Sunday, January 14, 2018

Court Finds Arizona’s Prompt Payment Act does not Apply to Federal Projects in a Subcontractor Payment Dispute

In 2013, The National Park Service (NPS) contracted with Caymus Corporation (Caymus) in the amount of $292,300 to furnish and install road signs within the Grand Canyon National Park.  Caymus was prepared to furnish bonds for the project in accordance with the Miller Act, but the NPS told Caymus bonds were not required as it was services contract, not a construction contract.  Caymus then subcontracted the actual sign fabrication and installation activities to Zumar Industries (Zumar) in the amount of $92,793.  In March 2014, Zumar delivered sign panels to the jobsite and NPS immediately identified deficient and missing sign panels which lead to a multi-month discussion among the parties regarding the sign work.  On June 30, 2014, Caymus submitted a payment application to NPS where it certified the sign installation work was 100% complete.  Caymus issued $59,278 in payment to Zumar, withholding $35,632 pending satisfactory performance.  

In response to Caymus withholding its contract balance, Zumar entered into discussions with NPS to recover the funds, even proposing a series of joint-checks for work completed at one point.  Caymus would not agree to any payment terms unless Zumar warrantied the sign panels or NPS agreed to accept them as is.  In December 2014, NPS issued a punch list for the sign scope of work that included twenty-two signs in need of repair with an additional three that were missing.  Zumar completed the punch list work at a cost of $15,000. Earlier in September, Zumar filed the present breach of contract claim against Caymus, seeking $35,632 and prevailed in compulsory arbitration.  Caymus appealed and Zumar was awarded summary judgement for violations of state and federal prompt payment laws which constituted a material breach of the contract. Caymus again appealed.

The Court began its analysis by defining the purpose of the Arizona prompt payment act (PPA) as, “a framework for ensuring timely payments from the owner to the contractor and down the line to the subcontractors and suppliers whose work has been approved." Stonecreek Bld’g. Co., Inc. v. Shure, 216 Ariz. 36, 39, (App. 2007). The Court then presented the competing arguments. First, Caymus argued that federal agencies are not “owners” within the context of the PPA. Conversely, Zumar argued that the provisions of the PPA are not dependent on who the owner of a project is, but rather the PPA applies to the contractor-subcontractor relationship.  Furthermore, Zumar argued that the PPA does not impinge upon federal supremacy because “it does not regulate, compel, or otherwise apply to the federal government.” 

In its analysis, the Court examined the contractual relationship between Caymus and Zumar within the language of the PPA.  The Court found Caymus is a “contractor” because it has a "a direct contract with an owner to perform work under a construction contract” as the PPA defines.  Zumar is a subcontractor because it has a “"direct contract with a perform a portion of the work under a construction contract" as the PPA further defines.  The Court then presented the PPA’s definition of an “owner” as a “person; firm; partnership; corporation; association or other organization; or any combination of those previously listed.”  The Court points out that absent from the definition is “any form of government, government agency, or political subdivision.”  Against these definitions, the Court rejected Zumar’s argument that the PPA is a contractor-subcontractor based statute.  The Court found at the crux of the legislation is the owner-contractor contractual relationship and any payment responsibilities that may flow down from contractor to subcontractor, start with the owner-contractor relationship.  Accordingly, if the federal government cannot be an “owner” within the definition of the statute, then the statute is not applicable to lower tiers of contracts between contractors and subcontractors.  

The Court next found that Zumar was not entitled to summary judgment for its breach claim based upon the Federal Prompt Pay Act (FPPA).  The Court stated that the FPPA applies to federal construction projects and requires payment from contractor to subcontractor with seven days of payment from the government.  The Court pointed to the fact that the bond requirements of the Miller Act were not required by the NPA for the project, and as a result it was not a construction project.  Therefore, the FPPA was not applicable and summary judgment should not have been granted.

In conclusion, the Court reversed and remanded the trial court and awarded Caymus its costs and reasonable attorneys' fees.

The author, Brendan Carter, is a contributor to The Dispute Resolver and a former Student Division Liaison to the Forum on Construction Law.  He is the Director of Industry Advancement & Labor Relations with the AGC of Massachusetts based in Wellesley, MA.  He may be contacted at 781.786.8916 or

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