Offset and Recoupment Are Not Valid Defenses to Prompt Pay Proceedings Before the ROC
The Arizona Court of Appeals recently issued a
memorandum decision that offset and recoupment are not valid defenses to a ROC
Prompt Pay Act proceeding.
Shea-Connelly Development, LLC (SCD”) and Revive
Construction and Cleaning, LLC (“Revive”) entered into two separate subcontracts
for two different construction projects. The first contract required Revive to
frame a project in Glendale (“Glendale project”). The second contract required
Revive to fix framing performed by a previous subcontractor on SCD's “Park Place
project.” Prior to Revive performing any work on the Glendale project, SCD paid
Revive $58,641.97. The Glendale project had a provision in the subcontract that Revive’s default on the Glendale
project would be a default under the Park Place
The Park Place project had significant cost overruns. However, SCD continued to pay Revive until January, when Revive submitted an
invoice for work that failed SCD’s inspection. SCD did not object to the invoice
or subsequent invoices, but SCD considered Revive terminated on both the Park
Place project and the Glendale project. Revive filed an ROC no-pay complaint
against SCD for $68,783.25 for the unpaid Park Place invoices. SCD countered
that it was owed the return of the $58,641.97 paid to Revive on the Glendale
project as well as other offsets, since SCD had to hire another subcontractor to
remedy Revive’s defective workmanship at the Park Place project.
The ROC case proceeded before an administrative law
judge, who found in favor of Revive. SCD appealed. The Court of Appeals noted
Arizona’s Prompt Pay Act requires a contractor to pay the full amount of an
invoice for work done and materials supplied within seven days of the invoices
being certified and approved unless the contractor prepares and issues a written
statement within 14 days of receiving the invoices detailing the reasons for
withholding payment. SCD issued no such written statement for Revive’s invoices.
The Court of Appeals dismissed SCD’s accord and
satisfaction defense. The Court stated that recognizing an “accord and
satisfaction” between SCD and Revive would impermissibly alter a subcontractor’s
right to receive prompt payment under the Prompt Pay Act.
As to SCD’s claim for offset of the $58,641.97 paid to
Revive on the Glendale project without any work being performed, the Court said
neither offset nor recoupment apply in Prompt Pay Act proceedings before the
The Court noted that ROC proceedings are not venues for
comprehensive litigation over contract rights and obligations.
contractor to bring a counterclaim or some right outside the Prompt Pay Act
against a subcontractor or supplier to reduce the amount owed under certified
invoices would inflate a simple prompt payment proceeding before an ALJ to full
civil litigation better suited to the Superior Court.”
Accordingly, if a ROC Prompt Pay Act proceeding is
brought, the contractor will not be able to claim offset or recoupment for any
amount the contractor is owed from the subcontractor or supplier on current or
other construction projects. The consequences of an ROC complaint can drastically
impact a contractor. If served with a ROC complaint, contact a Sacks Tierney
construction attorney to protect your rights.