Have some legal questions about solar? Stephen A. Kisker, chair of Chiesa, Shahinian & Giantomasi‘s Renewable Energy and Sustainability Group, tackles a few frequently asked questions below. Leave us a comment with any questions you have, and we’ll try to find the right answers! (See previous answers here.)
How tight should the project schedule be? What is the penalty for delays? Should it include liability for lost tax benefits or revenue?
The most important issue for the developer is that the project is completed on time. Developers will frequently require milestones to ensure that the contractor is moving the project along. Understanding that the ultimate goal is project completion and that milestones are a means to an end, the contractor should fight for as much flexibility as possible, as long as the project is ultimately completed on time. As for penalties, contractors should avoid being penalized for missing milestones if the project is ultimately delivered on time, however, the contractor should be ready to reimburse the developer for lost tax benefits or lost revenue if the loss is a direct result of the contractor not completing construction on time.
Should there be any limitation of installer’s liability?
Limitations on a contractor’s liability is a classic risk/reward issue. The contractor does not want unlimited liability and frequently asks for liability to be limited to the amount of the contract. Nevertheless, contractors should not expect to hide from liability if their actions cause severe damage to persons or property. It is certainly reasonable and customary to ask for a waiver of consequential damages, but expecting the developer/property owner to bear the risk of severe damage to persons or property resulting from the action of the contractor is a tough sell. The parties should analyze available insurance coverage and allocate the risk accordingly.
What is the best form of security for installer’s obligations: payment and performance bond, corporate or personal guaranty, cash or letter of credit?
The best form of security is a letter of credit. Letters of credit are a direct obligation of the issuing institution, and as such, cannot be attached by creditors of the contractor and are not affected by a contractor bankruptcy. Drawing on a properly drafted letter of credit can be a quick and relatively painless process. A cash deposit remains the property of the contractor unless and until a default, and as such can be attached by creditors and it will likely become an asset of the bankrupt estate, subject to distribution to creditors. Payment and performance bonds do create an obligation on the part of the surety to complete performance or make payment, however, there are frequently qualifications to the surety’s performance that can lead to prolonged negotiations and even litigation.