Payment Milestones in a Solar EPC Contract: What to Pay Against and When

Pay a solar EPC contractor against evidence, not dates. A sound schedule has a modest advance backed by a bank guarantee, then instalments for approved design, material delivered and insured at site, mechanical completion, commissioning and a passed performance test, with a retention held through the defects period. Each payment should match a document you can inspect, and the largest instalments should come late.

What should each payment be tied to?

How big should the advance be, and how is it secured?

There is no regulation that sets a percentage for a private solar contract; it is commercial. A useful reference is how a government works contract treats the same questions. The General Conditions of Contract for PWD works, 2023 allow a mobilisation advance not exceeding 10% of the tendered amount, released in two or more instalments each not exceeding 5%, with later instalments only after proof that the earlier one was used on the work. They also pay a secured advance of up to 75% of the assessed value of non-perishable materials brought to site and adequately stored, and for fragile or combustible items only if the contractor provides comprehensive insurance cover. That advance is recovered when the material is built into the work. See the GCC. The same document asks for a performance guarantee valid up to the completion date plus at least six months, and a 2.5% security deposit deducted from running bills.

A private owner does not have to copy those figures. The principles carry over: keep the advance modest, release it in steps, back it with a bank guarantee that reduces as it is recovered, and pay for material only when it is at site, identified and insured. Solar modules are glass, so the insurance point applies.

How should material at site be paid?

Modules, inverters and structures are usually the largest part of the price, so this is where owners are most exposed. Pay against delivery, not against a pro-forma invoice. Insist on serial numbers listed against the delivery challan, so that the warranty and the ALMM listing can be tied to the modules actually on your roof. Insist on covered storage, tagging and insurance cover for the stored goods. Title to the material should pass to you on payment. Check the supplier's test certificates before you pay. The batch should match what the design needs.

What happens when the DISCOM controls the date?

Between "installed" and "commissioned" sit the electrical inspector's approval where it applies and the DISCOM's net-metering process: agreement, meter installation, synchronisation. Neither is wholly in the contractor's hands. A contract that ties a large payment to commissioning without saying so lets one side bear the DISCOM's delay. The fair answer is a separate "ready for commissioning" milestone, payable when the contractor's work and its filings are complete, with the final commissioning instalment following.

The date also matters for the law. As of October 2026, MNRE's O.M. of 4 August 2026 exempts net-metering and open-access projects from ALMM List-II (solar cells) only if they are commissioned by 31 December 2026; after that, List-II compliance applies (O.M.). If the contract runs close to that date, say who bears the risk of a slip and what it costs.

How do the performance test and retention work?

A performance ratio (PR) test compares measured output to what the plant should produce at the irradiance and temperature recorded during the test. The contract should fix the method, the instruments and their calibration, the irradiance window, the test duration, and what happens on a fail: a retest period, then a price reduction or liquidated damages. The balance of the contract price should depend on a pass.

Retention is the second lever. Hold it until the end of the defects period, and state its amount as a number, not as "reasonable". Set it above the likely cost of the commonest early defects, such as loose terminations, inverter faults and mounting corrosion. A public-works benchmark is the 2.5% security deposit above; private contracts vary. Our notes on payment terms and retention and retention disputes apply directly. If your contractor is a micro or small enterprise, the statutory 45-day rule for paying registered MSME suppliers also bites; see the MSME 45-day rule.

What are the red flags in a proposed schedule?

• A large advance with no bank guarantee.
• Payment on invoice date or on dispatch, not on delivery at site.
• No definition of "commissioning", or one that depends on a third party's action.
• No performance ratio test, or a test the contractor runs and reports alone.
• Retention released at handover, or no retention at all.
• A final instalment smaller than the cost of rectifying a likely defect.

How Secured Engineers helps

We design the plant in-house and file the CEIG and DISCOM net-metering applications ourselves, so the "ready for commissioning" and "commissioned" steps sit with one team. Solar and MEPF can be contracted together, which means one payment schedule instead of two. We work from offices in Noida (Delhi NCR) and Ludhiana, with 535+ projects across 18+ states and 89.77% repeat clients. Our guide to selecting a solar EPC contractor and our testing and commissioning page give more.

If you hold a draft solar EPC contract or a quotation, send it and we will read its payment schedule against the points above. Start from our solar EPC service, message us on WhatsApp, call +91 70099 85817, or ask for a free proposal.