You’ve done the hard work. You’ve sourced the ASICs, modeled the ROI, and selected a promising hosting site. The provider has sent over their standard Power Purchase Agreement (PPA) or colocation contract. The finish line is in sight. This is the single most dangerous moment for your entire operation.

Before you sign, your agreement requires a "Stress Test." It needs an expert, adversarial review focused entirely on identifying the hidden economic traps. Here are the five most common, and costly, clauses we find in PPA or colocation contract.

1. The "Phantom" Power Cost: PUE & Transmission Pass-Throughs

You negotiated a great rate—say, $0.06/kWh. But that's rarely the "all-in" cost.

The PUE Multiplier: Is the Power Usage Effectiveness (PUE) a fixed, guaranteed number (e.g., 1.05x), or is it "as-is"? A poorly managed facility with a floating PUE of 1.15 means your $0.06 rate is actually $0.069. Over a year on a 10 MW facility, that's a $788,000 difference.

Pass-Through Costs: Does the contract allow the provider to pass through uncapped "transmission," "balancing," or "regulatory" costs? These clauses could add 10-20% to an electricity bill, completely outside the negotiated rate.

2. The "Hollow" SLA: Uptime Guarantees Without Teeth

A 99.9% uptime Service Level Agreement (SLA) looks impressive. But its value is in the remedy, not the percentage.

The Remedy Trap: Most standard SLAs offer a trivial service credit for downtime (e.g., a credit for the hours the power was out). This is wildly insufficient. You don't just lose the power cost; you lose the entire mining revenue for that period. A 12-hour outage on a 10 MW site isn't a loss of a few thousand dollars in electricity—it's a loss of tens of thousands in unmined crypto currency such as Bitcoin.

Exclusion Carve-Outs: Look for extensive exclusions for "scheduled maintenance," "grid instability," or "third-party vendor issues." A strong agreement has tight definitions and very few exclusions.

3. The "Ambiguous" Termination Clause: The Hardware Hostage

What happens if the provider defaults, or you want to exit the contract? This is a critical, and often weak, part of the agreement.

De-installation & Exit Fees: Are the costs and procedures for removing your ASICs clearly defined and capped? Vague language can allow a provider to hold your multi-million dollar hardware hostage with exorbitant, undefined "exit fees."

Termination for Convenience: Do you have one? If the current site becomes unprofitable, can you exit the agreement? The absence of this right can lock you into a losing proposition for years.

4. The "One-Way" Liability & Indemnity Clause

This section determines who pays when something goes wrong. In provider-friendly agreements, it’s almost always you.

Gross Negligence vs. Negligence: Most providers will only accept liability for their "gross negligence." This is a very high legal standard to meet. It means they are not liable for ordinary mistakes, even if those mistakes destroy your equipment (e.g., a cooling failure due to an improperly configured sensor).

Consequential Damages Waiver: The contract will state that the provider is not liable for your "lost profits" or "consequential damages." When combined with a weak SLA, this means that even if their failure causes you to lose millions in mining revenue, your legal claim may be limited to a few thousand dollars in service credits.

5. The "Uncapped" CapEx Pass-Through

Who pays for major equipment failure at the facility? If a substation transformer fails, who bears the cost and the downtime? A well-negotiated contract places this burden squarely on the facility owner. A standard agreement often makes it a `force majeure` event, leaving you with no power and no recourse for months.

6. Our Solution: The Makkobilli "PPA/Colocation Term Sheet" Stress Test

You cannot effectively negotiate these points without knowing what "market standard" is. That is why we created our "Term Sheet Stress Test"—a fixed-fee, rapid-response legal product.

In 48 hours, we provide a surgical review of your term sheet or draft agreement. We deliver a concise, C-suite level memorandum that identifies red flags and hidden risks, and provides an actionable playbook of negotiation points to protect your capital.

Before you commit to a multi-year contract, commit to a 48-hour expert review. It will be the highest ROI investment you make in the entire project.

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Disclaimer: This article is for informational purposes only and does not constitute legal advice or create an attorney-client relationship. Every deal is unique. Please consult with a qualified legal professional for advice tailored to your specific situation.

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At Makkobilli Law Firm LLP, we operate at the intersection of energy infrastructure and digital asset investment. If you are in the middle of a negotiation and have a term sheet or draft agreement in hand, and require legal expert assistance, contact our Technology Practice Group to initiate a "Term Sheet Stress Test" for arming yourself with the expert leverage you need to win the negotiation.