BESS Project Agreements: Allocating Risk Among Developers, EPC Contractors, and Equipment Suppliers

Developers, engineering, procurement, and construction (EPC) contractors, and equipment suppliers each play a critical role in completing a BESS project. However, when equipment costs rise, deliveries are delayed, or regulations change, determining who bears the financial consequences can become contentious. Well-drafted project agreements are essential to sound risk allocation.

Key Takeaways

• Risk allocation should be negotiated early. Developers, EPC contractors, and suppliers should clearly establish responsibility for procurement, construction, performance, and regulatory compliance.
• Tariff and regulatory changes require specific contractual treatment. Review fixed-price terms, change-in-law provisions, and force majeure clauses together.
• Equipment and EPC agreements must align. Misaligned delivery, warranty, and performance provisions can expose developers to significant losses.
• Balanced agreements can reduce disputes. Allocating risks to the parties best positioned to manage them can increase certainty and support project financing.

This article is Part 4 of our Battery Storage Legal Roadmap Series. If you missed them, start with Part 1: Utility-Scale Battery Storage Projects: A Legal Roadmap for Developers, Property Owners and Other Stakeholders, Part 2: Before You Buy: Managing Real Estate and Permitting Risk for BESS Projects in New York and New Jersey, and Part 3: BESS Interconnection: Managing Grid, Cost, and Schedule Risk. See all articles in the series here.

Recent changes in federal trade and energy policies have made these negotiations particularly challenging. Higher tariffs on certain imported battery components, restrictions involving prohibited foreign entities, and growing scrutiny of foreign-manufactured electrical equipment have added uncertainty to project planning and procurement. Given the industry’s reliance on international supply chains, these developments can materially affect project economics, financing, and construction schedules. For BESS projects in New Jersey, New York, and Pennsylvania,  carefully drafted agreements are paramount. The objective is not necessarily to eliminate risk for one party, but to establish a commercially reasonable allocation of responsibility before disputes arise.

Understanding the Parties and Their Contractual Responsibilities

Most utility-scale BESS projects involve several interconnected agreements, each addressing a different aspect of development, construction, or operation. Each plays a specific and important role.

The developer or project owner generally secures financing, obtains necessary approvals, coordinates interconnection, and oversees the project’s overall development. The EPC contractor typically handles engineering, equipment procurement, construction, and commissioning, though the exact scope depends on the contracting structure. Equipment suppliers manufacture or provide the battery systems, inverters, controls, and other components the facility needs to operate.

Many projects also involve a system integrator, whose role falls between that of the equipment supplier and the EPC contractor. An integrator may design the energy storage system, combine batteries, power conversion equipment, controls, and software from multiple manufacturers into a single system, and support commissioning and long-term service. Because the integrator is often responsible for the performance of components it does not manufacture, its agreements with the developer or EPC contractor should be aligned with its agreements with its own suppliers to avoid gaps in responsibility.

Under a traditional turnkey EPC arrangement, the contractor may assume substantial responsibility for delivering a completed, operational facility at an agreed price and within a specified schedule. Alternatively, the developer may purchase major equipment directly and retain an EPC contractor primarily for installation and integration.

Neither approach eliminates risk. A turnkey contract may provide the developer with a single point of responsibility, but contractors may seek exceptions for tariffs, supply disruptions, and regulatory changes. Direct procurement may offer greater control over equipment selection and pricing, but it can also leave the developer responsible for coordinating suppliers and contractors when problems arise.

The appropriate structure depends on the project’s financing, procurement strategy, construction schedule, and the parties’ willingness and ability to assume particular risks.

Tariffs and Foreign Equipment Restrictions Complicate Risk Allocation

Federal trade and energy policies have become a major consideration in BESS contracting. Section 301 tariffs on certain Chinese-origin lithium-ion batteries have increased import costs, while federal tax credit provisions now impose additional restrictions involving prohibited foreign entities.

Section 232 tariffs add another layer of cost exposure. Unlike Section 301 tariffs, which target Chinese-origin goods, Section 232 duties are imposed on national security grounds and generally apply regardless of country of origin. Since April 2026, duties on covered steel, aluminum, and copper derivative products have been assessed on the full customs value of the imported article rather than only its metal content. However, certain electrical grid equipment is subject to a temporarily reduced rate through 2027. Because enclosures, transformers, switchgear, and cabling are often metal-intensive, these tariffs can increase BESS project costs even when the batteries themselves are sourced from outside China.

The 2025 federal tax legislation introduced material-assistance restrictions affecting eligibility for certain clean electricity and energy storage tax credits. The Internal Revenue Service subsequently issued Notice 2026-15, providing interim guidance on whether projects and components meet the applicable requirements. These provisions can affect procurement decisions, particularly when developers rely on tax credits as part of their financing structure.

In August 2026, the federal government also issued Executive Order 14421, authorizing restrictions on certain foreign-supplied bulk-power system equipment when specified national security findings are made. Although the order does not automatically prohibit every Chinese-manufactured battery or component, it introduces another potential source of procurement and compliance risk. Uncertainty about the continued availability of Chinese-manufactured battery cells has led some developers to consider domestically produced cells, even if it means higher costs or longer lead times.

These developments create difficult questions for contracting parties. If a tariff increases after an equipment supply agreement is executed, must the supplier absorb the additional cost? Can the EPC contractor pass that expense to the developer? What happens if equipment that was permissible when ordered becomes subject to new restrictions before delivery or installation?

There is no universal answer. Risk allocation depends on the contractual language, applicable law, and circumstances surrounding the particular event.

Negotiating a Reasonable Risk Allocation

Developers generally favor fixed-price agreements that provide greater certainty regarding project costs. EPC contractors and suppliers, however, may be reluctant to assume unlimited exposure to changes in tariffs, material prices, or government restrictions that are outside their control.

As a result, contract negotiations often involve competing efforts to shift financial responsibility to another party. A developer may seek to require the EPC contractor to absorb unexpected procurement costs. In contrast, the contractor may attempt to pass those costs through to the owner, equipment supplier, or system integrator. Suppliers may likewise seek contractual protections against changes in import duties, transportation expenses, and regulatory requirements.

An effective agreement should distinguish between risks a party can reasonably manage and those largely beyond its control. For example, a supplier may be better positioned to address manufacturing defects or production delays, while an EPC contractor may be better equipped to manage construction sequencing and installation issues. Certain regulatory changes may warrant negotiated cost or schedule sharing.

Contracts can address these issues through several mechanisms, including:

• Change-in-law provisions: Establishing when new laws, tariffs, or government restrictions justify adjustments to contract price or schedule.
• Price adjustment clauses: Identifying circumstances under which increased equipment or material costs may be passed through, potentially subject to thresholds, caps, or shared responsibility.
• Price-lock dates: Fixing the contract price as of an agreed date before equipment delivery or commissioning, with adjustments for tariffs or material costs permitted only before that date.
• Force majeure provisions: Defining qualifying events and specifying whether they excuse performance, extend deadlines, or permit termination.
• Notice and mitigation requirements: Requiring parties to promptly disclose disruptions, substantiate additional costs, and pursue reasonable alternatives.
• Termination and substitution rights: Establishing remedies when equipment becomes unavailable, noncompliant, or commercially impracticable to procure.

Importantly, a change in law does not automatically constitute force majeure, and neither provision necessarily entitles a party to recover increased costs. Parties must establish those rights through the agreement.

Addressing Equipment Performance, Warranties and Delays

Tariffs and procurement restrictions are only part of the risk equation. BESS agreements must also account for equipment performance, system integration, warranty coverage, and construction delays.

Battery systems involve interconnected technologies that must function together to meet contractual performance requirements. Even when individual components satisfy their specifications, integration problems can prevent the completed facility from achieving its expected capacity, efficiency, or availability.

Developers should therefore consider whether equipment warranties, EPC performance guarantees, and commissioning requirements provide adequate protection. Pay particular attention to battery degradation, capacity retention, system availability, testing procedures, and who is responsible when equipment from multiple suppliers fails to operate as intended.

Delay provisions also require careful coordination. A late equipment delivery may prevent an EPC contractor from completing construction on schedule, potentially exposing the developer to additional financing costs or obligations under other project agreements. Evaluate liquidated damages, extensions of time, and liability limitations together to determine whether the available remedies adequately address foreseeable losses.

When separate equipment supply and EPC agreements are used, inconsistent terms can create coverage gaps. For example, the EPC contractor may be entitled to a schedule extension for a supplier delay even though the developer has no corresponding right to recover its losses from the supplier.

Why Contract Coordination Matters

BESS projects rarely operate under a single agreement. Beyond EPC and equipment supply contracts, developers may have financing agreements, interconnection arrangements, land-use approvals, and power purchase or other revenue agreements with independent deadlines and performance obligations.

A delay or compliance problem under one agreement can therefore create consequences throughout the project. The developer may remain obligated to satisfy financing milestones or commercial operation deadlines even when a supplier or contractor is entitled to relief under its own contract. Accordingly, parties should review project agreements collectively rather than negotiate them in isolation. Where possible, coordinate key provisions on delivery dates, acceptance testing, performance standards, changes in law, indemnification, insurance, and liability limitations.

The parties should also consider the financial strength of the entities assuming contractual obligations. A favorable indemnification provision or substantial damages remedy offers limited practical protection if the responsible party lacks the resources to satisfy a claim.

How We Can Help

Scarinci Hollenbeck’s Commercial Real Estate & Land Use attorneys advise developers, property owners, contractors, and other project stakeholders on the legal issues involved in energy infrastructure development throughout New Jersey, New York, and the surrounding region. Leveraging attorneys across the firm, we can also help negotiate and review EPC contracts, equipment supply agreements, and related project documents, with particular attention to risk allocation, regulatory compliance, performance obligations, and dispute resolution. As federal policies and supply chain conditions continue to evolve, carefully structured agreements can help protect project investments and reduce the likelihood of costly disputes.