Arizona Court of Appeals Division One holds that the Arizona Prompt Pay Act does not apply to subcontracts for a federal project.

The National Park Service, a bureau of a federal agency, hired Caymus to provide and install road signs at Grand Canyon National Park.  Caymus hired Zumar to supply the sign panels.  Immediately after Zumar delivered the sign panels to the job site, the National Park Service raised concerns regarding defective and missing panels.  Caymus paid Zumar 62% of the subcontract price and withheld the remainder pending Zumar’s satisfactory performance.  After months of ongoing discussions, the National Park Service submitted to Zumar and Caymus a list of items needed to complete the sign panels work, and then a Cure Notice several months later.  Ultimately, Caymus completed the work.  The National Park Service withheld final payment to Caymus in an amount similar to what Caymus withheld from Zumar.

Zumar sued for breach of contract.  The trial court granted Zumar summary judgment on the grounds that Caymus violated state and federal prompt payment laws, which constituted a material breach of the subcontract.

The Court of Appeals reversed, holding that the Arizona Prompt Pay Act does not apply to payments from a contractor to a subcontractor or material supplier when the contract at issue is a federal project.  Agencies of the federal government are excluded from the definition of “owner” under the Act.  The Act is framed around the concept of “owner,” such that contractor-subcontractor disputes cannot be separated from that framework.

The Court of Appeals also held that Zumar failed to meet its burden to show that the contract between the National Park Service and Caymus was a “construction contract” subject to the Federal Prompt Pay Act.  The court further noted that the Federal Prompt Pay Act is not a substantive basis of recovery, and a prompt pay violation does not relieve a subcontractor from responsibility for inadequate performance.

Judge Cruz delivered the opinion of the Court; Presiding Judge Swann and Judge Brown joined.