Arizona’s Prompt Pay Act sets hard deadlines for construction payments: on private projects, an owner has 14 days to approve or object to a billing and then 7 days to pay it, and every contractor and subcontractor below has 7 days to pass received funds down the chain. Missing those deadlines triggers automatic interest of 1.5% per month on private work. Public projects run on a similar clock under a separate statute, with a lower 1% monthly penalty. The protections reach every tier, so a second- or third-tier subcontractor has the same statutory rights as the prime.
The Payment Clock on Private Projects
Private commercial and residential construction is governed by A.R.S. § 32-1129.01.1Arizona Legislature. Arizona Revised Statutes Title 32 – Section 32-1129.01 Progress Payments When a contractor submits a billing or estimate, the owner has 14 days to either approve it or issue a written objection explaining what part is not approved and why. Do nothing during those 14 days and the billing is deemed certified and approved by operation of law. That default rule is the backbone of the statute. It prevents owners from stalling simply by refusing to respond.
Once a billing is certified and approved, either expressly or by the 14-day default, the owner has 7 days to pay. The outside window on a clean invoice is therefore 21 days. The same 7-day deadline applies to release of retainage and to final payment after their respective billings are approved.
When the owner and the contractor are the same entity, that entity has 14 days after the billing is certified and approved to pay its subcontractors and suppliers.
Passing Payment Down the Chain
Once a contractor or subcontractor receives a progress payment, retention release, or final payment, they have 7 days to pay the full amount owed to their own subcontractors and material suppliers.2Arizona Legislature. Arizona Revised Statutes Title 32 – Section 32-1183 The downstream party has to have submitted a proper billing under the subcontract and provided a conditional lien waiver for the work or materials at issue. Diverting money received for a subcontractor’s work is separate grounds for discipline by the Registrar of Contractors.
Payment Rules on Public Works Projects
Public projects funded by a government agency fall under A.R.S. § 34-221.3Arizona Legislature. Arizona Revised Statutes Title 34 – Section 34-221 Progress payments run on certified estimates, which must be paid within 14 days after the estimate is certified and approved. The contractor then has 7 days after receiving each progress payment to pay subcontractors, design professionals, and material suppliers, unless the parties agreed in writing to a different timeline.
Retainage works differently on public jobs. The agency holds back 10% of each progress estimate until the project is 50% complete and the contractor is making satisfactory progress, at which point the retention rate drops to 5% on subsequent payments. The 10% can be reinstated if progress slips. After final completion and acceptance, the agency has 60 days to release retained funds, and any hold beyond that requires a specific written explanation.
When a Payer Can Withhold Money
Not every invoice has to be paid in full. A contractor or subcontractor may withhold all or part of a billing for specific reasons under A.R.S. § 32-1129.02, including:4Arizona Legislature. Arizona Revised Statutes Title 32 – Section 32-1129.02 Performance and Payment
- Unsatisfactory progress against the project schedule
- Defective work or materials that haven’t been corrected
- Disputed work where the parties disagree over contract compliance
- Failure to comply with other material terms of the contract
- Filed third-party claims, or reasonable evidence that one will be filed
- The subcontractor’s failure to make timely payments for labor, equipment, or materials
- Damage the subcontractor caused to the contractor or another subcontractor
- Reasonable evidence that the subcontract cannot be finished for the remaining balance
- Owner-retained amounts, capped at what the owner actually retained on that subcontractor’s work
The catch is procedural. The party withholding payment must issue a written statement within 14 days detailing the specific reasons for the deduction. A vague or late notice undermines the justification for holding money, which matters if the dispute ends up in front of a judge or arbitrator.
Interest on Late Payments
Interest accrues automatically when a payment deadline passes. On private projects, the rate is 1.5% per month, or 18% annually, on the unpaid balance, unless the contract sets a higher rate. Contract language that tries to eliminate or reduce that statutory interest is unenforceable. Interest begins the day after the deadline.
The same 1.5% monthly rate applies to downstream payments on private jobs. When a contractor or subcontractor fails to pay within 7 days of receiving funds, interest starts running on the eighth day.
On public projects, the rate is 1% per month, or 12% annually, and it works the same way for both prime and subcontract payments. Either statute puts real money on the table quickly on a six-figure billing, and the unpaid party doesn’t have to demand it in writing for the obligation to exist.
What Counts as a Proper Billing
The 14-day clock only starts when the billing actually meets the contract’s requirements. Progress payments are based on a certified estimate of work performed and materials supplied during the preceding 30-day billing cycle, or whatever cycle the contract specifies. The billing should include a breakdown of completed tasks, materials stored on-site, and supporting documentation such as conditional lien waivers.
Delivery matters just as much as content. The invoice has to reach the exact person or department named in the contract, often through an electronic portal or a specific office. If it goes to the wrong place, the owner can argue the approval clock never started, and that argument is hard to overcome once you’re trying to collect interest.
Collecting When Payment Doesn’t Come
Arizona gives unpaid contractors and suppliers several ways to enforce the statute. The right tool depends on project type, amount, and how far the relationship has broken down.
Registrar of Contractors Complaint
Subcontractors and suppliers can file a non-payment complaint with the Arizona Registrar of Contractors when a licensed contractor owes more than $750.5Arizona Registrar of Contractors. Non-Payment Complaint Form Filing requires posting a small surety bond or cash deposit, which is forfeited if the Registrar finds the complaint meritless. A meritorious complaint can lead to suspension or revocation of the respondent’s license, which is often enough leverage to move a stalled payment.
Mechanic’s Lien
Anyone providing labor, professional services, materials, or equipment has lien rights against the improved property under A.R.S. § 33-981.6Arizona Legislature. Arizona Revised Statutes Title 33 – Section 33-981 A recorded lien attaches the debt to the real property, which makes it the owner’s problem no matter where the payment failed in the chain. Two limits: an unlicensed contractor who was required to be licensed has no lien rights, and anyone required to serve a preliminary 20-day notice must have actually delivered it to preserve the claim. Missing that notice is one of the most common reasons subcontractors lose lien rights.
Suspending or Terminating Work
An unpaid subcontractor may suspend performance or terminate the contract for nonpayment under A.R.S. § 32-1129.04. The usual practice is a written notice of intent that gives the defaulting party a window to cure. Because stopping work creates schedule disruption and invites counterclaims, most contractors treat it as a step to take only after other collection efforts have failed.
Lawsuit or Arbitration
Recovering the principal plus accrued interest usually means filing suit or arbitrating. The statute shifts fees to the winner: in any action brought to collect payments or interest under A.R.S. § 32-1129.01, the successful party is awarded reasonable attorney’s fees and costs. That provision cuts both ways. A party sitting on a valid invoice risks paying the other side’s legal bills, and a party bringing a weak claim faces the same exposure. It’s one of the reasons legitimate disputes under the Act tend to settle before trial.