§ 4.2.3.5 2015 Amendments: Arizona Design Professional Prompt Pay Act
The Arizona Legislature amended certain sections of the public sector prompt pay law in 2015.163 The 2015 amendments are entitled “The Arizona Design Professional Prompt Pay Act.”164 The bill as originally introduced sought to expand the prompt payment law to design professional agreements on both public and private projects. But due to strong opposition from the trade association representing Arizona’s homebuilders, the sections in the original draft legislation dealing with private construction projects were deleted and the scope of the final bill as enacted is much narrower.
First, the 2015 amendments apply only to public construction projects. Therefore, the decision in RSP Architects, Ltd. v. Five Star Development Resort Communities, LLC,165 that held Arizona’s private sector prompt payment laws do not apply to owner-architect agreements or other professional services contracts was not affected by the amendments and is still good law.
Second, as discussed in more detail below, because the 2015 legislation amended only particular sections of the public sector prompt pay laws, prompt pay protections were not extended to design professional agreements on all public works projects in Arizona. In addition, some of the language in the 2015 amendments is unclear and it is difficult to determine how broadly courts will ultimately interpret the amendments.
The 2015 amendments changed provisions in the ADOT statutes, Title 34 and the State Procurement Code. The changes to each of those statutes is discussed below.
(1) Changes to the ADOT Prompt Pay Statute
The 2015 amendments made changes to A.R.S. § 28-411. That section deals with prompt payment for ADOT agreements with “a consultant or contractor” other than “any agreement between the department and a contractor for highway construction projects” covered under A.R.S. § 28-6924. The term “consultant” is not defined anywhere in the ADOT statutes.
The prompt pay provisions in A.R.S. § 28-411 were amended to allow ADOT to provide its written objection to an application for a progress payment by “electronic means” in addition to first class mail.166 Although the term “electronic means” is not defined in this section, the term likely encompasses emails. This is the first instance in any prompt pay law in Arizona where notice can be expressly provided electronically. But as noted, the provision is limited to ADOT contracts with “consultants and contractors” other than contracts with contractors for highway construction projects.
The 2015 amendments also added a provision that ADOT shall pay “the agreed or reasonable value of all labor, materials, work or services furnished, installed or performed by a design professional pursuant to a limited notice to proceed” from ADOT's authorized agent “before the execution of a contract or contract modification” applicable to that work.167 The amended language specifically references work performed by a “design professional” and that term is defined.168 This amendment recognizes that ADOT in some instances directs design professionals to perform work without strictly following formal contracting requirements. The new section also includes language that the cost or pricing formula used in the contract is to be considered “the fair and reasonable cost” for such services unless otherwise agree. The amendment further allows the design professional to be paid even if the contract or contract modification is not finalized consistent with ADOT's cost guidelines.169
(2) Amendments to State Procurement Code Title 41
The 2015 amendments also amended the Arizona Procurement Code in Title 41. A.R.S. § 41-2577 sets forth the procedure for making periodic progress payments on projects covered by the Procurement Code?the owner is required to make payment within 14 days after a pay estimate is “certified and approved.”170 That section applies to all of the different procurement delivery methods provided for in Title 41, including contracts for competitively bid projects, job-order-contracting construction services, construction-manager-at-risk construction services, and design-build projects.
Contracts Between Public Owners and Design Professionals Under Title 41. The 2015 amendments added references to “design professional service contract[s]” in
§ 41-2577 as follows (added language in CAPS):
· A pay estimate is deemed certified and approved for payment after seven days from the date submitted unless, within that seven-day time period, the public owner or its agent issues a written finding specifically setting forth those items “in detail” in the pay estimate that are not approved for payment under either a construction contract or a DESIGN PROFESSIONAL SERVICES CON-TRACT.171
· If either the construction contract or the DESIGN PROFESSIONAL SER-VICES CONTRACT includes separately priced divisions, payment may be made in full on completion and acceptance of the separate division.172
· No contract for construction or DESIGN PROFESSIONAL SERVICES may materially alter the rights of any contractor, subcontractor, DESIGN PRO-FESSIONAL or material supplier to receive “prompt and timely payment as provided under this section.”173
Therefore, a design professional in direct contract with the public owner on a project covered under Title 41 is now generally afforded the protections of the public sector prompt pay law.
But the term “design professional” was not added to the first sentence of § 41-2577 requiring the State to make progress payments to the contractor on the basis of duly certified and approved pay estimates “during a preceding period of time as set by rule.” This omission may have been intentional because design professionals?unlike contractors?do not always submit bills on a monthly basis.
Moreover, whether a design professional is entitled to statutory interest for late payments from the public owner is unclear under the 2015 Amendments because the phrase “design professional” was not added in the section providing that “[i]f 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.”174 A design professional arguably may still be entitled to recover interest...
