Clawbacks & Milestones: Notable Solar EPC Agreement Clauses

The EPC agreement governs the actual construction of a solar project, and two parts in particular can cause problems for developers as projects slip: clawback clauses tied to completion deadlines, and the milestone payment structure that governs how money moves between developer and EPC. In this second installment of our series pulled from our interview with Keith Cronin, instructor of Inside the Solar Executive MBA Data Room, we asked him to walk through both.

Here’s what he had to say.

Transcript below.

Is there a clause or term in the EPC agreement that you see trip people up?

Right now, as of this recording, one of the big ones is clawbacks for not completing projects on time. I’m dealing with this with some clients currently, where they have to commit to finishing by a date like November 15th. It takes roughly six weeks to get the utility out for final steps, and utilities get busy toward the end of the calendar year. I’d expect the end of next year to be even busier across the industry as everyone works to close out permitting and get projects finished.

The other thing people need to consider in the EPC agreement is milestone payments. Some EPCs that also act as developers and are well capitalized might not need the same milestone structure that’s built into the EPC agreement in the course, but for most deals, milestone payments work on an evidence basis. You complete some work, sign an estoppel confirming you’ve received payment, and money gets released. Then you do more work and provide evidence again, whether that’s photographic documentation or a site visit from the developer or a third party who examines what’s been completed. Once that’s confirmed, the next milestone payment goes out.

The exact number of milestones matters less than people think. Whether a project has 20 milestone payments or 8 or 14 isn’t the important part. What actually matters is the communication between the EPC and the developer, and between the developer and the lender or finance party, so everyone has a clear view of progress and can drill into where a project actually stands. Just as important is understanding the consequences when milestones aren’t met or a project isn’t finished on time. We go over that in depth in the course.

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Keith walks through the full EPC agreement template, along with milestone payment structures and the consequences built into missed deadlines, in the new Inside the Solar Executive MBA Data Room. The course also includes the DSA, MIPA, O&M agreement, PPA/SSA, a financial model, and two full case studies, so you can see how each contract fits into a real deal from origination to close.

Enroll your team in the course today!