A. Progress payments may be made by this state to the contractor on the basis of a duly certified and approved estimate of the work performed during a preceding period of time as set by rule, except that a percentage of all estimates shall be retained as provided in section 41-2576. The progress payments shall be paid on or before fourteen days after the estimate of the work is certified and approved. The estimate of the work shall be deemed received by the owner on submission to any person designated by the owner for the submission, review or approval of the estimate of the work. An estimate of the work submitted under this section shall be deemed approved and certified seven days after the date of submission unless before that time the owner or owner’s agent prepares and issues a specific written finding detailing those items in the estimate of the work that are not approved and certified under the contract or design professional service contract. The owner may withhold an amount from the progress payment sufficient to pay the expenses the owner reasonably expects to incur in correcting the deficiency set forth in the written finding. On completion and acceptance of separate divisions of the contract or design professional service contract on which the price is stated separately in the contract or design professional service contract, payment may be made in full including retained percentages, less deductions, unless a substitute security has been provided pursuant to section 41-2576. A contract for construction or design professional services may not materially alter the rights of any contractor, subcontractor, design professional or material supplier to receive prompt and timely payment as provided under this section.

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B. The contractor shall pay to the contractor’s subcontractors, design professionals or material suppliers and each subcontractor shall pay to the subcontractor’s subcontractor, design professional or material supplier, within seven days after receipt of each progress payment, unless otherwise agreed in writing by the parties, the respective amounts allowed the contractor, subcontractor or design professional on account of the work performed by the contractor’s or subcontractor’s subcontractors or design professionals, to the extent of each such subcontractor’s or design professional’s interest therein, except that a contract for construction may not materially alter the rights of any contractor, subcontractor, design professional or material supplier to receive prompt and timely payment as provided under this section. These payments to subcontractors, design professionals or material suppliers shall be based on payments received pursuant to this section. Any diversion by the contractor, subcontractor or design professional of payments received for work performed on a contract, or failure to reasonably account for the application or use of such payments, constitutes grounds for disciplinary action by the registrar of contractors. The subcontractor, design professional or material supplier shall notify the registrar of contractors and the purchasing agency in writing of any payment less than the amount or percentage approved for the class or item of work or design professional services as set forth in this section.

C. A subcontractor or design professional may notify the purchasing agency in writing requesting that the subcontractor or design professional be notified by the purchasing agency in writing within five days after payment of each progress payment that is made to the contractor. The subcontractor’s or design professional’s request remains in effect for the duration of the subcontractor’s or design professional’s work on the project.

D. This chapter does not prevent the contractor or subcontractor, at the time of application and certification to the owner or contractor, from withholding such application and certification to the owner or contractor for payment to the subcontractor, design professional or material supplier for unsatisfactory job progress, defective construction work or design professional services or materials not remedied, disputed work or materials, third-party claims filed or reasonable evidence that a claim will be filed, failure of a subcontractor or design professional to make timely payments for labor, equipment and materials or design professional services, damage to the contractor or another subcontractor or design professional, reasonable evidence that the subcontract or design professional service contract cannot be completed for the unpaid balance of the subcontract or design professional service contract sum or a reasonable amount for retention that does not exceed the actual percentage retained by the owner.

E. If any payment to a contractor is delayed after the date due, interest shall be paid at the rate of one percent per month or a fraction of the month on such unpaid balance as may be due.

F. If any periodic or final payment to a subcontractor or design professional is delayed by more than seven days after receipt of periodic or final payment by the contractor or subcontractor, the contractor or subcontractor shall pay the contractor’s or subcontractor’s subcontractor, design professional or material supplier interest, beginning on the eighth day, at the rate of one percent per calendar month or a fraction of a calendar month on such unpaid balance as may be due.

G. Notwithstanding anything to the contrary in this section, this section applies only to amounts payable in a construction services contract for construction and in a contract for design services and does not apply to amounts payable in a contract for preconstruction services, finance services, maintenance services, operations services or any other related services included in the contract.

H. If the owner directs the contractor in writing to perform changed or additional work in accordance with the construction contract and the contractor submits to the owner a reasonable cost estimate of the changed or additional work as may be required under the construction contract, pending a final determination of the total amount to be paid for the changed or additional work, the contractor may request payment for changed or additional work that the contractor completed during the preceding calendar month in monthly pay estimates based on the costs the contractor incurred to perform that work. The person designated in the construction contract to certify and approve the monthly payment estimate shall make an interim determination for purposes of approval for payment of those costs and certify for payment the amount that person determines to be reasonably justified. Either party may disagree with the interim determination and may assert a claim in accordance with the terms of the construction contract.

I. If the owner directs the contractor in writing to perform changed or additional work in accordance with the construction contract and the contractor submits to the owner a reasonable cost estimate of the changed or additional work as may be required under the construction contract and if the contractor directs the subcontractor to perform the changed or additional work in accordance with the terms of the agreement between the contractor and subcontractor and the subcontractor submits to the contractor a reasonable cost estimate of the changed or additional work as may be required under the construction contract, pending a final determination of the total amount to be paid for the changed or additional work, the subcontractor may request payment from the contractor for the changed or additional work that the subcontractor completed during the preceding calendar month in monthly pay estimates based on the costs the subcontractor incurred to perform that work. Either party may disagree with the interim determination and may assert a claim in accordance with the terms of the agreement between the contractor and subcontractor.

J. In any action or arbitration brought pursuant to this section, the successful party shall be awarded reasonable attorney fees and costs.

K. For the purposes of this section:

1. Contractor does not include an agricultural improvement district formed pursuant to Title 48, Chapter 17, an electric cooperative formed pursuant to Title 10, Chapter 19, Article 2 or 4 or a domestic water improvement district or a domestic wastewater improvement district formed pursuant to Title 48, Chapter 6, Article 4.

2. "Costs" means the aggregate cost of all labor, materials, equipment and services.

3. Subcontractor does not include an agricultural improvement district formed pursuant to Title 48, Chapter 17, an electric cooperative formed pursuant to Title 10, Chapter 19, Article 2 or 4 or a domestic water improvement district or a domestic wastewater improvement district formed pursuant to Title 48, Chapter 6, Article 4.

4. "Work" means the labor, materials, equipment and services to be provided by a contractor or subcontractor under a construction contract.