Arizona law has long protected the rights of contractors, subcontractors and suppliers to prompt payment. However, all such protections have not extended to design professionals. For example, in 2013, the Arizona Court of Appeals held in the case of RSP Architects, Ltd. v. Five Star Development Resort Communities, LLC, that Arizona’s private prompt pay statute, A.R.S. § 32-1129, did not apply to the benefit of the architects. In response to a push to extend statutory prompt payment protections to design professionals, the Arizona State Legislature passed legislation, approved by the Governor on April 13, 2015 and to be effective on July 3, 2015, to extend prompt payment protections to design professionals on public works projects. House Bill 2336 is known and may be cited as “the Arizona Design Professional Prompt Pay Act.”

Specifically, A.R.S. § 34-221, which applies to construction contracts with cities, towns and other public entities (but not the State or the Arizona Department of Transportation (ADOT)), has been amended to provide that the contractor’s prompt payment obligations to its subcontractors and suppliers now extends to its design professionals and the contractor’s subcontractors must similarly promptly pay their design professionals. In other words, payment is due to the design professional within seven days of receipt of payment by the contractor or subcontractor, as applicable, and the design professional is entitled to prompt pay interest of one percent per month (simple, not compounded) on late payments. As written, the amendment does not appear to affect contracts directly between a public entity and its design professional, but rather only design professionals subcontracted to the prime contractor or subcontractors.

For contracts involving the State, A.R.S. § 41-2577 was amended in similar fashion, in that a design professional contracted with the contractor or a subcontractor is now entitled to the same entitlement to prompt payment as a subcontractor, that is, payment within seven days of receipt of payment by the contractor or subcontractor, as applicable. In contrast to the Title 34 revision, A.R.S. § 41-2577(A) does address direct payments by the State to a contractor, but the revisions to this statute do not include language that the State must similarly promptly pay its design professionals, so the effective breadth of the amended A.R.S. § 41-2577 for State projects appears to be the same as A.R.S. § 34-221.

For projects involving the ADOT, A.R.S. § 28-411 was revised to require ADOT to pay a design professional an agreed amount or the reasonable value of services furnished pursuant to a limited notice to proceed from an authorized ADOT agent before the execution of a contract or contract modification. The statute does not otherwise grant any more expansive prompt payment rights to design professionals and does not grant any of the prompt payment rights described above in A.R.S. § 34-211 or A.R.S. § 41-2577.

Possible next steps that may be taken by design professionals towards extending their prompt payment protections include legislation to amend the statutes pertaining to a public entity’s direct contract with a design professional to provide for prompt payment by the public entity to the design professional, and/or legislation to amend the private prompt pay statute, A.R.S. § 32-1129, to address and perhaps legislatively overrule the RSP Architects decision. In the meantime, design professionals may continue to enforce their right to prompt payment by inclusion of proper contractual language. In other words, whether or not there is a statute that requires prompt payment of design professionals, they can nevertheless protect themselves by negotiating language into their contracts requiring prompt review and approval of billings, payment of those amounts due and notification of the bases of any payments withheld. For example, it will likely be enforceable in Arizona for the parties to write into a contract for design professional services the equivalent requirements of the private prompt payment statute, to be applicable to the design professional’s services. There is certainly no statute barring such language. But you must ask to receive.