ARIZONA  CONSTRUCTION  LAW

 

CHAPTER 1 THE CONSTRUCTION PROCESS ................................................................................ 1
THE OWNER’S PERSPECTIVE ................................................................................ 1
THE DESIGN PROFESSIONAL’S PERSPECTIVE ................................................................................ 1
THE GENERAL CONTRACTOR’S PERSPECTIVE ................................................................................ 2
SUBCONTRACTORS AND SUPPLIERS ................................................................................ 3
SUMMARY ................................................................................ 3

CHAPTER 2 GOVERNMENT REGULATION OF CONSTRUCTION................................................................................ 5
REGISTRAR OF CONTRACTORS ................................................................................ 5
Licensing Of Contractors ................................................................................ 5
The Complaint Process ................................................................................ 8
REGISTRATION OF ARCHITECTS AND ENGINEERS ................................................................................ 10
Registration of Architects ................................................................................ 10
Registration of Engineers ................................................................................ 10
BUILDING CODES ................................................................................ 11
BUILDING PERMITS ................................................................................ 12
When Is a Permit Required? ................................................................................ 12
What Is the Process to Obtain a Permit? ................................................................................ 12
INSPECTIONS AND CERTIFICATES OF OCCUPANCY ................................................................................ 13
ZONING REGULATION ................................................................................ 13
OSHA REGULATIONS ................................................................................ 15
ENVIRONMENTAL REGULATIONS ................................................................................ 18
Dust Control ................................................................................ 18
Stormwater ................................................................................ 19
Federal Environmental Regulations ................................................................................ 20
Asbestos ................................................................................ 20
Hazardous Substances “All Appropriate Inquiry” ................................................................................ 21

CHAPTER 3 PROJECT DELIVERY SYSTEMS ................................................................................ 25
DESIGN-BID-BUILD ................................................................................ 25
Multiple Prime Contractors ................................................................................ 27
Design Assist ................................................................................ 28
DESIGN-BUILD ................................................................................ 29
CONSTRUCTION MANAGEMENT AT RISK ................................................................................ 32
INTEGRATED PROJECT DELIVERY ................................................................................ 33

CHAPTER 4 THE CONSTRUCTION CONTRACT ................................................................................ 37
SOURCES OF CONTRACT DOCUMENTS ................................................................................ 37
METHODS OF PAYMENT ................................................................................ 38
Fixed Fee ................................................................................ 38
Cost Plus ................................................................................ 38
Time and Materials ................................................................................ 39
Guaranteed Maximum Price ................................................................................ 40
THE ARIZONA PROMPT PAY ACT ................................................................................ 40
COMMON CONTRACT PROVISIONS ................................................................................ 41
Contractor’s Representations and Warranties ................................................................................ 41
Acknowledgement of Site Condition ................................................................................ 41
Confirmation of Adequacy of Plans ................................................................................ 41
Construction in Conformance with Plans and Expertise as Contractor in Locality ................................................................................ 42
Owner’s Representations and Warranties ................................................................................ 42
Adequacy of Plans and Specifications ................................................................................ 42
Owner Not to Interfere With Performance ................................................................................ 42
Identifying the Scope of Work ................................................................................ 43
Changes ................................................................................ 44
Change Orders ................................................................................ 45
Construction Change Directives ................................................................................ 45
Minor Changes to the Work ................................................................................ 46
Equitable Adjustments ................................................................................ 46
Differing Site Conditions ................................................................................ 47
Pay-if-paid, pay-when-paid ................................................................................ 48
Indemnity ................................................................................ 49
Indemnity Clauses ................................................................................ 49
Duty to Defend Clauses ................................................................................ 52
Insurance ................................................................................ 53
Liability Insurance ................................................................................ 53
Professional Liability Insurance ................................................................................ 55
Property Insurance – Builder’s Risk Insurance ................................................................................ 55
Completed Operations Insurance ................................................................................ 56
Waivers of Subrogation ................................................................................ 57
Additional Insured Endorsements ................................................................................ 58
Other Coverages ................................................................................ 59
Time ................................................................................ 59
Attorneys’ Fees ................................................................................ 60
Termination ................................................................................ 61
For Cause ................................................................................ 61
For Convenience ................................................................................ 61
Damage Limitations ................................................................................ 62
No Damages for Delay ................................................................................ 62
Waiver of Consequential Damages ................................................................................ 63
Liquidated Damages ................................................................................ 64
Alternative Dispute Resolution ................................................................................ 65
Initial Decision Maker ................................................................................ 65
Mediation ................................................................................ 66
Arbitration ................................................................................ 66
Other Considerations ................................................................................ 67
Warranties ................................................................................ 68
Other important terms ................................................................................ 69
Retainage ................................................................................ 69
Contractor’s Contingency ................................................................................ 69
Form of Payment Applications—what should owner insist upon? ................................................................................ 70
Flow-down Clauses ................................................................................ 70
Terms Void Against Public Policy ................................................................................ 71
SUMMARY ................................................................................ 71

CHAPTER 5 PAYING FOR THE WORK ................................................................................ 73
PROGRESS PAYMENTS ................................................................................ 73
PROMPT PAYMENT ACT ................................................................................ 75
Prompt Pay Requirements for Billing Cycles and Progress Payments ................................................................................ 75
Payment Application Processing ................................................................................ 76
Payments under the Prompt Pay Act ................................................................................ 77
Retention Payment Requirements and Final Payments ................................................................................ 77
Risks and Penalties for Non-Compliance ................................................................................ 78
Subcontractor Requests for Notification of Payments ................................................................................ 79
Payments to Subcontractors and Suppliers ................................................................................ 79
Contractor and Supplier Remedies ................................................................................ 80
Suspension of Performance Due to Hazardous Conditions ................................................................................ 81
STOP NOTICES ................................................................................ 81
Stop Notice Procedures ................................................................................ 81
Obligations of Owners and Lenders who Receive a Stop Notice ................................................................................ 82
What Happens When a Stop Notice is Received by the Owner? ................................................................................ 84
Owner Demand for Service of Stop Notices ................................................................................ 84
Service Requirements for Stop Notice ................................................................................ 85
Preliminary 20-Day Notice Requirement ................................................................................ 86
Distribution of Monies ................................................................................ 86
Wrongful Stop Notices ................................................................................ 86
How Does a Claimant Enforce Its Rights Under the Stop Notice Provisions?................................................................................ 87
MECHANIC’S AND MATERIALMEN’S LIENS ................................................................................ 88
Projects Subject to Liens ................................................................................ 89
Preliminary 20-day Notice ................................................................................ 90
Who must serve a preliminary notice? ................................................................................ 91
Timeline for preliminary notices ................................................................................ 91
Obtaining information to complete the Preliminary 20-day Notice ................................................................................ 92
Contents of Preliminary Notice ................................................................................ 92
Service of Preliminary Notice ................................................................................ 93
Notice and Claim of Lien ................................................................................ 93
Deadline to Record a Notice and Claim of Lien ................................................................................ 93
“Completion” Defined ................................................................................ 93
Contents of a Notice and Claim of Lien ................................................................................ 93
Recording and Service of Notice and Claim of Lien ................................................................................ 94

iii
Notice of Completion ................................................................................ 94
Filing Suit to Enforce Lien ................................................................................ 95
Surety Bond to Discharge a Lien ................................................................................ 95
Releasing Lien Rights ................................................................................ 97
Risks Encountered with Mechanic’s Liens ................................................................................ 97
Equitable Subrogation of Mechanics’ Liens in Arizona ................................................................................ 97
PAYMENT BOND CLAIMS - FEDERAL GOVERNMENT PROJECTS ................................................................................ 102
Notice Required on Payment Bond ................................................................................ 102
Suit ................................................................................ 103
PAYMENT BOND CLAIMS – STATE AND LOCAL GOVERNMENT PROJECTS ................................................................................ 103
Notices Required ................................................................................ 103
Suit ................................................................................ 104
THE DYNAMICS OF BOND CLAIMS ................................................................................ 104
Performance Bonds ................................................................................ 104
Payment Bonds ................................................................................ 105
Other Construction Related Bonds ................................................................................ 106

CHAPTER 6 OWNER BREACH ................................................................................ 111
WRONGFUL NON-PAYMENT ................................................................................ 111
OWNER CAUSED DELAY ................................................................................ 113
Excusable Delays ................................................................................ 113
Compensable Delays ................................................................................ 114
“No Damage for Delay” Clauses and Exceptions Thereto ................................................................................ 115
“Limitation of Delay Damages” Clauses and Recoverable Damages ................................................................................ 115
Concurrent Delays ................................................................................ 116
DEFECTIVE OR INCOMPLETE PLANS ................................................................................ 116
ACCELERATION BY OWNER ................................................................................ 117
Actual vs. Constructive Acceleration ................................................................................ 117
DISPUTES OVER SCOPE OF WORK AND CHANGE ORDERS ................................................................................ 119
WRONGFUL TERMINATION BY OWNER ................................................................................ 119
When Termination is Justified ................................................................................ 119
Defenses to Termination ................................................................................ 121
Termination for Convenience ................................................................................ 121
Recoverable Damages ................................................................................ 122
Expectancy Damages ................................................................................ 122
Reliance Damages ................................................................................ 122
Quantum Meruit Damages ................................................................................ 123
Effect of the Timing of the Wrongful Termination ................................................................................ 123
CONCLUSION ................................................................................ 124

CHAPTER 7 CONTRACTOR BREACH ................................................................................ 127
DEFECTIVE OR NON-CONFORMING WORK ................................................................................ 127
Damages for Defective Work ................................................................................ 128
DELAYED PERFORMANCE ................................................................................ 129
ABANDONMENT ................................................................................ 131
NON-PAYMENT OF SUBCONTRACTORS/SUPPLIERS ................................................................................ 131
Failure to Pay Claims ................................................................................ 131
Pay When Paid Clauses ................................................................................ 132
OTHER CONTRACT BREACHES ................................................................................ 132

CHAPTER 8 SUBCONTRACTOR BREACH ................................................................................ 135
DEFECTIVE OR NON-CONFORMING WORK ................................................................................ 135
Owner Recovery ................................................................................ 135
Contractor Recovery Against Subcontractors ................................................................................ 136
DELAYED PERFORMANCE ................................................................................ 136
ABANDONMENT ................................................................................ 137

CHAPTER 9 CLAIMS AGAINST DESIGN PROFESSIONALS ................................................................................ 139
SCOPE OF THE DESIGN PROFESSIONALS’ DUTIES ................................................................................ 139
ERRORS IN THE PLANS AND SPECIFICATIONS ................................................................................ 140
Who Can Assert a Claim ................................................................................ 141
Damages Available to Claimants ................................................................................ 141
ERRORS IN ADMINISTRATION ................................................................................ 142
Inspection ................................................................................ 142
Approval of Pay Applications ................................................................................ 143
Review and Approval of Submittals ................................................................................ 143
DEFENSES FOR THE DESIGN PROFESSIONAL ................................................................................ 144
PROFESSIONAL LIABILITY INSURANCE ................................................................................ 144

CHAPTER 10 CHANGE ORDERS ................................................................................ 147
THE CHANGE ORDER CLAUSE ................................................................................ 147
FOLLOWING THE CHANGE ORDER CONTRACT PROVISIONS ................................................................................ 150
CARDINAL CHANGE ................................................................................ 151
RECOVERY IN QUANTUM MERUIT ................................................................................ 152

CHAPTER 11 LITIGATING CLAIMS ................................................................................ 153
ALTERNATIVE DISPUTE RESOLUTION ................................................................................ 153
Governed by the Terms of the Contract ................................................................................ 154
Possible Carve Outs ................................................................................ 156
The Importance of Consolidation ................................................................................ 156
Dispute Resolution While the Work is Pending ................................................................................ 156
Arbitration Clauses Need to be Fair and Reasonable ................................................................................ 157
Consider Carefully the Number of Arbitrators ................................................................................ 158
Post-Dispute Arbitration ................................................................................ 158
MEDIATION ................................................................................ 159
Selecting the Right Mediator ................................................................................ 159
Preparing for Mediation ................................................................................ 160
Timing ................................................................................ 160
Providing the Mediator with Information Needed ................................................................................ 161
Preparing the Parties ................................................................................ 162
The Mediation ................................................................................ 162
INITIATING THE ARBITRATION PROCESS ................................................................................ 164
Follow the Contractually Mandated Procedure ................................................................................ 164
Arbitrator Selection ................................................................................ 164
Discovery Limitations ................................................................................ 164
Tailoring the Arbitration Process ................................................................................ 165
THE ARBITRATION HEARING ................................................................................ 166
ENFORCEMENT OF ARBITRATION AWARDS ................................................................................ 167
LITIGATION IN COURT ................................................................................ 168
Expert Witnesses ................................................................................ 168
The Statute of Repose ................................................................................ 170

CHAPTER 12 PURCHASER DWELLING ACTIONS ................................................................................ 173
NATURE AND OPPORTUNITY TO REPAIR ................................................................................ 173
Actions Under the 2002 Statute ................................................................................ 173
Starting the Action under the 2015 Amendments ................................................................................ 175
AMENDING THE CLAIMS ................................................................................ 178
THE STATUTE OF LIMITATIONS AND THE STATUTE OF REPOSE ................................................................................ 179
FEES, COSTS AND THE PREVAILING PARTY ................................................................................ 179
WHEN THE DWELLING ACTION STATUTES DO NOT APPLY ................................................................................ 180
PRACTICAL CONSIDERATIONS FOR THE SELLER ................................................................................ 181

CHAPTER 13 REMEDIES ................................................................................ 183
GENERAL METHODS FOR CALCULATING DAMAGES ................................................................................ 183
Damages for Construction Defects ................................................................................ 184
Waste ................................................................................ 184
Duty to Mitigate ................................................................................ 185
LOST PROFITS ................................................................................ 185
ECONOMIC-LOSS RULE ................................................................................ 186
CONTRACTUAL LIMITS AND LIQUIDATED DAMAGES ................................................................................ 186
MULTIPLE DEFENDANTS ................................................................................ 187
ATTORNEYS’ FEES ................................................................................ 187