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Best Practices for Solar and Wind Projects in a Prevailing Wage and Apprenticeship Era

January 19, 2023

For any renewable energy project 1MWac or larger, the Inflation Reduction Act adds new qualifications to obtain the full 30% Investment Tax Credit and Production Tax Credit (rather than reducing 80% of the value of the ITC or PTC). Starting on Jan. 30, 2023, developers performing any “physical work of a significant nature” on a renewable project site must pay prevailing wages to all workers and employ apprentices equal to at least 12.5% to 15% of the total labor hours (or obtain a Good Faith Exception).

The IRS posted its initial guidance related to the prevailing wage and apprenticeship (“PW-A”) requirements on Nov. 30, 2022 (“IRS Notice”). These PW-A guidelines impact every participant participating in large-scale renewable energy construction: developers, contractors, subcontractors, EPCs, owners, operators, O&M providers, and even non-W2 independent contractors.

Although the PW-A requirements impact almost every player, this piece focuses on best practices for developers who are seeking to maximize the tax benefits, avoid negative due diligence concerns from investors, and be prepared with documentation for IRS or governmental inquiries.

Start Date of PW-A Requirements

Facilities that begin significant construction after Jan. 30, 2023 trigger PW-A requirements, and the IRS provides two tests for what it deems to be construction activities:

  • Physical Work Test: Any “physical work of a significant nature” that includes continuous and significant physical work performed for the facility excluding preliminary activities, namely planning or designing, securing financing, obtaining permits, licensing, conducting site surveys, environmental and engineering studies, or clearing a site; or
  • Five Percent Test: Incurring five percent (5%) of the total cost of the facility, including any equipment or construction costs of the facility.

Determining Prevailing Wages

The prevailing wage rates must be established for each worker employed in construction as set forth by the U.S. Secretary of Labor or an email determination from the Department of Labor, Wage and Hour Division. The IRS Notice details the two methods for satisfying the prevailing wage rates as follows:

  • Department of Labor website publication: For every job category and job type, developers must assess whether the required prevailing wage rates are published in the US Department of Labor (DOL) website for each job classification in the job location.
  • Email determination with Wage and Hour Division, Department of Labor. If the above DOL website does not provide the required job type or location, the IRS Notice requires an email to be sent to requesting wage determinations as to the “facility, facility location, proposed labor classifications, proposed prevailing wage rates, job descriptions and duties, and any rationale for the proposed classifications.”

The developer (and any contractors/subcontractors) must maintain and preserve the records on each laborer who performed construction, the classification of work they performed, the hours worked in each classification, and the wage rates paid for work during the relevant tax credit period.

Apprenticeship Requirements

Any project with four or more workers must hire qualified apprentices for 12.5%  of total labor hours in 2023, and 15% for projects starting construction in 2024 or thereafter. Developers must seek apprentices from “registered apprenticeship programs” (RAP), which require certification by the US Department of Labor or a state-level apprenticeship agency.

The IRS Notice explicitly provides for a “Good Faith Effort Exception” for developers that have requested apprentices from a RAP and said the request was either denied or not acknowledged by the RAP within five business days.

PW-A Best Practices

The following list provides “Best Practices” for developers seeking to maintain maximum tax benefits and to ease due diligence concerns from tax equity investors, financing parties, and project buyers:

  • RFP & Bid Documents; Pricing Quotes: RFP and bid documents with contractors, subcontractors, EPC, and others should (a) obligate each worker to provide its job classifications and job types as well as proposed work hours and (b) require the firm or agent employing construction workers to determine prevailing wage rates per DOL requirements. Pricing for any contractor or subcontractor construction work must consider the proper documentation for the DOL prevailing wage rate determinations.
  • Documentation for each job classification and worker: For every phase of construction, civil, electrical, and mechanical, developers should consider a classification tool for each worker per the DOL wage rates noted above.
  • Department of Labor determination: Developers must ensure the wages meet the DOL determination for each job type and wage rates. Internal processes must then maintain this determination, total labor hours performed, and wage records throughout the required tax credit period (5 or 10 years).
  • Record keeping requirements: Developers must maintain the requisite wage and apprenticeship records for each job classification and labor hours performed by each laborer (including apprentices) to establish the PW-A requirements are satisfied.
  • Apprenticeship compliance: As a necessary condition, developers must ensure that the apprenticeship posting was made before any “Notice to Proceed” to a RAP (and if a Good Faith exception was met and satisfied). For each apprentice hired, the required apprenticeship hours must be tracked and maintained to satisfy the total labor hours for apprentices as well as the wage rates for each apprenticeship job type.
  • Legal terms in Term Sheets and Construction Contracts: All project documents and contracts must ensure contractor compliance (including O&M Providers) with prevailing wage requirements. Contractual representations and warranties should be included in any term sheet or legal contract for any contractor, subcontractor, or worker related to compliance with PW-A requirements.
  • Future IRS guidance: The IRS anticipates it will issue “proposed regulations” and “other guidance” with respect to PW-A requirements. Bid documents and legal contracts should include clauses for any new proposed IRS regulations or orders and evolving IRS enforcement activities and judicial opinions relating to PW-A.
  • Project Sales; M&A Opportunities: M&A and MIPA documents will require representations and warranties that PW-A was fully satisfied and record keeping was maintained over the relevant tax period. Investors and project sales could be halted or de-valued (including adding new indemnity requirements on the owner/developer) based on inadequate documentation or processes for PW-A requirements.


Full compliance with PW-A requirements is essential to avoid IRS enforcement action and maximize tax benefits. Developers who are prepared early and readily change legal documentation and internal processes for construction projects, update contract templates to PW-A, and maintain continual recordkeeping will do best in this new wage and apprenticeship era. Clark Hill attorneys are ready to assist interested parties in this process.

The views and opinions expressed in the article represent the view of the authors and not necessarily the official view of Clark Hill PLC. Nothing in this article constitutes professional legal advice nor is it intended to be a substitute for professional legal advice.

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