Paid When Paid Clause in Arizona

6 months ago

ACCRAM INC is a licensed Low Voltage Cabling contractor in Arizona. We have a contract with a GC/Developer with a “paid when paid” clause. We filed pre liens on time. Our final date of doing any work on this project was March 15th 2019. We are still owed 133K. The GC has construction issues unrelated to the work we have completed and therefore is not getting paid by the owner and has not paid us. I plan to file a “notice of intent to lien today. How does the “paid when paid ” clause work in Arizona and can I demand payment for our work even though the GC claims they have not been paid yet by the owner.

Senior Legal Associate Levelset

That’s a great question, and I’m sorry to hear there have been some payment delays on this job. Generally, Arizona treats a “pay when paid” clause in a contract as a time-shifting mechanism. That means the clause merely affects when payment will be made – but a customer will still eventually be responsible for payment, even if they don’t ever receive payment themselves. However, it’s important to note that the mechanics lien deadline doesn’t wait for pay when paid clauses. So, if payment isn’t received and a lien deadline is coming up, escalating the dispute may become necessary. Even if a customer isn’t yet required to make payment (under a pay when paid clause), filing a lien claim could work to speed things along.

With the above being said, note that things will change if there’s actually a pay if paid provision in play. If a contract contains a valid pay-if-paid provision, then a claimant might be out of luck if their customer never gets paid. You can learn more about that here: Arizona Pay-if-Paid Clauses.

As for whether payment can be demanded…
First, it’s worth mentioning that regardless of whether a valid pay if paid or pay when paid clause is present, demands for payment can be made and even a document like a Notice of Intent to Lien can be sent to encourage payment. A Notice of Intent to Lien isn’t an official claim, and it isn’t even a required notice in Arizona. So, any time a claimant has gone unpaid and what’s their customer to know they’re serious about payment recovery, a Notice of Intent to Lien may be appropriate. Though, certainly, they tend to be most effective when a lien claim could be filed.

Further, sending a document like a Notice of Intent to Lien to the property owner can help convince them to release payment more quickly. Property owners really don’t like when the title to their land is put in jeopardy, so threatening a lien claim could do well to speed up payment between the property owner and the GC, too. What’s more, if the GC is being slow paid, they might even be on board with sending a document like a Notice of Intent to Lien since it will benefit them, too.

For more information, these resources might be helpful:
(1) Pay If Paid or Pay When Paid: What’s the Difference, and Why Does it Matter?
(2) Understanding the Notice of Intent to Lien

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