Arizona Construction Contracts Guide & FAQs

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Arizona Contracts FAQs

Arizona Construction Contracts Overview

Arizona Construction Contracts


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A construction contract outlines each party’s obligations, rights, and remedies on a project. But although the language in specific contract clauses is typically negotiable, Arizona has certain rules that govern what the agreement must include — and what is prohibited.

Keep in mind that, while Arizona’s rules for construction contract terms are written into state law, the courts determine how strictly those laws should be interpreted — and those interpretations can change.

On this page, you’ll find resources, legal information, and answers to frequently asked questions about Arizona’s construction contract and payment terms requirements.

Arizona construction contract provisions

While Arizona generally allows construction parties to set the terms of their agreement, there are some laws that regulate specific types of contract provisions. Any contract clause that contradicts the law is invalid and unenforceable.

“No lien” clauses

Arizona’s mechanics lien law specifically prohibits the use of “no-lien clauses.” Any term in a construction contract that attempts to waive or impair a party’s claims or liens, shall be void and unenforceable.

Contingent payment clauses
There are two types of contingent payment clauses: pay-if-paid and pay-when-paid.

Both of these clauses are enforceable in Arizona. However, in order to be a valid and enforceable pay-if-paid clause in Arizona, it must clearly state that payment from the owner is a condition precedent to payment, payment isn’t due until the owner has paid, and identifies owner payments as the sole source of funding of the subcontract. If these conditions aren’t met, or the clause is deemed to be ambiguous, it will be treated as a pay-when-paid clause, requiring a reasonable time for payment.

Payment timing clauses

Arizona’s prompt payment provisions govern the timing of payments on both private and public projects. On private projects, the timing of payments from the owner to the prime contractor may be modified by the contract, as long as the specific statutory notice language is included. All other payments must be made according to the statute.

Conversely, on public projects, payments by the contracting public entity must be made according to the statute. But all other payment deadlines under the public prompt pay laws may be modified by the terms of the subcontract.

Retainage limits

Arizona laws only regulate the amount of retainage withheld on public projects; at no more than 10%, until 50% completion. If successful progress is being made, the amount will be reduced to no more than 5% of the remaining progress payments. This may not be altered by contract. As far as retainage on private projects, there is no cap on the amount that can be withheld. So the amount of retainage withheld will be determined by the terms of the contract itself.

Arizona construction contract requirements

All prime construction contracts in Arizona over $1,000 must include certain pieces of information and provisions in order to be valid. This includes the contractor’s name, business address, and license number, as well as a description of work to be performed, the total contract price, and an estimated date of completion; amongst others.

Other types of construction contract requirements

In addition to the above-listed requirements, there are certain types of contracts that may require more information in order to be valid. These include residential contracts for the repair of storm damage and the installation of residential pools or spas. These contracts should include things such as a right to cancel, detailed repair estimates, progress payment schedules, and more.

Construction Contracts FAQs in Arizona

Construction contracts and payment terms are highly regulated in Arizona. It can be confusing to figure out when payments must be made, how to make them, and how to best protect your company from expensive problems. Here are some frequently asked questions that come up with construction contracts and payment terms on Arizona jobs

Arizona Construction Contracts FAQs

Can you waive lien rights by contract in Arizona?

No, the waiver of lien rights by contract, (so-called “no-lien clauses”), is specifically prohibited in Arizona.

Under ARS §33-1008(A), “An owner or contractor by any term of their contract, or otherwise, may not waive or impair the claims or liens of other persons whether with or without notice except by written consent or as prescribed by §33-1003. Any term of the contract to that effect shall be void.”

Do I need a written contract to file an Arizona mechanics lien?

It depends.

On owner-occupied, residential projects, only claimants with a written contract with the property owner may file a mechanics lien in Arizona. Furthermore, design professionals may only file a mechanics lien if they either (a) have a written contract with the property owner, or (b) have an oral or written contract with someone who does have a written contract with the property owner.

• For more information: Who Can and Cannot File a Mechanics Lien in Arizona?

 

How does Arizona treat pay-if-paid and pay-when-paid clauses?

Pay-if-paid clauses

Pay-if-paid clauses are enforceable in Arizona, despite the courts’ strongly disfavor enforcing such risk-shifting provisions. A pay-if-paid clause will be enforced as long as the provision clearly and unambiguously states; (1) receipt of payment from the owner is a condition precedent; (2) payment is not due and owing until the owner has made such payments to the contractor; & (3) the owner payments are the sole source of funding for the subcontract. –L Harvey Concrete v. Agro Construction & Supply Co.

However, these clauses will not protect contractors from nonpayment that is a result of “gross mistake, fraud, or error amounting to a failure to exercise honest judgment.”

Pay-when-paid clauses

Pay-when-paid provisions are also enforceable in Arizona. If a purported pay-if-paid clause is deemed ambiguous, it will be treated as a pay-when-clause; which merely sets a reasonable time for payment.

• See: How does pay-when-paid work? Can I still demand payment even though the general contractor claims they have not been paid yet by the owner?

Are no-damages-for-delays clauses enforceable in Arizona?

The enforceability of no-damages-for-delay clauses in Arizona depends on the type of project. These clauses are enforceable on private construction projects.

However, on public works projects (both state and local government projects) such clauses are explicitly unenforceable on prime contracts. Under ARS §§ 34-221(F) and 41-2617, the statutes state that public construction contracts:

…shall include a provision that provides for negotiations between the agent and the contractor for the recovery of damages related to expenses incurred by the contractor for a delay for which the agent is responsible, which is unreasonable under the circumstances and which was not within the contemplation of the parties to the contract.

This is even true if the contract contains a “no liability clause, as it did in Technology Const., Inc. v. City of Kingman. Note: this does not void or waive any provisions that require notice of delays, provides for arbitration procedures, or liquidated damages.

Can you contract around Arizona’s prompt payment terms?

Private projects

The timing of some payments under Arizona’s private prompt pay laws may be modified by the contract. Payments from the owner are typically required to be made on a 30-day billing cycle basis, approved within 14 days of receipt of invoice, and paid within 7 days of approval. All of these timing mechanisms may be modified by contract by using the statutory Notice of Alternate Billing Cycle, Notice of Extended Certification & Approval Period, and/or Notice of Extended Payment Provisions.

• See: ARS §§32-1182(B), (C) and (F)

All other payments down the contracting chain must be made within 7 days of receipt of payment by the hiring party.

Public projects

The opposite is true for Arizona’s prompt pay provisions for public projects. The progress payment timing to prime contractors must be made on a monthly basis, the invoice must be approved within 7 days, and payment must be made within 14 days of approval. All other payments on private projects must be made within 7 days of receipt of payment by the hiring party; unless otherwise agreed to in the subcontract. However, subs and suppliers cannot waive the right to prompt and timely payment.

Can you contract around Arizona's retainage requirements?

Private projects

The amount of retainage that can be withheld on private projects in Arizona is not regulated by statute. Therefore, the terms of the contract between the parties will dictate how much retainage may be withheld on a private project. The timing of the release of retainage withheld may be modified by contract; see the question above

Public projects

No, on public projects in Arizona, retainage is capped at no greater than 10% of each progress payment. Once the project reaches 50% completion, the amount of retainage will be reduced to 5% if the contractor is deemed to be making satisfactory progress.

Does Arizona have any specific requirements for construction contracts?

Yes, any Arizona construction contract over $1,000 between a contractor and a property owner must be in writing and contain all of the following information, as required by ARS §32-1158:

    • Contractor’s name, business address, and license number;
    • Owner’s name & mailing address;
    • Jobsite address and/or legal description;
    • Estimated date of completion of work under the contract;
    • Description of work to be performed;
    • Total amount to be paid;
    • Amount of advance deposits paid or to be paid;
    • Amount & timing of any progress payments; &
    • Statement that owner has the right to file a complaint with the AROC, including the registrar’s telephone number and website address.

In addition to these requirements, there are some project-specific types of contracts that are also regulated in Arizona; such as residential contracts for storm damage repairs, and residential pool/spa construction contracts.

• For a full breakdown of these requirements see: Required Information on Arizona Construction Contracts

How long do I have to bring a breach of contract claim for nonpayment in Arizona?

The statute of limitations (deadline) to file a breach of contract claim for nonpayment in Arizona varies depending on whether the contract was written or oral.

Written contracts

For written contracts, claims for breach of contract must be brought within 6 years from the date of the breach.

ARS §12-548

Oral contracts

As for oral or implied contractors, a breach of contract claim must be brought within 3 years from the date of the breach.

ARS §12-543

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