Under Construction - September 2013: Arizona Court to Architect: You Have One Less Payment Tool than Your Contractor Counterparts

by Snell & Wilmer

Architects occasionally get into payment disputes with project owners in much the same way as general contractors do.  When that relationship sours, and litigation becomes necessary to secure payment, architects and contractors alike can be expected to invoke any payment right at their disposal, whether that be a contract claim, lien right or any other applicable remedy against an owner.   Yet those payment remedies substantially diverge, according to the Arizona Court of Appeals, when it comes to the Arizona Prompt Payment Act (hereinafter “Act”). 

Contractors routinely invoke that Act, not only to take advantage of the 1.5% monthly interest rate applicable to past-due invoices, but to preclude owners from disputing invoices that are deemed “certified and approved” under the statute.  In other words, a contractor can preclude an owner from raising various defenses to non-payment if the owner did not timely object to the invoice(s) within 14 days of receipt or refused payment for reasons other than as specified in the Act.  If architects were also covered by the Act, architects could equally benefit from these protections in their own payment disputes.  However, the Act is off limits for architects (and, by implication, to other design professionals) according to the recent decision issued in RSP Architects, Ltd. v. Five Star Dev. Resort Communities.

RSP attempted to invoke the Act in the course of its payment dispute with Five Star.  The parties vehemently disagreed about who owed who what.  For its part, Five Star argued that RSP overbilled it and submitted improper invoices that were not in accordance with the contract.  RSP responded that, according to the Act, its invoices could not be disputed by Five Star this late in the game.  However, Five Star convinced the trial court that the Act had no applicability to architects in the first place. 

The Court of Appeals agreed with Five Star based on how construction and architect-engineer agreements are treated differently under various Arizona statutes.  For example, not only does the anti-indemnity statute (A.R.S. § 32-1159) differentiate between “construction contracts” and “architect-engineer professional service contracts,” but contractors and architects are regulated under entirely different chapters in Title 32.  The court therefore held that the legislature could not have intended to include architect agreements within the Act’s definition of a “construction contract,” despite the fact RSP’s scope of work under its AIA B151 agreement included “construction administration” duties.  (The court held that such duties were not outside the norm of what architects normally perform.)  Without the Act as its trump card, RSP not only lost its $591,554.67 breach of contract claim, but had to pay Five Star over $300,000, the vast majority of which accounted for attorneys’ fees.

The lesson of RSP Architects is that if design professionals desire statutory prompt payment protections on par with those available to contractors, they must convince the legislature.   That same legislature, under SB 1231, just eased indemnification requirements on public projects at design professionals’ urging.  A return trip to the legislature next session thus may be necessary for those design professionals who believe they are entitled to have as many arrows in their quiver as contractors enjoy under the Prompt Payment Act.

Written by:

Snell & Wilmer

Snell & Wilmer on:

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