An EPC (Engineering, Procurement and Construction) contract is the primary legal instrument that defines who is responsible for delivering your solar plant, at what cost, by when, and to what performance standard. The difference between a well-drafted EPC contract and a poorly drafted one can determine whether a project's cost overruns are absorbed by the contractor or passed back to the owner. This guide covers the most commercially significant clauses in a solar EPC contract.

EPC contract types

Lump sum (fixed-price) EPC

The contractor delivers the complete project for a single fixed price. All cost overruns above this price are the contractor's risk. This is the most common structure for C&I and utility solar where the scope is well-defined and the site has been surveyed. Advantages for the owner: cost certainty, all execution risk on contractor. Risk for contractor: any unforeseen ground conditions, material price increases or scope changes eat into margin.

Cost-plus EPC

The contractor is reimbursed actual costs plus an agreed margin (fixed fee or percentage). Used for complex projects with poorly defined scope — a brownfield repowering with unknown structural loads, or a project in a new geography where ground conditions are uncertain. Owner bears cost overrun risk; the contractor has no financial incentive to manage costs aggressively. Only appropriate when lump sum is not feasible due to genuine scope uncertainty.

Split contract (supply + install)

The owner buys equipment directly from the manufacturer (e.g., inverters directly from Sungrow via a distributor like Econo Solar) and separately contracts an installer for the civil and electrical works. This reduces EPC contractor margin on equipment, but the owner takes on more coordination risk and loses the single-point-of-accountability protection of a full EPC. Common in markets where large EPC contractors are not competitive on equipment pricing.

The five most negotiated EPC clauses

1. Performance guarantee and performance ratio

The EPC contractor typically guarantees that the plant will achieve a defined Performance Ratio (PR) or specific yield (kWh/kWp) in its first year of operation, measured against an agreed irradiance data source (typically an on-site pyranometer). The performance test is usually conducted 60–90 days after commercial operation date (COD).

Watch for: how the performance guarantee accounts for soiling (the contractor controls commissioning but not O&M), grid curtailment events (are curtailed hours excluded from the performance test?), and weather variability (single-year test can be significantly above or below P50 depending on that year's irradiance).

2. Liquidated damages (LDs)

LDs are pre-agreed damages the contractor pays the owner for specific failures:

Key limit: LDs are almost always capped — typically at 10–20% of the contract price. Once the contractor has paid the cap, they have no further financial liability for delay or performance. The cap is a ceiling on your protection — negotiating a higher cap (or removing it) costs money in the form of higher contractor pricing.

3. Variation orders

A variation order (VO) is a formal change to the contract scope or price after signing. VOs are the primary mechanism by which a fixed-price EPC becomes a cost-plus contract in practice. Poorly managed VO processes allow contractors to claim extras for anything not explicitly specified in the contract, while tightly managed VO processes protect the owner's budget.

Key protections: define a complete technical specification before signing; include a list of assumed site conditions (soil bearing capacity, underground utilities) so that if conditions differ, the process for claiming additional costs is clear; require all VOs to be agreed in writing before the additional work begins.

4. Warranty period and defects liability

The EPC contractor's workmanship warranty is typically 12–24 months from COD. This is separate from the equipment warranties (panel 25-year performance, inverter 5+ years). During the defects liability period, the contractor must repair any defects in their installation work at their own cost.

Watch for: some contracts exclude defects discovered after the first year even if they result from faulty installation (e.g., a corroded cable termination that fails in year 3). Negotiate for the contractor's workmanship warranty to survive for the longer of 24 months or 12 months beyond first detection of a fault.

5. Title and risk transfer

When does ownership of the equipment transfer from the contractor to the owner? Title transfer is typically tied to delivery of major equipment to site (especially for lender-financed projects where the lender wants security over the equipment). Risk of loss (who bears insurance if equipment is damaged) may transfer at a different time. Define both clearly in the contract.

EPC contractor selection checklist