Contract dispute? Here’s a checklist for counsel advising clean energy developers and operators

Contributed by Amanda Laurel Gayer, renewables litigation attorney, Haynes Boone

Construction disputes are often multi-party disputes, arising from cooperation among a developer, supplier, contractor and subcontractors, as well as other stakeholders such as insurers. It is therefore critical for a developer to harmonize its contracts with these various parties, to facilitate efficient dispute resolution.   

For example, if one contract provides for arbitration in New York under New York law, while another contract provides for litigation in Texas under California law, it will be impossible for the developer to bring claims against both parties in a single action, resulting in inefficiency, a risk of inconsistent outcomes, and a risk of having claims time-barred unless the developer brings separate actions against both parties at the same time.   

Counsel should therefore ensure that the following provisions are harmonized across all supply and construction contracts for a given project so that multi-party disputes can be litigated or arbitrated together in a single action: 

• Litigation or arbitration: Each contract should consistently select either litigation or arbitration.
• Forum: Each contract should designate the same forum state for disputes. 
• Venue: 
  • If arbitration, ensure all contracts select the same arbitral body (for example, JAMS, AAA, CPR, or ICC).
  • If litigation, ensure all contracts consistently select the same federal or state courts within the forum. 
• Governing law & rules: Each contract should select the same state’s governing law. If arbitrating, also ensure all contracts consistently designate the governing arbitral procedural rules. 
• Dispute resolution procedures: If pre-litigation dispute resolution procedures (such as informal and formal negotiations, mediation, and/or submission of the dispute to an independent technical expert) are included in a contract, seek to include consistent procedures and timeframes in every other construction contract for the project. 
• Cooperation with investigations: The parties should include contractual obligations to cooperate with investigations of any issue, incident, or defect — including investigations by the developer, its insurer, or any third party engaged by one or both parties (such as an industry expert). Cooperation with an investigation can benefit all parties — it may clarify the nature and scope of the dispute for settlement purposes, can help an owner or developer determine who to sue, and may help the owner or developer obtain an insurance payout which would obviate the need to seek recovery from the at-fault parties. 
• Joinder / Consolidation: Each contract should include a third-party joinder provision, so that if a dispute arises between the parties to the contract (Party A and Party B), and a related dispute arises between Party A and a third party, then Party A is entitled to demand that (i) Party B be joined as a party to the third-party action, or (ii) the third-party be joined as a party to the action between Party A and Party B. 
  • Critically, this type of provision may be difficult or impossible to enforce unless (a) all project contracts are consistent with respect to arbitration/litigation, forum, and venue. 

Power purchase agreements

Renewable energy operators may sell power to a wide variety of offtakers, from utilities to large corporations to small businesses. An offtake agreement may take the form of a physical power purchase agreement (PPA) where an offtaker buys the renewable energy produced at a nearby project, or a virtual power purchase agreement (virtual PPA) where the offtaker buys the renewable energy credits generated by the project and uses those credits to offset the emissions from the power it consumes from the grid. 

But be wary: even large and seemingly sophisticated corporate offtakers sometimes lack a firm economic and technical understanding of PPAs, and virtual PPAs in particular. Therefore, developers and operators can benefit from taking steps to ensure all parties are on the same page, to avoid disputes or misunderstandings down the line, including the following: 

• Outside counsel: Confirm that the offtaker is represented by outside counsel—not just a PPA consultant—in connection with any PPA negotiation. In-house legal often lacks expertise in the unique terminology and dynamics of PPAs, and non-lawyer consultants may not scrutinize PPA drafts in detail. Be skeptical of offtakers who have not engaged outside counsel unless they are very experienced with the type of PPA being negotiated. 
• Term sheet: Circulate a term sheet or email setting forth the parties’ preliminary agreement on the 4 key PPA terms: 
  • Contract term (number of years) 
  • Offtake amount (MW/h) 
  • Fixed price 
  • Settlement point (specific hub or node) 

Project acquisitions

Sometimes a single entity will build and operate a renewable energy contract. Other times, a developer will build the project and secure some or all of the necessary PPAs, and then will sell the project to an operator. If your client is an operator contemplating a project acquisition, consider the following contractual protections: 

• Indemnity, reps, and warranties: An operator should take steps to insulate itself from any mistakes or misconduct by the developer. For example, robust contractual indemnities, representations, and warranties can protect an acquiring operator from liability arising from any mistake or misrepresentation made by the developer when entering into PPAs or construction contracts. 
• Affirmation of key terms: In connection with a potential acquisition, ask the developer to provide a consent or estoppel from each offtaker, affirming each offtaker’s understanding of the four key PPA terms (contract term, offtake amount, fixed price, and settlement point). If an offtaker is confused or mistaken about the terms of its PPA, it is better to find out before deciding whether to go through with the project acquisition. 

Dispute resolution

Disputes relating to renewable energy projects can implicate issues too vast to summarize here, but there are a few common themes worth keeping in mind. 

• Fresh eyes: If a disagreement or dispute arises, consider bringing in fresh eyes to facilitate settlement. For example: 
  • Escalate to senior management: In a dispute, the business teams directly involved may dig in and struggle to compromise—especially if they are personally at fault. Senior executives are more likely to approach the dispute from a “big picture” perspective, which may be more likely to lead to a resolution.   
  • Try mediation: Consider involving a neutral mediator to facilitate settlement discussions. This is a good opportunity to get an outsider’s perspective and “test” their positions on a neutral. 
  • Third-party expert: Consider submitting a dispute to a third-party technical or industry expert. Ideally, the parties should jointly select a third-party expert and agree to cooperate with the expert’s evaluation of the dispute. However, it may still be helpful for one party to obtain a third-party opinion even if the other party is unwilling to participate. Expert input can inform settlement talks, and even if the dispute does not settle, having expert input early on allows counsel to use their time more efficiently in fast-paced litigation or arbitration. 
  • The parties may even wish to build these options into their contractual dispute resolution procedures. 
• Follow contractual dispute procedures to a tee.   
  • Withholding payments: In payment disputes, confirm whether there is a contractual basis to withhold payment. If so, be sure to satisfy any pre-conditions to invoking that right. For example, if the contract only authorizes payment withholding in the event of a formal dispute, be sure to take all steps necessary to initiate a dispute, such as written notice of the basis of the dispute and/or calculations of the disputed amount. If the contract does not authorize payments to be withheld (or if your client cannot satisfy the requirements to do so), consider paying under reservation rather than risking a default. 
  • Termination procedures: A party may wish to terminate a contract in response to a default, but before doing so, follow all default, cure, and termination procedures to a tee. For example, a contract may require a party to issue a formal notice of default or dispute, may require certain cure periods, and/or may require certain dispute resolution measures prior to termination. A party that terminates without following these procedures is exposed to liability for improper termination, which could impede its ability to recover. 

About the author

Amanda Laurel Gayer is an associate in the Litigation Practice Group in Haynes Boone’s New York office.

Amanda advises clients through all phases of litigation and works closely with clients to align litigation strategy with broader business goals. Her practice focuses on complex commercial litigation in federal and state court, including contract and business disputes, distressed real estate and commercial foreclosures, and securities matters.

Amanda also represents clients in a broad range of white-collar matters, including high-profile SEC and DOJ investigations relating to securities fraud, as well as internal investigations regarding regulatory compliance, corruption, discrimination, and workplace misconduct.