Arizona Licensing and Contract Administration on a Tenant Improvement
Your firm holds an Arizona specialty contractor license for fire protection and is bidding a 12,000 sq ft tenant improvement in a leased shell building in Phoenix. The project includes new sprinkler mains, 180 heads, a new riser, and tie-in to the existing 6-inch service. The owner's representative asks you to start work on a verbal notice to proceed while the permit is pending, promising the permit will be issued within a week. The general contractor's subcontract contains a pay-when-paid clause, a 10 percent retainage, and a liquidated damages provision of $1,500 per day. Your estimator omitted the cost of a required fire department connection relocation. The bid is due in three days.
1. Identify the licensing and legal risks of starting work before permit issuance and of the contract terms presented.
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Starting work before permit issuance exposes the licensee to stop-work orders, fines, and potential disciplinary action, and it can void insurance coverage for unpermitted work. A verbal notice to proceed does not substitute for a written contract or permit. Under Arizona contractor licensing law, a written contract is generally required for residential work and is prudent for commercial work, and the licensee is responsible for compliance with permitting requirements. The pay-when-paid clause shifts owner payment risk to you; you should negotiate a pay-if-paid distinction or require proof of owner financing. Retainage of 10 percent should be tracked and released per statute and contract terms. Liquidated damages of $1,500 per day should be tied to actual delay caused by your scope, with an extension for permit delays outside your control. Do not sign without reviewing these terms with counsel and confirming your license classification covers the scope.
2. How should you handle the omitted FDC relocation cost in the bid?
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Do not bury the omission or bid it as zero. First, verify the scope by reviewing the plans and the existing FDC location, and confirm whether relocation is required by code or by the fire department. Quantify the cost including materials, labor, permit amendment, and any inspection. Then decide among three approaches: include it as a line item with a clear description, bid it as an alternate, or submit a written request for clarification before bid opening. If the bid deadline prevents clarification, include a qualification in your proposal stating the FDC relocation is excluded and will be priced by change order. Bidding zero and absorbing the cost erodes margin and sets a precedent; omitting it entirely risks a claim. Document your assumption in writing so the contract reflects the actual scope.
3. What project administration controls should you put in place at award?
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Establish a written subcontract with a defined scope, schedule, and payment terms. Set up a schedule of values tied to progress, a retainage log, and a process for monthly billing with lien waivers. Track permit status and do not mobilize until the permit is issued and posted. Maintain a change order log with written authorization before performing extra work. Issue notices for delays, including permit delays, within the contract's notice period. Keep daily reports documenting manpower, weather, and site conditions. Confirm insurance certificates and bonding are in place. Schedule a preconstruction meeting with the GC to confirm coordination, access, and inspection milestones, and assign one person accountable for contract compliance.