9 Tips To Consider Before You Sign Your Commercial Solar Contract

How to achieve value for money with your solar investment while meeting your business needs.

If you are considering installing a commercial solar system, a competitive process for procurement, installation and associated services is essential for achieving the best value for money while meeting your business needs.

Apart from price and financial outcomes, there are three key areas to consider when comparing offers for your solar project. They are:

  1. The Solar Retailer
  2. The Solution
  3. The Contract

You can read Part 1 – The Solar Retailer here and Part 2 – The Solution here.

In this article, we look at what to consider regarding the third – The Contract, specifically:

  • Finance and contract type
  • Standard form contracts
  • Scope of work
  • Practical completion
  • Liquidated damages
  • Defects liability period
  • Performance guarantee
  • Whole system warranty
  • Inclusions and exclusions

Disclaimer: The information contained in this article is for general information purposes only and is not intended to constitute legal or accounting advice, or recommendations of any kind and should not be used as a substitute for consultation with your legal advisor or accountant.

Finance and contract type

The first thing to consider is how you will finance the solar system and the type of contract that will best meet your business needs. The most common finance/contract types are Outright Purchase and Power Purchase Agreements (PPAs) as summarised in the table below, but other finance/contract types exist such as capital leases and rentals however these are less common.

Each finance/contract type has different risk profiles and accounting treatments. Engage your legal advisor and accountant as early as possible in your solar journey to determine the most suitable finance/contract type for your business. If your business leases its property, you also need to engage your landlord as early as possible as your existing property lease agreement with your landlord may influence the preferred finance/contract type for your solar project as well as specific terms and conditions (you should also read our article on whether your solar system needs insurance).

Contract/Finance Type Description
Outright Purchase Upfront capex, customer owns the system. The customer is responsible for ongoing performance and maintenance over the 25 year asset life including inverter replacement at mid-life. Full savings realised with payback periods generally ranging between 2 and 10 years.
Power Purchase Agreement (PPA) Zero capex, the PPA financier owns the system and is responsible for ongoing performance and maintenance. The customer purchases all electricity generated meaning the PPA financier is incentivised to maximise generation and minimise system downtime. The PPA can be structured so the PPA servicing costs are less than the grid savings to ensure the asset remains in a positive cashflow position. The solar system is generally gifted to the customer once the PPA term expires (typically 5 - 20 years).
Capital Lease On-balance sheet asset with fixed monthly interest bearing repayments over a period of time (e.g. 5 years). The customer pays a residual payment at the end of the lease to own the asset outright.
Operating Lease (Rental) Off-balance sheet asset with fixed monthly payments over an agreed term (e.g. 1 to 5 years). Solar system is dismantled and returned back to the lessor at the end of the lease with make good provisions.

Standard form contracts

If you don't have a suitable contract available for use within your business for your solar project, you can use one of the following contracts as the basis for negotiating key terms and conditions:

  1. Contract provided by the solar retailer, or
  2. Industry accepted standard form contract.

Using the contract provided by the solar retailer can often streamline the contracting process as it will be tailored for solar and the specific finance/contract type you require for your project. But ensure you properly review the contract before signing it to ensure that the distribution of risk is fair and reasonable. 

Alternatively, standard form contracts are industry standard and are often used because most participants in the construction and solar industry will have some familiarity with them. Standard form contracts are able to be used without requiring substantial change, however, they are often amended by the parties. Even if the standard form contract is not used in its entirety, you may wish to utilise specific clauses in your contract with the solar retailer.

Below are some commonly used standard form contracts used in the solar and construction industry based on the size of the solar system. 

Solar System Size Standard form contract
Small CEC Solar PV Sale and Installation Agreement
Medium AS4906 – Minor Works Contract Conditions (Principal administered)
Large AS4902 – General Conditions of Contract for Design and Construct

Please note the finance and contract types discussed in the previous section will also heavily influence the nature of the contract and the associated terms and conditions.

Scope of work

Ensure the contract has a detailed scope of works to be delivered by the solar retailer and their subcontractors. The scope of works may be an attachment to the contract but should cover the items outlined in the table below:

Scope Item Examples
General responsibilities Licences, accreditations, insurances, safety management, incident reporting, project meetings, status reporting, etc.
Equipment Equipment list, minimum specifications, procurement, delivery to site, temporary secure storage, etc.
Design Minimum requirements, design principles, customer engineering design review and sign off process, etc
Installation Site control and coordination, exclusion zones, construction hours, shutdown notification and requirements, etc.
Grid connection Grid connection application and approval, compliance with DNSP requirements, etc
Documentation & handover As-built drawings, manuals, warranties, structural and electrical safety certificates, commissioning sheet, instruction, training, etc.
Maintenance service (if required) Preventative maintenance, reactive maintenance, panel cleaning, ongoing performance monitoring, etc.
Other customer requirements Site access and induction, work permit systems, site-specific engineering and drafting standards, etc.

Practical completion

Ensure your solar contract has a very clear definition for practical completion so all parties can clearly determine when it has been reached as it typically represents a major payment milestone or the commencement of a PPA or lease agreement. It is also the point where both parties agree the project has been completed (albeit any minor outstanding items).

For all projects contracted through Beam Solar, we ensure the solar retailer agrees that practical completion will only be awarded once the to the following items have been achieved:

  • The solar system has been tested, commissioned, energised and is fully operational
  • The solar system complies with the manufacturers and design specifications
  • All major defects have been rectified, notwithstanding any minor faults which do not affect the operational availability of the system, which are to be corrected as soon as practicable after practical completion
  • All defects and minor outstanding items have been identified, and they do not affect the safe, complete, compliant and continuous operation of the solar system
  • All requirements of the electricity network authority (DNSP) are met
  • Instruction has been provided about the basic operation of the solar system including isolation and shutdown procedures
  • Instruction has been provided on how to access and use the solar monitoring platform
  • Instruction has been provided about the recommended maintenance schedule
  • All project documentation has been provided

Liquidated damages

If your business is exposed to a real financial impact if there are delays installing your solar system (e.g. EOFY or grant/incentive deadlines), consider incorporating into the contract a specific date for reaching practical completion along with a liquidated damages clause and rate.

Liquidated damages will ensure the project timeline risk is fairly shared between the parties and provide a clear monetary incentive for the solar retailer to prioritise your project and prevent unnecessary delays.

However, your solar retailer will generally require clauses in the contract to allow reasonable requests for extension of time (EOT) that allows extending the agreed date for reaching practical completion due to situations arising out of the control of the solar retailer, including:
  • unforeseen delays with the network connection approval
  • unforeseen supply chain issues and associated delays with delivering equipment to site
  • inclement weather
  • other 3rd party delays

Defects liability period

A Defects Liability Period (DLP) is the period immediately after practical completion which typically extends anywhere up to 48 months. The DLP allows you to retain security worth a percentage of the total contract value that is released once the DLP expires and your solar system is free from all defects. The security can be in the form of a cash payment (e.g. withholding the final invoice payment) or bank guarantee.

The DLP helps to ensure the solar retailer fixes all defects that are of a minor nature that existed at the time of practical completion (major defects need to be completed before practical completion is awarded). The DLP also helps to ensure the solar retailer fixes any major defects that may arise after practical completion during the initial operations of your solar system.

Performance guarantee

A performance guarantee is a guarantee provided by the solar retailer that the generation of your solar system will be above a minimum specified quantity over a certain period of time. This provides you with peace and mind that your solar system will continue to perform as expected however you do need to remain proactive and ensure your solar retailer is monitoring your solar system and providing you regular performance reports.

If the actual generation of your solar system is less than the guaranteed minimum quantity, there is usually a penalty paid by the solar retailer which can either be a cash payment or a requirement to rectify the underperformance within a specified timeframe at no cost to you.

Most solar retailers will also require you to sign up for an ongoing maintenance service that spans the same period as the performance guarantee.

Whole system warranty

The whole system warranty offered by your solar retailer will survive the contract. Ensure you consider the following whole system warranty provisions in your contract that is captured by a survival clause once the contract is terminated.

Suppliers should offer you a standard retailer's whole system warranty aligned with the CEC Solar Retailer Code of Conduct on the operation and performance of your solar system.

The whole system warranty should cover workmanship and equipment.

The whole system warranty should at a minimum, also include the service of components within your solar system and all equipment with any call outs, labour and other expenses associated with the repair or replacement of the defective part or solar system done at no extra charge to you.

Your solar retailer should provide you with after-sales support from a CEC accredited installer in the event of issues or failures of your solar system.

While the manufacturer’s equipment warranties are the responsibility of the manufacturer, your solar retailer should also provide reasonable assistance to you in relation to any warranty or guarantee provided by the manufacturer.

Inclusions and exclusions

Lastly, ensure your contract is crystal clear on what is included and excluded in your solar project. This will ensure clear expectations are established between both parties which will prevent potential issues down the track.

Clearly listing the inclusions and exclusions will also help minimise variations during the project or at least provide very clear justification if a variation request from your solar retailer is reasonable. 

Some inclusions/exclusions to consider include (but certainly not limited to) the following:

  • Traffic and pedestrian management
  • Lifting equipment such as a scissor lift or crane
  • Weekend or after-hours labour
  • Local government or planning approval
  • Glare studies
  • Upgrades or modifications to existing site infrastructure
  • Lightning protection systems
  • Array bird proofing
  • Meteorological station
  • Integration with SCADA or Building Management Systems (BMS)
  • Asbestos investigation, removal or disposal
  • Vegetation trimming or removal
  • Updates to existing site engineering drawings
  • Installation of permanent roof safety systems, handrails and walkways
  • Geotechnical investigations
  • Carpark bollards

This article wraps up our three part series on the key areas to consider when comparing offers for your solar project.

If you missed earlier parts, you can read Part 1 – The Solar Retailer here and Part 2 – The Solution here.

About Beam Solar

When you engage Beam Solar for your solar procurement, we help you assess solar for your sites using our Beam Solar assessment platform and then submit your chosen system and preferences to our online marketplace.

You get access to our minimum requirements and specification that we apply to all solar projects procured through the Beam Solar platform. We complete a detailed evaluation of offers received so you can clearly understand who is offering the best solution. We also help you review and negotiate the contract with your chosen solar retailer.

All of this is backed up by independent and expert advice from our team of solar engineers and energy consultants. You can read more about Beam Solar here.

In the meantime, if you are wondering what solar can do for your sites, start a Beam Solar assessment by clicking the button below.


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