Top EPC Contract Risks in Solar and Battery Storage Projects (and How to Manage Them)
- tullyblalock
- Mar 23
- 4 min read
Updated: Mar 23
I’ve drafted, negotiated, and managed disputes involving dozens—if not hundreds—of solar and storage EPC agreements and subcontracts. Over the past decade, these agreements have grown significantly in length and complexity as parties have learned—often the hard way—where risk needs to be clearly allocated.
Below are some of the most critical and frequently negotiated EPC contract issues. Getting these right on the front end can prevent costly disputes later.
I. Commercial & Financial Risk Allocation
1. Payment Structure
Payment mechanics directly impact project cash flow and risk.
Common structures include:
Milestone-based payments
Schedule of values / progress payments
Clear invoicing requirements and timing are essential.
2. Change Orders
Change order disputes are one of the most common sources of conflict.
Key issues include:
Notice and documentation requirements
Pricing methodology
Interim dispute resolution procedures
A well-defined scope of work is the best tool to minimize change orders.
3. Liquidated Damages (LDs)
Delay LDs are among the most heavily negotiated provisions.
Key considerations include:
Whether LDs reasonably approximate anticipated damages
Caps on LDs and whether they are the exclusive remedy
Interaction with termination rights
These provisions directly impact project economics and leverage.
4. Remedies Structure
The agreement should clearly define how remedies operate and interact.
Key issues include:
Whether remedies (including LDs) are exclusive or cumulative
Interaction with termination rights
Availability of actual damages
Lack of clarity can significantly affect risk exposure in a dispute.
5. Liability Caps
Limitation of liability provisions define the parties’ overall risk exposure.
Negotiation points include:
Overall caps vs. tiered caps
Carve-outs (e.g., fraud, indemnity, environmental liabilities)
Alignment with insurance coverage
These provisions are central to risk allocation.
6. Security / Credit Support
Performance security helps ensure contractor performance and protect against downside risk.
Key issues include:
Type of security (bonds, letters of credit, parent guarantees)
Amount and duration
Reduction and release mechanics
These protections are often critical to project financing.
II. Scope, Procurement & Interface Risk
7. Scope of Work
A detailed and unambiguous scope of work is foundational.
Best practice includes:
Coordination among legal, engineering, and project teams
Identification of gaps and overlaps
Clear definition of interface points
Ambiguities here are a leading cause of disputes.
8. Supply Chain & Equipment Procurement
Procurement risk has become a central issue in EPC agreements.
Key issues include:
Responsibility for late delivery or nonconforming equipment
Substitution rights
Coordination with equipment supply agreements
These risks can significantly impact both cost and schedule.
9. Permit Responsibility
Permitting obligations should be clearly divided between the parties.
Common approaches include:
Owner responsibility for land use and major project approvals
Contractor responsibility for construction-related permits
Ambiguity often leads to delay and cost disputes.
10. Site Conditions
Unforeseen site conditions can materially impact cost and schedule.
Key issues include:
Responsibility for differing or unknown conditions
Reliance on owner-provided data
Entitlement to change orders
These issues frequently arise during construction.
11. Interconnection & Grid Risk
Interconnection is often a critical path item with significant uncertainty.
Key issues include:
Responsibility for interconnection facilities and upgrades
Coordination with utilities and system operators
Risk of delays and cost overruns
These risks can materially affect project viability.
III. Schedule & Completion Risk
12. Schedule & Excusable Delay
Schedule risk must be clearly allocated across multiple potential delay sources.
Typical categories include:
Owner-caused delays
Interconnection and permitting delays
Force majeure events
Clarity is essential to avoid disputes over delay responsibility.
13. Completion Definitions & Milestones
Project milestones should be clearly defined and aligned with project requirements.
Key issues include:
Definitions of mechanical, substantial, and final completion
Punchlist thresholds
Alignment with payment, LDs, and financing requirements
Disputes often arise around whether completion has been achieved.
14. Performance Testing
Performance testing provisions are highly technical and require careful review.
Key issues include:
Testing protocols and conditions
Error bands or tolerances
Retesting rights and remedies
These provisions determine whether performance obligations are met.
IV. Performance & Long-Term Risk
15. Warranties
Warranty structure significantly impacts long-term risk allocation.
Common issues include:
Warranty duration
Allocation of equipment defect risk
Responsibility for “in-and-out” costs
These provisions affect post-completion exposure.
16. Battery-Specific Issues
Battery storage projects introduce additional technical and commercial considerations.
Key issues include:
Degradation guarantees
Round-trip efficiency guarantees
Augmentation obligations
Availability vs. capacity guarantees
EMS / controls integration
These issues require careful coordination between technical and contractual terms.
V. Legal & Regulatory Risk
17. Change in Law
Regulatory change is an ongoing risk in energy projects.
Key issues include:
Allocation of compliance costs
Scope of covered changes
Interaction with tax credit requirements
Clear allocation helps avoid future disputes.
18. Tariff Risk
Tariff exposure can materially impact project cost.
Key issues include:
Responsibility for increased costs
Price adjustment mechanisms
Timing and procurement considerations
This has become an increasingly important issue.
19. Investment Tax Credit (ITC) Compliance
Tax credit requirements introduce significant contractual risk.
Key issues include:
Prevailing wage and apprenticeship compliance
Foreign Entity of Concern (FEOC) restrictions
Documentation and audit support
These requirements can directly affect project economics.
VI. Risk Transfer & Dispute Framework
20. Indemnification
Indemnity provisions allocate risk between the parties.
Key issues include:
Scope of covered claims
Treatment of environmental liabilities
Allocation of comparative fault
These provisions can have significant financial implications.
21. Insurance
Insurance requirements should align with contractual risk allocation.
Key issues include:
Builder’s risk coverage
Coverage limits and deductibles
Additional insured requirements
Coordination with insurance advisors is important.
22. Force Majeure
Force majeure provisions define relief for events outside the parties’ control.
Key issues include:
Scope of covered events
Exclusions
Impact on schedule and termination rights
These provisions are often heavily negotiated.
23. Termination
Termination provisions define the parties’ rights in distressed scenarios.
Key issues include:
Events of default and cure periods
Termination for convenience
Payment obligations upon termination
These provisions affect leverage and downside protection.
Closing Thought
EPC agreements are not just construction contracts—they are risk allocation frameworks that can determine whether a project succeeds or fails financially.
Careful drafting and negotiation on the front end is almost always less expensive than resolving disputes on the back end.
If you are negotiating or evaluating an EPC contract, I would be glad to discuss your project.
This article is provided for general informational purposes only and does not constitute legal advice. No attorney-client relationship is formed by reading this article. Readers should consult qualified legal counsel regarding any specific legal matter.