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ARIZONA STATE SENATE

Fifty-Fifth Legislature, Second Regular Session

 

FACT SHEET FOR s.b. 1136

 

public works; contracts; payments

Purpose

Outlines requirements for payment of contractors and subcontractors for changed or additional work in construction contracts with certain governmental agencies.

Background

Public Construction Contracts

            Statute outlines requirements for the Arizona Department of Transportation (ADOT) to contract with a contractor for highway construction projects and for state agencies subject to the Arizona Procurement Code, counties, cities, towns and certain special taxing districts (government entities) to contract with a contractor for public construction contracts. The Director of ADOT administers all highway and maintenance work, directs the preparation of all plans and specifications and supervises construction for work on state highways (A.R.S. § 28-6922).

            For highway construction projects with ADOT or public construction contracts with government entities, progress payments may be made to the contractor based on duly certified and approved estimates of work performed during a preceding period of time. In the case of public construction contracts between technical registrants and a county, city, town or special taxing district that are for projects more than 90 days, progress payments are required to be made. An estimate of work submitted by a contractor is deemed approved seven days after submission, unless ADOT or the government entity submits a written finding detailing items in the estimate that are not approved. ADOT or the government entity may withhold an amount sufficient to pay expenses reasonably expected to incur in correcting deficiencies outlined in the written finding. Progress payments are required to be paid within 14 days of certification and approval of the work estimate.

            The contractor and subcontractors in a highway construction contract with ADOT or a public construction contract with a government entity are required to pay their subcontractors, design professionals and material suppliers within seven days of receiving each progress payment, unless otherwise agreed in writing. Any diversion by a contractor or subcontractor of payments received for work performed on a contract or failure to reasonably account for the application of those payments constitutes grounds for disciplinary action by the Registrar of Contractors. A contractor or subcontractor may withhold payments to subcontractors, design professionals or material suppliers for certain statutorily authorized reasons, including unsatisfactory job progress, defective construction work or disputed work or materials (A.R.S. §§ 28-6924; 34-221; 34-609; and 41-2577).

The Arizona Procurement Code

            The Arizona Procurement Code regulates the buying, purchasing, renting, leasing and acquiring of materials, services and construction services by Arizona using public monies. The procurement process is overseen by the Arizona Department of Administration (ADOA), with the Director of ADOA acting as the Central Procurement Officer of Arizona (A.R.S. § 41-2511). Certain public bodies, including the Arizona Board of Regents (ABOR) and the legislative and judicial branches, are exempt from requirements of the Arizona Procurement Code. ABOR and the judicial branch must adopt rules prescribing procurement policies and procedures (A.R.S.
§ 41-2501
). Additionally, the State Board of Education is required to adopt rules for procurement practices for all school districts in Arizona (A.R.S. § 15-213).

There is no anticipated fiscal impact to the state General Fund associated with this legislation.

Provisions

1.   Allows a contractor, pending final determination of the total amount to be paid for changed or additional work, to request monthly pay estimates for changed or additional work completed during the preceding calendar month based on the costs incurred if:

a)   ADOT or a government entity directs the contractor in writing to perform changed or additional work in accordance with the public construction contract; and

b)   the contractor submits a reasonable estimate of the cost of the changed or additional work to ADOT or a government entity as may be required under the construction contract.

2.   Allows a subcontractor, pending a final determination of the total amount to be paid for changed or additional work, to request monthly pay estimates for changed or additional work the subcontractor completed during the preceding calendar month based on the costs the subcontractor incurred if:

a)   ADOT or a government entity directs the contractor in writing to perform changed or additional work in accordance with the public construction contract; and

b)   the contractor directs the subcontractor to perform the changed or additional work in accordance with the terms of agreement between the contractor and subcontractor.

3.   Requires the person designated in the construction contract to certify and approve the monthly pay estimate to:

a)   make an interim determination for the purpose of approval for payment of the costs of changed and additional work; and

b)   certify the amount that person determines to be reasonably justified.

4.   Allows a party to disagree with the interim determination and assert a claim in accordance with the terms of the construction contract or agreement between the contractor and subcontractor.

5.   Requires the successful party to be awarded reasonable attorney fees and costs in any action or arbitration brough regarding changed or additional work.

6.   Requires the State Board of Education to adopt procurement rules for construction projects for school districts that comply with statutory prompt payment requirements, except for external funding that has not yet been received.

7.   Requires ABOR to adopt procurement rules that are substantially equivalent to statutory prompt payment policies and procedures. 

8.   Defines construction contract, contractor, cost, subcontractor and work.

9.   Makes technical and conforming changes.

10.  Becomes effective on the general effective date.  

Prepared by Senate Research

January 24, 2022

JT/sr