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Arizona Clarifies Notice Requirements For Recovery On Statutory Payment Bonds

Arizona Clarifies Notice Requirements For Recovery On Statutory Payment Bonds

 

Pursuant to the recent decision by the Arizona Court of Appeals in Cemex Construction Materials South v. Falcone Brothers & Associates, Inc., et al., No. 2 CA-CV 2014-0044 (2015), contractors and suppliers not in contract with the general contractor i.e. sub-subcontractors and suppliers, must now mail both twenty day estimates of costs and ninety day notices of unpaid balances to the prime contractor by certified or registered mail on public works projects.

This case involved a public works construction project for which Falcone Brothers (“Falcone”) was the general contractor. The project was properly bonded and guaranteed. Falcone hired a concrete subcontractor, who in turn, subcontracted with Cemex Construction Materials (“Cemex”) to provide construction materials. In Cemex’s subsequent suit against Falcone, it asserted entitlement to recover against the statutory payment bond because it mailed four preliminary twenty day notices to Falcone pursuant to A.R.S. § 34-223(A).  Each notice had been mailed separately via first class mail, postage prepaid, with a certificate of mailing.  Falcone denied receiving any of the notices and contended that Cemex did not comply with the law because the notices were not sent by certified or registered mail.

Arizona’s “Little Miller Act” requires the posting of a payment bond on public works projects. A.R.S. § 34-222. Subcontractors and material suppliers who do not have a contract with the general contractor are required to provide the prime contractor an estimate of costs within twenty days of supplying labor or materials and notice of any unpaid balance within ninety days of completion. A.R.S. § 34-223. The final sentence of A.R.S. § 34-223(A) states that “such notice” shall be served by registered or certified mail, postage prepaid.

Falcone asserted that Cemex’s twenty day notices did not comply with the law because they were not sent by certified or registered mail.  Cemex argued that the statute only requires ninety day notices to be sent in this manner and that twenty day notices may be sent by first class mail. The Court of Appeals disagreed holding that the statute requires certified mailing of both the preliminary and final notices.

The Cemex court acknowledged that its decision may negatively impact longstanding industry practice; however, it specifically noted that Arizona and federal courts have somewhat mitigated the stringency of notice requirements, by finding that such requirements are satisfied when the prime contractor receives actual notice of a claim. The purpose of the statutory registered mail provision is to ensure receipt of the notice, not to deny recovery where actual notice of a claim is received but was not sent by the precisely prescribed method. The Court stated that, “if a notice sent pursuant to [the statute] is actually received by a contractor, the fact that it was sent by a method other than registered or certified mail will not preclude a materialman’s action on the bond.”

We will update this blog in the event the Arizona Supreme Court accepts review of this case.  In the meantime, and in the absence of any decision by the Arizona Supreme Court overturning this decision, sub-subcontractors and suppliers to subcontractors should make sure their twenty and ninety day notices on public works projects have been and are being sent by certified or registered mail.

 

Blog by: Travis R. Campbell

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