Top Mistakes Companies Make When Interpreting PWA Requirements And How To Avoid Them
There is a moment in almost every clean energy deal when someone says, “We’re fine on labour compliance,” and everyone else nods, relieved, ready to move on. That moment is dangerous. The prevailing wage and apprenticeship rules look straightforward on paper, but in real projects, they tend to hide sharp edges. Companies do not usually get tripped up because they ignored the law. They get tripped up because they misunderstood it, underestimated it, or assumed someone else had it covered properly.
If you are buying or selling transferable tax credits, misreading PWA requirements is not a paperwork problem. It is a value problem. One simple mistake can wipe out most of the credit you thought you bought.
Mistake 1: Treating PWA as a box to check instead of a process
Many companies treat prevailing wage and apprenticeship compliance like a single checkbox at financial close. In reality, compliance stretches across months or even years, depending on the tax credit, because PWA requirements are ongoing obligations rather than one-time certifications. For credits like Sections 45, 45Y, 48, and 48E, the obligation does not end simply because the project is placed in service. Wages, classifications, and apprenticeship hours must continue to line up with pwa requirements well after the project is placed in service. Buyers who assume the risk ends at closing are often shocked later when an audit looks backward and finds gaps.
The fix is simple in theory, harder in practice. Build ongoing monitoring into your diligence and contracts. Ask how compliance is tracked today, not how it was tracked last year. Make sure reporting continues through the full compliance window, not just construction.
Mistake 2: Using the wrong prevailing wage determination
This mistake feels technical, but it is surprisingly common. Companies pull a wage rate from sam.gov and assume they are covered, but wage determinations depend on when construction begins, the location, and the type of construction. Using a rate published after work started, or one tied to the wrong classification, can quietly put the entire project out of bounds.
To avoid this, insist on documentation that shows exactly which wage determination was used and why. Ask who made that call and when. If the answer is vague or undocumented, pause. When it comes to PWA requirements, precision beats speed every time.
Mistake 3: Assuming subcontractors are someone else’s problem
Clean energy projects are layered. Developers hire EPCs. EPCs hire subcontractors. Subcontractors sometimes hire more subcontractors. Somewhere in that stack, payroll data gets messy.
Smart buyers demand visibility all the way down. That does not mean micromanaging every crew. It means confirming that each contractor has a real system for tracking wages and apprentice hours, and that records can be reconstructed if needed. If a developer cannot explain how they would locate an underpaid worker two years later, that is a red flag.
Mistake 4: Overlooking apprenticeship math until it is too late
Apprenticeship compliance is not just about hiring apprentices. It is about hitting a percentage of total labour hours. That percentage has changed over time and varies based on when construction began.
What often happens is that teams track apprentices in isolation, without tying their hours back to total labour hours across the project, and the percentage inevitably comes up short.
The solution is to treat apprenticeship tracking like financial modelling. You do not check it once. You monitor it continuously. Build buffers. If labour ramps up unexpectedly, apprentice hours need to scale too. When people talk casually about PWA requirements, this is the part they most often underestimate.
Mistake 5: Confusing exceptions with blanket exemptions
Companies sometimes hear “exceptions” and stop listening. That is risky. Buyers should always ask which exception applies, under which credit, and why. If the explanation cannot be tied back cleanly to the statute and guidance, assume the exception may not hold up under scrutiny. For example, projects that began construction before January 29, 2023, may be exempt, but not across every credit.
Being cautious here saves a lot of grief later. Exceptions can unlock value, but only when they are rock solid.
Mistake 6: Underestimating the documentation burden
The IRS is clear about what must be kept and what is recommended. Payroll records are required, but problems arise when documentation exists in theory rather than in practice. Spreadsheets with missing fields, payroll systems that cannot export historical data, or records scattered across contractors who no longer work together.
Buyers should not just ask if records exist. Ask to see samples. Ask how long records are retained. Ask how quickly information could be produced if the IRS comes calling. Strong documentation is the backbone of PWA requirements, and weak documentation is often what turns a small issue into a big recapture.
How to Get it Right Without Overcomplicating Everything
Avoiding these mistakes does not require excessive caution. It requires structure. Start with clear diligence questions. Follow the compliance trail from construction through the full recapture period. Make sure contracts reflect real-world risks, not best-case assumptions. And when uncertainty lingers, use insurance strategically.
Conclusion
Companies that avoid these mistakes do not just protect tax credit value. They move faster, negotiate with confidence, and avoid late-stage surprises that kill deals. That is the quiet upside of understanding PWA requirements deeply, even when the temptation is to gloss over the details and move on.
