FEOC compliance doesn’t end at signing. Here’s where it actually breaks down

The material assistance cost ratio (MACR), calculated when the project reached completion, reflected the substitution. The developer’s credit was at risk. A team that had done everything the compliance process asked of them was left holding tax credit exposure they had no reason to expect.

The risk doesn’t stay where you put it

Most procurement teams understand that FEOC compliance is their responsibility. What receives less attention is whose responsibility it becomes when a project changes hands.

Developers who flip projects may have less structural incentive to focus on FEOC risk. They may not own the asset long enough to bear the consequences of a disqualified credit. The long-term asset owner—whoever ultimately claims the investment tax credit (ITC)—inherits that exposure at acquisition, sometimes without knowing it. If the developer selected a manufacturer without properly verifying FEOC compliance, the buyer takes on that gap, facing costs that were never priced in, or, in the worst case, needing to switch manufacturers at a much higher cost.

Manufacturers generally say they are compliant or working toward it. Some may spend months working to resolve compliance issues before agreeing to an audit, because they were not previously in a position to pass one. A developer who accepts a verbal assurance or an unverified certification has no way to know whether that compliance-related work is done or still underway. And even when a manufacturer is compliant at signing, compliance can break down in ways that a one-time certification was never designed to catch.

A certificate today isn’t a guarantee tomorrow

A one-time audit during contracting captures a manufacturer’s status on the day it was conducted.

A manufacturer that has sold a majority stake to a compliant entity but retained IP rights through a licensing arrangement may still exercise effective control under the definition in the “One Big Beautiful Bill Act” (OBBBA). Equity dilution alone does not resolve FEOC exposure when licensing remains. The question is not only who owns the factory. It is also who owns the technology the factory runs on, and whether payments under contracts or licences that violate effective control provisions flow back to a covered nation entity.

Complex ownership structures create the same documentation gap through a different mechanism. Holding companies, offshore intermediaries and multiple layers of equity can make ownership difficult to trace. Getting an accurate answer takes deliberate work to follow the structure down to who actually controls the business—not a single document check.

A manufacturer’s FEOC status can also change after the contract is signed. In terms of legal compliance, most aspects of a supplier’s prohibited foreign entity (PFE) status are assessed at the end of the taxable year in which the developer pays for the components, meaning a manufacturer compliant when an order is placed may not be compliant by the time payment is made or tax credits are claimed.

If a manufacturer undergoes a change of ownership that causes it to become a PFE during that window, the components it supplied may count as PFE-sourced in the MACR calculation at project completion, potentially pushing the facility below the applicable threshold and disqualifying the credit. The precise legal consequence of a mid-year status change has not been resolved under current guidance, which is why monitoring supplier status through delivery matters more than relying on a single certification at signing.

The audit captured a moment. Production runs for months

The MACR for a qualified facility is calculated from the components actually incorporated at completion. A manufacturer who substitutes a component supplier mid-production, for any routine commercial reason, may push the project’s MACR below the applicable threshold, disqualifying the entire credit. The commercial logic behind the substitution is irrelevant. The FEOC consequence is the same regardless. A pre-production audit cannot see what happens six months later down the line.

Legal certifications don’t close this gap either. They are conditional on the accuracy of the information the manufacturer provides. If that information is wrong, or the bill of materials changes later, legal certification can’t solve the problem.  

Purchase agreements should prohibit bill of materials changes without buyer approval and require ongoing supplier documentation, so no substitution can occur without the developer’s knowledge. Independent engineers present at the factory during production can verify that the bill of materials matches what was agreed. They catch substitutions prior to shipment. At Intertek CEA, we find that teams already conducting factory quality assurance on site are well positioned to run FEOC bill of materials verification concurrently: one site presence, two compliance functions.

What the contract needs to do

Every solar module purchase agreement should address three things.

First, require documented compliance, not a representation. Suppliers’ counsels are often reluctant to put an unconditional FEOC warranty in writing, given the risk that ownership or supply chain status may change later. Documented audit results from an independent third party give buyers the evidence a warranty cannot reliably provide, without asking suppliers for a guarantee their lawyers won’t sign.

Second, require the manufacturer to bear the cost of the audit. In our experience, a manufacturer-funded audit that can be shared across multiple buyers tends to be more efficient than requiring each developer to commission its own, and less invasive for the manufacturer—one audit per year rather than one per transaction.

Finally, require contractual indemnification against loss of tax credits resulting from changes in the manufacturer’s ownership or FEOC status during the delivery and compliance window. A well-drafted indemnification clause ensures that financial exposure does not fall entirely on the buyer after modules ship.

The window stays open

Notice 2026-15 addressed the MACR calculation but left major questions unanswered: effective control including IP licensing, certain definitions and what happens when a manufacturer’s ownership changes. Financing parties are beginning to require FEOC documentation as a condition of tax equity. For developers with projects in the pipeline, that documentation will need to cover every procurement contract signed between now and placed-in-service, which for many projects means the next two to four years.

Developers who build FEOC compliance into their procurement contracts now will not be scrambling to reconstruct supply chain documentation when the time comes. That means engaging independent expertise early—at the procurement stage, not after a problem surfaces. The compliance window does not close at signing. For most projects, it stays open through delivery, through completion and well beyond.

The next article in this series examines what that means at the factory level: the quality risks emerging in new manufacturing facilities, and what the data shows about where those risks concentrate.

Jordan Wilson is director of business development, Intertek CEA. Read his previous post for us on protecting solar procurement contracts against duties, tariffs and import prohibitions.