrar of contractors and the respondent licensee as provided in this section. The surety bond or cash deposit shall be conditioned on and provide for payment on the presentation of a certified copy of the order of the registrar of contractors and a certification by the complainant of nonpayment within thirty days after the order becomes final. The surety bond shall be executed by the complainant as principal with a corporation duly authorized to transact surety business in this state. Evidence of the surety bond shall be submitted to the registrar of contractors in a form acceptable to the registrar of contractors. The cash deposit shall be deposited, pursuant to sections 35-146 and 35-147, by the registrar of contractors in the contractors prompt pay complaint fund and shall be held for the payment of claims.

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

K. In any action or arbitration brought to collect payments or interest pursuant to this section, the successful party shall be awarded reasonable attorney fees and costs.

L. For the purposes of this section:

8. "Work" means the labor, materials, equipment and services to be provided by a contractor or subcontractor under a construction contract. END_STATUTE

START_STATUTE41-2577.02. Construction contracts; suspension of performance; termination; definitions

A. a contractor may suspend performance under a construction contract or terminate a construction contract for failure by the owner to make timely payment of the amount certified and approved pursuant to section 41-2577. A contractor shall provide written notice to the owner at least seven calendar days before the contractor's intended suspension or termination unless a shorter notice period is prescribed in the construction contract between the owner and contractor. A contractor is not deemed in breach of the construction contract for suspending performance or terminating a construction contract pursuant to this subsection. A construction contract may not extend the time period for a contractor to suspend performance or terminate a construction contract under this subsection.

B. A subcontractor may suspend performance under a construction contract or terminate a construction contract if the owner fails to make timely payment of amounts certified and approved pursuant to section 41‑2577 for the subcontractor's work and the contractor fails to pay the subcontractor for the certified and approved work. A subcontractor shall provide written notice to the contractor and owner at least three calendar days before the subcontractor's intended suspension or termination unless a shorter notice period is prescribed in the construction contract between the contractor and subcontractor. A subcontractor is not deemed in breach of a construction contract for suspending performance or terminating a construction contract pursuant to this subsection. A construction contract may not extend the time period for a subcontractor to suspend performance or terminate a construction contract under this subsection.

C. A subcontractor may suspend performance under a construction contract or terminate a construction contract if the owner makes timely payment of amounts certified and approved pursuant to section 41-2577 for the subcontractor's work but the contractor fails to pay the subcontractor for the certified and approved work. A subcontractor shall provide written notice to the contractor and owner at least seven calendar days before the subcontractor's intended suspension or termination unless a shorter notice period is prescribed in the construction contract between the contractor and subcontractor. A subcontractor is not deemed in breach of a construction contract for suspending performance or terminating a construction contract pursuant to this subsection. A construction contract may not extend the time period for a subcontractor to suspend performance or terminate a construction contract under this subsection.

D. A subcontractor may suspend performance under a construction contract or terminate a construction contract if the owner declines to approve or certify portions of the contractor's billing or estimate pursuant to section 41-2577 for that subcontractor's work but the reasons for that failure by the owner to approve and certify are not the fault of or directly related to the subcontractor's work. A subcontractor shall provide written notice to the contractor and the owner at least seven calendar days before the subcontractor's intended suspension or termination unless a shorter notice period is prescribed in the construction contract between the contractor and subcontractor. A subcontractor is not deemed in breach of a construction contract for suspending performance or terminating a construction contract pursuant to this subsection. A construction contract may not extend the time period for a subcontractor to suspend performance or terminate a construction contract under this subsection.

F. In any action or arbitration brought pursuant to this section, the successful party shall be awarded reasonable attorney fees and costs.

G. Written notice required under this section is deemed to be provided if either of the following occurs:

1. The written notice is delivered in person to the individual or a member of the entity or to an officer of the corporation for which it was intended.

2. The written notice is delivered at or sent by any means that provides written, third-party verification of delivery to the last business address known to the party giving notice.

H. For the purposes of this section:

4. "Work" means the labor, materials, equipment and services to be provided by a contractor or subcontractor under a construction contract. END_STATUTE

Sec. 15. Repeal

Section 41-2583, Arizona Revised Statutes, is repealed.

Sec. 16. Title 41, chapter 23, article 5, Arizona Revised Statutes, is amended by adding a new section 41-2583, to read:

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

A. The following are against this state's public policy and are void and unenforceable:

1. A provision, covenant, clause or understanding in, collateral to or affecting a construction contract or a design professional services contract that makes the contract subject to the laws of another state or that requires any litigation arising from the contract to be conducted in another state.

2. A provision, covenant, clause or understanding in, collateral to or affecting a construction contract or a design professional services contract stating that a party to the contract cannot suspend performance under the contract or terminate the contract if another party to the contract fails to make prompt payments under the contract pursuant to section 41-2577, 41-2577.01 and 41-2577.02.

B. Any mediation, arbitration or other dispute resolution proceeding arising from a construction contract or a design professional services contract for work performed in this state shall be conducted in this state. END_STATUTE