In November 2017, the Arizona Court of
Appeals ruled that the
Arizona Prompt Payment Act does not protect the payment
rights of contractors or subcontractors that provide labor or
materials on federal projects in Arizona.
The case is
Zumar Industries Inc. v. Caymus Corporation, and here is a
summary of the issues, outcome and impact.
In 2013, the National Park Service hired
Caymus Corp. to provide and install road signs at Grand Canyon
National Park. Caymus subcontracted with Zumar Industries to
supply the sign panels.
After Zumar delivered the sign panels to
the job site, the Park Service raised concerns about defective
and missing panels. With the quality issue unresolved, Zumar
invoiced Caymus in full for the sign panels. Caymus sent a pay
application to the Park Service, certifying that the sign panels
line item was 100% completed, and the Park Service paid Caymus’s
invoice in full. But Caymus made only a partial payment to Zumar,
withholding $35,600 because of the outstanding quality issues.
Attempts by Zumar and the Park Service
to resolve the quality and payment issues were unsuccessful, and
in September 2014 Zumar sued Caymus for breach of contract,
seeking payment of the withheld $35,600.
Zumar prevailed in arbitration, and
Caymus appealed to Superior Court. Zumar moved for summary
judgment, arguing that Caymus’s refusal to make full payment
violated the Arizona Prompt Payment Act (among other
protections). The Superior Court granted Zumar’s motion, and
Caymus appealed to the Arizona Court of Appeals.
During the legal wrangling, Caymus
completed the work, and the Park Service withheld from its final
payment to Caymus roughly the same amount as Caymus withheld
Federal Agency Not an “Owner”
In its November 16, 2017, decision, the
Court of Appeals noted that:
“[T]he primary purpose of the Act
is to establish 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.”
Caymus argued that the Arizona Prompt
Payment Act does not apply to agencies of the federal
government, as federal agencies cannot be “owners” under the
Act. Caymus cited
A.R.S. § 32–1129(A)(4), which lists the entities included in
the definition of owner: “... person, firm, partnership,
corporation, association or other organization.”
Zumar countered that the Act’s prompt
pay provisions do not depend on the identity of the owner of the
project, and that the Act applies to agreements between a
contractor and subcontractor in any context.
To the surprise of many, the Court of
Appeals sided with Caymus and ruled that the Arizona Prompt
Payment Act does not apply to a contractor-subcontractor dispute
on a federal work project, even though the
contractor-subcontractor relationship arises from a private
contract between private entities. The Court of Appeals
reversed the Superior Court's ruling, awarded Caymus its costs
and attorneys' fees, and sent the case back to Superior Court.
In its ruling, the Court of Appeals
“The Act's payment scheme does not
apply to this federal project, and its provisions cannot be read
into the contract dispute. ... Zumar contends [the Act] regulates
payment from a contractor to a subcontractor or material
supplier in any context, even on a federal project. It does
What This Means for Contractors and
If the Court of Appeals ruling spells
the end of this case, contractors and subcontractors on federal
projects should assume that the Arizona Prompt Payment Act will
not apply to any payment disputes connected to that project.
 Citing to Stonecreek Bldg. Co.,
Inc. v. Shure, 216 Ariz. 36, 39, ¶ 16 (App. 2007)