United States: Arizona Court Of Appeals Rules Prompt Payment Act Does Not Apply To Design Professionals When Performing Normal Architectural And Engineering Services

RSP Architects, Ltd. v. Five Star Dev. Resort Communities, LLC
306 P.3d 93 (Ariz. Ct. App. 2013)

This action arose from a payment dispute on a construction project where an architectural firm, RSP Architects, Ltd. ("RSP"), contracted with a developer, Five Star Development Resort Communities, LLC ("Five Star"), to provide architectural services for a development known as the Palmeraie (the "Project"). Pursuant to the architectural services contract (the "Architectural Agreement"), RSP was tasked with several different duties, including "construction administration," "overall coordination," and "conceptual design" related to the Project. For its services, RSP was to receive approximately $3,000,000. Prior to completion, however, RSP ceased work on the Project and sued Five Star, alleging, among other claims, a violation of Arizona's Prompt Payment Act, A.R.S. § 32-1129 et seq. (the "PPA").

The PPA provides that a licensed contractor, subcontractor or material supplier that has performed according to a "construction contract" is entitled to prompt payment from the party with which it contracted. If applicable, the owner or upstream contractor has fourteen (14) days to issue a written objection to the invoice or else it is deemed certified and approved. Once certified and approved, the PPA requires payment to be made within seven (7) days. Accordingly, RSP argued that because Five Star did not timely disapprove the invoices RSP sent between December 2008 and May 2009, they were deemed certified and approved and Five Star violated the PPA by failing to transmit payment.

On cross-motions for summary judgment, the superior court held the PPA does not apply to a contract between an owner and an architect and entered summary judgment in Five Star's favor on that claim. RSP appealed the superior court's decision and argued to the Arizona Court of Appeals that the Architectural Agreement fell within the PPA because it "relat[es] to the development or improvement of land, within the definition of "construction contract." Thus, the issue before the Court of Appeals was whether the Architectural Agreement was a "construction contract" within the meaning of the PPA. The PPA defines "construction contract" as "a written or oral agreement relating to the construction, alteration, repair, maintenance, moving or demolition of any building, structure or improvement or relating to the excavation of or other development or improvement to land."

The Court applied what it called "common sense" and stated that there must be some bounds to the breadth of the PPA. To read the PPA as argued by RSP, the Court reasoned, the PPA would apply to any agreement touching construction, such as a contract with a food vendor to bring a lunch truck to the construction site every day or the retainer agreement between a contractor and his zoning attorney. The Court was unwilling to extend the PPA to include everyone who is involved in any way in construction.

Because the scope of the PPA was unclear to the Court from its plain language, it applied methods of statutory interpretation and looked to the legislative history of the PPA and elsewhere in Arizona law for clarity. First, the Court noted that the PPA is located in Chapter 10 of Title 32 of Arizona Revised Statutes (governing contractors), while Chapter 1 of Title 32 separately regulates architects. Indeed, the Court found that A.R.S. § 32-1121(a)(7) specifically states that Chapter 10 "shall not be construed to apply to" an agreement for architectural services. Second, the Court pointed out that Arizona's anti-indemnity statute, A.R.S. § 32-1159, passed seven years prior to the PPA, uses a virtually identical definition of "construction contract." However, the anti-indemnity statute also contains a definition for an "architect-engineer professional service contract." Accordingly, the Court found that the "legislature at that time plainly intended to bring design professionals within the protection of the anti-indemnity act. It chose to do so not by relying on a single broad definition of 'construction contract' that might encompass architects, but by crafting a specific definition of 'architect-engineer professional service contract' to which the anti-indemnity act would apply." Therefore, the Court reasoned that adopting RSP's contention that the PPA's definition of "construction contract" includes architectural services contracts would render A.R.S. § 32-1559 meaningless, because every architectural service contract would already qualify as a "construction contract."

In further support of its position, RSP also argued that the Architectural Agreement fell within the definition of "construction contract" because it required RSP to do more than simply create drawings. The Architectural Agreement indicated that RSP "will provide conceptual design, schematic design, design documents, construction documents and construction administration services." However, the Court held that nothing within the Architectural Agreement imposed "construction management" duties sufficient to potentially fall within the PPA. The Court reasoned that the construction administration services RSP contracted to perform were not beyond those normally performed by architects. Therefore, the court upheld the lower court's ruling that the Architectural Agreement was not a "construction contract" to which the PPA applied.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.