Retainage & Final Payment – New Law in Arizona

ASA (American Subcontractors Association) of Arizona Shows Leadership in Securing Prompt Pay of Retainage & Final Payment.

(from Contractor Power Newsletter)

ALEXANDRIA, Va. — A new law (S.B. 1375) signed by Arizona Gov. Jan Brewer (R) on May 11, 2010, adds requirements for timely payment of retainage and final payments to the state’s prompt payment statute for construction. The law, supported by the American Subcontractors Association of Arizona and its allies representing a broad range of the state’s construction industry, establishes a payment cycle according to which non-residential project owners, prime contractors, and subcontractors normally will have to pay retainage and final payments for properly completed construction services and materials, or else pay a penalty of 1.5-percent interest per month.

tracking retainageThe governor of Arizona has signed into law the most significant construction legislation improving subcontractor rights within the last 10 years, said ASA of Arizona President Jeff Banker, Banker Insulation Inc., Chandler, Ariz. ASA of Arizona was proud to have a leading role in helping shape the new law and the future of construction in Arizona.

The law, which applies to projects for which contracts, plans or specifications are distributed on or after Jan. 1, 2011, will require prime contractors to submit timely applications for payment according to the project’s billing cycle (normally 30 days). Unless stated otherwise in the construction plans, project owners will have to approve within 14 days, and pay within 7 days after that, proper invoices for retainage that subcontractors submit at substantial completion of their work. The law will also establish a 21-day cycle for project owners to pay prime contractors proper invoices for final payment. It will limit owners withholding of such payments to 150 percent of the reasonable costs to complete any work that is under dispute.

Prime contractors and subcontractors will have seven days from receipt of retainage and final payment to pay their subcontractors and material suppliers, except when reasons for withholding are detailed in a written notice. The law will entitle subcontractors to written notifications of retainage releases by owners once subcontractors request such notifications. It will specifically protect subcontractors from wrongful withholding for defective work or materials that are not their fault. Where subcontractors are not at fault, the law says, The Contractor shall nevertheless pay any subcontractor or material supplier … within 221 days after payment would otherwise have been made by the owner.

ASA of Arizona and its allies worked hard throughout this long legislative process to prevent damage to existing prompt payment rights and to enact these beneficial payment reforms, said ASA of Arizona Advocacy Chairman Richard Usher, Hill and Usher Insurance & Surety, Phoenix, Ariz. The volume of Arizona construction is down dramatically in all market segments, which makes protecting payment rights and getting paid promptly as important as ever to subcontractor prosperity and survival.

Founded in 1966, ASA amplifies the voice of, and leads, trade contractors to improve the business environment for the construction industry and to serve as a steward for the community. ASA’s vision is to be the united voice dedicated to improving the business environment in the construction industry. The ideals and beliefs of ASA are ethical and equitable business practices, quality construction, a safe and healthy work environment, and integrity and membership diversity.

ASA Contact: David Mendes
(703) 684-3450, Ext. 1335

Tracking retainage is a common function of percentage-of-completion contract billing using AIA Forms G-702 & G-703.  To learn more about AIA Billing and how to complete forms G-702/G-703, click here.