By Jones Osborn II

Arizona law gives licensed contractors the right to terminate work and collect damages from the owner upon the discovery of hazardous substances during the performance of the contractor's work. A.R.S. § 32-1129.01.

Applicability. The law applies when a contractor discovers unknown hazardous materials, such as asbestos, which by law must be removed or contained, and

(a) the contractor does not have the license required to remove the hazardous material himself, or

(b) the removal or containment of the hazardous material cannot be accomplished without the contractor ceasing work.

The law provides that the contractor may cease work only in the area affected by the hazardous materials. In other words, the contractor may not shut down the whole job because of a problem in only one area.

Damages. When the contractor ceases work for this reason, he may collect damages from the owner for any additional expense caused by the delay. These damages could be substantial if men and equipment are required to sit idle for several months while the owner arranges the removal of the hazardous materials.

The owner, on the other hand, may terminate the contract upon the interruption of the work, provided that he pays the contractor for all services and materials furnished to the time of termination, plus the damages caused by termination.

The law does not apply if the hazardous materials are disclosed to the contractor before the contract is signed.

The law is also a little unclear when it refers to the contractor being able to interrupt work if he does not have the license necessary to remove the hazardous materials. This is because in most cases the contractor himself need not be licensed under Arizona law to remove such materials, although his employees may have to be certified. However, in all likelihood the law was intended to apply to situations where employee certification is required, regardless of whether the contractor himself must be licensed.

Effect of the Law. The effect of this law is to place the economic burden of unknown hazardous materials on the owner, rather than the contractor. In order to avoid interruption of the job and the payment of damages, owners should have an environmental audit performed before contracting for any work which may lead to the discovery of hazardous materials. If such materials are found, they should be disclosed to the contractor in writing. This is particularly true in the case of remodels or demolition, which frequently expose asbestos, PCB's, and other such substances, or new construction, which may disclose leaking underground storage tanks or other soil contamination.