Arizona Court of Appeals Division Two holds that the Prompt Pay Act’s progress payment provisions do not apply to work performed or materials supplied outside of a 30-day billing cycle.

Homeowners entered into a contract with a contractor for the construction of a home.  Arizona’s Prompt Pay Act requires owners to make progress payments based on actual and estimated costs as set forth in contractors’ payment applications.  After the homeowners made several payments to the contractor pursuant to payment applications, they indicated they would not pay the amount requested in a payment application because of faulty work.  The contractor contended that the faulty work had been remedied by a subcontractor and required payment.  The homeowners then terminated the contract, and the contractor sued for breach of the APPA, breach of contract, and unjust enrichment.  The homeowners counterclaimed against the contractor and the subcontractor for breach of contract, defective workmanship, negligence, and misrepresentation.  The superior court granted summary judgment in favor of the subcontractor and awarded the subcontractor attorneys’ fees.  After a bench trial, the trial court held that homeowners had violated the APPA by failing to object to the items in the payment application within fourteen days, but otherwise found for the homeowners on breach of contract and unjust enrichment.

The homeowners appealed the judgment holding they had breached the APPA, as well as the trial court’s grant of summary judgment to the contractor.  Regarding the APPA claim, the Court of Appeals first reversed the trial court, reasoning that the contractor was not entitled to payment for any items in the payment application that were more than thirty days outside of the billing cycle and the contractor had failed to prove which charges fell within that cycle.  The Court of Appeals stated that the plain language of the APPA permitted relief only for work performed within the applicable billing cycle and placed the burden on the contractor to itemize or estimate the work performed during that billing cycle.  Addressing an issue of first impression, the Court of Appeals concluded that the burden of proving which costs fell within a billing cycle fell on the contractor, who provided no evidence at trial for those costs. 

Turning to the subcontractor, the Court of Appeals concluded that the trial court properly granted summary judgment as to all claims because the homeowners had asserted additional claims in briefing on summary judgment and failed to assert those claims in any of their amended complaints.  The Court of Appeals further affirmed the grant of attorneys’ fees to the subcontractor because the contract and non-contract claims against the contractor were intertwined.

Judge Staring authored the opinion; Chief Judge Eckerstrom and Judge Brearcliffe joined.