In the last several months, numerous companies have announced hefty investments in substantial construction projects in Arizona. While the investments are good news for contractors already operating in Arizona, they also present an opportunity for contractors and subcontractors operating outside of Arizona to begin work in Arizona, either on announced large projects or on other work that may follow. Below are three initial legal issues that contractors beginning to work in Arizona should consider before they sign a contract to perform in Arizona.

Compliance with Arizona Law and Licensing Requirements

Arizona statutes require contractors be licensed by the state. The requirement is based on a broad definition providing that companies that offer “for compensation” to “Construct, alter, repair, add to, subtract from, improve, move, wreck or demolish any building, highway, road, . . . , excavation or other structure, project, development or improvement, or to do any part thereof, including the erection of scaffolding or any other structure or work in connection with the construction” generally are considered contractors in Arizona’s statutory scheme. While some companies may not have previously been licensed in their other markets, it is important to consider the work the company will be doing in Arizona when determining if a license is needed. Critically, this determination should happen early as the same definition refers to a company submitting a bid or responding to requests for qualification or proposal. Failure to be properly licensed when bidding on work could lead to discipline down the road.

If a company determines it needs a license for its intended work in Arizona, its team should become familiar with Arizona’s Registrar of Contractors (ROC). The ROC is responsible for the licensing and discipline of contractors in the state. The ROC’s website explains how to obtain a license, but counsel may be helpful if a company has concerns about its specific work or any applicable requirements.

Compliance with Arizona Law and Dispute Resolution

If a contractor is new to Arizona and intends to use its existing contract templates, it is worth reviewing whether your contract provisions comply with Arizona law regarding, for example, indemnification provisions and governing law and venue requirements. Arizona’s statutes, like many other state statutes, generally require that construction disputes have their forum in Arizona courts and be decided based on Arizona law. This is probably not a surprise for any sophisticated members of the industry working in multiple states, but it is worth reminding a company’s management new to Arizona work that if there is a dispute about the company’s work in Arizona, it needs to be prepared for Arizona’s court system.

Compliance with Arizona Law and Prompt Pay

Again, like other states, Arizona has a statutory “Prompt Pay” requirement. While contractors can opt out of some of the requirements, it is a rather cumbersome process and there are requirements that cannot be avoided and will apply regardless. Additionally, even experienced Arizona contractors can be surprised by the intricacies of the Prompt Pay Act. A recent Arizona Court of Appeals case, Shea Connelly, explains some of the potential traps for the unwary.

While not an exhaustive list, the above are a strong starting point that can help set your company up for success if it begins construction work in the Arizona market.