SB1285- construction contracts’ public works; payments

This bill requires a contractor to submit a billing estimate for:

1.      The retention release after a substantial completion of work in a contract; and

2.      The final payment after final completion of work in a contract.

Specifies that a billing or estimate for retention release or final payment is deemed certified within 7 days of the entities receipt, unless a written statement is issued detailing the reasons for denial.

Requires a governmental entity to pay retention release or make final payment to a contractor within 14 days of certification and approval of the billing or estimate.

Allows a contractor or subcontractor for a contract to request payment for any changed or additional work requested by a government entity  that was completed in the preceding calendar month in monthly payment estimates based on the costs incurred to perform the work.

Requires the person designated in the contract with the responsibility for certifying and approving monthly payment estimates to make an interim determination to approve paying monthly costs and certify the amount determined to be reasonably justified.

Requires a government entity to specify the reasons for not approving all or any portion of an estimate of work performed in a request for progress payment regarding a contract.

Allows a government entity to decline to certify and approve an estimate or portion of a billing or estimate and allows a contractor or subcontractor to withhold an application and certification for payment to a subcontractor or material supplier for:

1.      Unsatisfactory job progress;

2.      Defective construction work or materials not remedied;

3.      Disputed work or materials;

4.      Failure to comply with provisions of the contract;

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

6.      Claims filed by third-parties;

7.      Damage to the government entity; or

8.      The existence of reasonable evidence that the contract cannot be completed for the unpaid balance of the contract sum.

Allows a government entity to:

1.      Decline to certify and approve all or a portion of a billing or estimate for retention release or final payment due to the contractors failure to complete a material requirement of the contract, failure to complete a portion of the work or other outlined reasons; or

2.      Withhold up to 150% of the direct costs and expenses that the government entity reasonably expected to incur for protection for which the contractor is responsible.

Allows a contractor to submit a supplemental billing or estimate for any amounts withhold by a government entity from retention release or final payment if any reason for a declined payment has been removed.

Prohibits a contractor from submitting more than one billing or estimate during each billing cycle, unless otherwise agreed.

Specifies that performance by a contractor, subcontractor, material supplier or design professional in accordance with the terms of a contract entitles them to payment from the contracting government entity.

Requires a contractor, subcontractor or design professional to pay the full amount received for work completed in accordance with the contract within 7 days of receiving any progress payment, retention release or final payment.

Specifies that payment by a contractor, subcontractor, or design professional is not required unless they provide a billing or invoice for work performed or materials supplied.

Allows a contractor or subcontractor to be paid as outlined in a contract, unless the contractor provides written consent to modify any payment or certification timelines.

Prohibits a contract for the procurement of construction to include a provision that limits or precludes a contractors recovery of damages related to expenses incurred by the contractor for a delay:

1.      For which the government entity is responsible;

2.      That is unreasonable under the circumstances; and

3.      Provide any other procedure for the settlement or provision of liquidated damages.

Requires the successful party in any action or arbitration brought to collect payments or interest in a contract to be awarded reasonable attorney fees and costs.

Allows, rather than requires, a subcontractor or material supplier to notify ROC and the government entity of any payment received by a contractor in an amount less than the percentage approved for the class or item of work performed.

Prohibits a contractor or subcontractor from withholding retention from a subcontractor in an amount greater than the actual amount of the retention returned by the government entity pertaining to the subcontractors work.

Requires a contractor that chooses to withhold the application or certification for a subcontractor or material suppliers billing or estimate to provide written notice within 14 days that outlines the reasons for withholding.

Requires a contractor to send a copy of any statement regarding refusal to certify or approve the billing or estimate by a government entity to any affected subcontractor or material supplier with 7 days.

Requires a subcontractor, after receiving a statement from a subcontractor regarding a refusal to certify or approve billing or estimate by a government entity, to send a copy of the statement to any affected subcontractors or material suppliers with 7 days.

Requires a contractor, after receiving notice from a government entity of a refusal to certify or approve billings or estimates for defective construction work or materials not remedied, to pay any subcontractor or material supplier whose work was not the basis for withholding within 21 days of the date the payment would have otherwise been made.

Allows ADOT to retain 5% of all estimates as a guarantee for complete performance of a highway construction contract.

Allows any government entity except ADOT to retain 5%, rather than 10%, of the amount of each progress payment estimate for a contract until final completion and acceptance is deemed approved as a guarantee for complete performance of the contract.

Permits a government entity to opt to have no retention on a contract.

Removes the requirement that half of any amount retained by a government entity, except ADOT, be paid to the contractor when half the contract is completed.

Specifies that any provision affecting a construction-manager-at-risk, design build or job-order-contracting contract with the state or political subdivision is void and unenforceable if it subjects the contract to the laws of another state or requires any litigation arising from the contract to occur in another state.

Removes language requiring a contractor to be paid any amount withheld by the state or a political subdivision as a guarantee for complete contract performance within 60 days of final completion.

Allows a material supplier to request notification from a government agency within 5 days of any progress payment made to the contractor.

Allows a contractor or subcontractor to suspend performance or terminate a contract due a government entity's failure to timely pay any certified and approved amount.

Requires that notice of intention to suspend or terminate a contract, due to failure to timely pay by a government entity, be provided:  a) seven days before executing a suspension or termination for a contractor; and  b) three days before executing a suspension or termination for a subcontractor. 

Specifies that a contractor or subcontractor is not deemed in breach of a contract for suspension of performance or termination due to the failure of a government entity to timely pay. 

Allows a subcontractor to suspend performance or terminate a contract if a government entity: a) timely pays certified and approved amounts, but the contractor fails to pay the subcontractor; or

 b) declines to approve and certify portions of the contractor's billing or estimate for the subcontractor's work, but the reasons for withholding of approval are not the fault of, or directly related to, the subcontractor's work.

Requires notice of intention to suspend or terminate a contract by a subcontractor for reasons other than a failure to pay by the government entity to be provided to the government entity and the contractor seven days before executing a suspension or termination, unless a shorter period is required in the contract. 

Specifies that contractors and subcontractors that suspend performance for authorized reasons are not required to furnish further labor, materials or services until the contractor or subcontractor is paid the amount that was certified and approved, plus any costs incurred for mobilization resulting from the shut down and start-up of a contract. 

Requires written notice of a suspension or termination of a contract to be: a) delivered in person to the individual or member of the entity for which it was intended; or b) delivered or sent by means that provide written third-party verification of delivery to the last known business address of the entity. 

Specifies that a provision, covenant or clause relating to a contract is void and unenforceable if it states that a party cannot suspend or terminate the contract if another party fails to make prompt payments pursuant to statute.

Exempts agricultural improvement districts and electric cooperatives from the definitions of contractor and subcontractor relating to void and unenforceable contract clauses. 

Specifies that any diversion by the contractor or subcontractor of payments received or failure to reasonably account for the application of payments, constitutes grounds for disciplinary action by the ROC, including suspension or revocation of a license. 

Requires any licensed contractor or licensed subcontractor or material supplier that files a complaint with the ROC relating to payment of contract work to post a surety bond or cash deposit of $500 or half the amount due, whichever is less, with the ROC to secure the payment of claims. 

Requires the ROC to order a complainant who files any claim determined to be without merit and frivolous to pay:  a) half of the amount of the required surety bond or cash deposit to the respondent; and  b) half of the amount to the ROC for deposit into the state General Fund. 

Requires that the surety bond or cash deposit be: a) returned to the complainant if a claim is not made against the surety bond or cash deposit; and b) in the name of the licensed contractor, licensed subcontractor or material supplier that files the complaint.

Specifies that the security bond or cash deposit is conditioned on and must provide for payment on the presentation of a certified copy of a ROC order and a certification by the complainant of nonpayment within 30 days of the final ROC order.

Requires that the surety bond be executed by the complainant as principal with an authorized surety corporation in Arizona.

Requires that evidence of the surety bond be submitted to the ROC in an acceptable form. 

Requires that the cash deposit be deposited by the ROC in the Contractors Prompt Pay Complaint Fund and held to pay claims. 

Requires the procurement rules for school districts adopted by the State Board of Education to strictly comply with prompt payment requirements