Punctual payment is the lifeblood of any construction business. In Arizona, the Prompt Pay Act sets deadlines and rules to help money move smoothly from owners to contractors, subcontractors and suppliers.
As a contractor, following these rules is a good business practice that also protects your rights. Understanding how the state’s prompt payment system works is key to ensuring you receive payments fairly and on time.
How the billing and payment cycle works
Contractors typically submit monthly pay applications based on a schedule of values. Under Arizona’s Prompt Pay Act, an invoice is deemed approved 14 days after submission unless the owner issues a written disapproval stating specific reasons.
Once approved, the owner must pay the general contractor within seven days. The general contractor must then pay subcontractors and suppliers within seven days, with the same requirement passing down the chain.
Lawful withholding and notice requirements
An owner may have valid legal grounds to withhold payment in certain situations, including:
- Defective work
- Unresolved third-party claims
- Failure by the contractor to pay subcontractors or suppliers
- Incomplete work
- Failure to meet contract specifications
- Disputes over the amount properly due
However, doing so is only lawful if the owner gives timely written notice before the payment deadline, stating the reason and amount withheld. Without notice, the payment becomes approved by default, and silence can operate as acceptance of the invoice or application for payment.
Consequences of nonpayment
Late payments accrue interest at a rate of 1.5% per month or 18% annually, depending on the applicable law or contract terms. You may also have the right to suspend work for nonpayment if you provide the required written notice and allow time to cure nonpayment. Failing to follow these procedures can forfeit statutory protection or constitute a breach of contract.
Helping you keep construction on track
Pursuing a claim under Arizona’s Prompt Pay Act can safeguard your financial interests and ensure your project moves forward without delays. A lawyer can help you secure payments while maintaining your protections under the law.