A.R.S. 32-1183: When a Contractor Must Pay Subcontractors in Arizona

Arizona's prompt-pay law has two halves. One half makes the owner pay the contractor on time. A.R.S. 32-1183 is the other half: it makes the contractor pass payment down to subcontractors and suppliers on time. This page explains the 7-day deadline, the 1.5 percent monthly interest penalty, and the narrow list of reasons a contractor can hold money back. It matters to you as a homeowner because unpaid subs are the most common source of liens on a new home.

What this statute says

A.R.S. 32-1183 says that once a contractor (or an upper-tier subcontractor) receives a progress payment, the money owed to the people below them comes due fast. The core deadline:

within seven days of receipt by the contractor or subcontractor of each progress payment

the contractor must pay each subcontractor and supplier for the work covered by that payment. Miss the deadline and interest runs at "one and one-half percent per month or a fraction of a month on the unpaid balance," unless the contract sets a higher rate. That is 18 percent a year, a real penalty.

The contractor cannot just sit on the money for any reason. The statute lists nine specific grounds for withholding, such as unsatisfactory progress, defective work that has not been corrected, disputed amounts, and third-party claims. When a contractor withholds, two rules kick in: the retention withheld cannot exceed the actual retention the owner held back from the contractor, and the contractor must "prepare and issue a written statement within fourteen days" explaining the reasons in reasonable detail.

What this means for your home build

You usually do not pay subcontractors directly. You pay your builder, and your builder pays the framer, the electrician, the concrete crew, and the lumber yard. A.R.S. 32-1183 is what forces that money to keep flowing. For example, on a custom home in Rio Verde, when your bank funds the framing draw and your builder receives it, the framing crew must be paid within 7 days for that completed work. If the builder pockets the draw and stalls, the crew is owed 1.5 percent per month on top, and they gain the right to chase payment.

This protects you in two ways. First, paid subcontractors do not file mechanics' liens on your title, which is the nightmare scenario where you pay your builder but a sub records a lien because the builder never paid them. Second, if the owner rejects a payment certification because of defective work, the contractor still has to pay the unaffected subcontractors within 21 days after payment would otherwise have been due, so a single problem trade does not freeze the whole crew. In a collection action under this section, the successful party is awarded reasonable costs and attorney fees, which gives the rule teeth.

How this connects to other rules

A.R.S. 32-1183 is the downstream companion to A.R.S. 32-1182, the rule that makes the owner pay the contractor on progress payments. Together they form Arizona's prompt-pay chain. A.R.S. 32-1185 lets a contractor or subcontractor suspend or terminate work for nonpayment, and A.R.S. 32-1188 carves out owner-occupant dwellings from parts of the owner-side rule. The payments tracked here line up with your draw schedule , and any scope change that shifts a payment should run through a written change order . For how draws are structured, see construction loan draw schedules explained , and for the contract terms that set them, see what to include in a custom home contract . Both the contractor and the subs must be licensed by the Registrar of Contractors .

Full text and source

Read the current section, including all nine withholding grounds and the exact interest wording, on the legislature's site: View A.R.S. 32-1183 on azleg.gov .

How the rule applies to a specific payment dispute depends on the facts, so confirm details with a qualified professional before relying on it.