Like many states, Arizona requires its preliminary notices to identify a general description of the furnishings and an estimated contract amount. As we know, however, construction projects are complex.
What if you wind up furnishing materials or labor that do not quite fit into that general description? Or, what if you under-estimate the contract total, or blow past your contract amount with change orders and other contractual alterations. Is another notice required? When is that other notice due?
Arizona’s statutes take a stab at clearing up these issues and creating a rule for potential lien claimants. The rule is known as the twenty per cent (or the 20%) rule. It is applicable to both state and private projects, pursuant to Westburne Supply, Inc. v. Diversified Design and Construction Inc., 1992.
§33-992.01 Creates 20% Rule For Arizona Preliminary Notices
§33-992.01(G) and (H) creates the 20% rule framework with the following:
(G) A person required by this section to give notice…need give only one notice…with respect to all labor, professional services, materials, machinery, fixtures or tools furnished…unless the actual estimated total price…exceeds by twenty per cent or more the total price in any prior original or subsequent preliminary notice…
(H) If a notice contains a general description…of the labor, professional services, materials, machinery, fixtures or tools furnished up to the date of notice, it is not defective because after the date the person giving notice furnishes labor, professional services, materials, machinery, fixtures or tools that are not within the scope of the general description, or exceed by less than twenty per cent the estimated total price thereof.
What does this mean?
It means that you should make a good faith estimate of the total contract price when you create your notice, and you should provide a good faith description of all the services and materials you expect to furnish to the project. Thereafter, if your actual furnishing differs from your estimates and representations, you only need to create a new preliminary notice if your actual furnishing differs from your projected furnishings by more than 20%.
Are You Supposed To Add 20% To Your Contract Price In Every Arizona Preliminary Notice?
Short answer: No!
You need only make a good faith estimate of your projected contract total. The 20% buffer is automatically added to your total as a matter of law.
When a court looks at your preliminary notice, as it did in the Westburne Supply Inc. case, it will consider your preliminary notice as protection for you to later file a mechanics lien or bond claim for furnishing of “the amount estimated in [your] preliminary notice plus an amount [of] twenty per cent.”
Here is an example:
Your estimated contract price in the Arizona preliminary notice: $100,000
Amount you can furnish before an amended notice is required: $120,000
When Is The Amended Arizona Preliminary Notice Due?
This is a very tricky question, because the matter is not directly addressed in Arizona’s statutes. The statutes require an amended preliminary notice under some circumstances, but don’t make it clear when amended notices pursuant to (G) and (H) would be due.
To create a best practice it’s best to refer to the purpose of the preliminary notice statute. Preliminary notice is required in Arizona because the state is looking to give property owners (and other interested parties) a heads up on who is at the project and how much that party should be paid. The period of time given to these parties is 20 days. If you deliver your notice, you’re protected for all work and material furnished within 20 days of the notice, and forward.
It makes sense, therefore, that preliminary notices amended pursuant to 33-992.01 (G) or (H) would be due within 20 days of when the amendment became necessary. This means they would be due within 20 days of when your work exceeded the original expectation by 20%.
That date is probably a hard-one to nail down, and I can foresee a lot of legal argument and factual fights about this. It’s a best practice, therefore, to error on the side of caution as much as possible in getting out these amended notices.