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Commitments and Contingencies
9 Months Ended
Sep. 30, 2014
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies
Note 16 - Commitments and Contingencies
In addition to the matters discussed below, MasTec is subject to a variety of legal cases, claims and other disputes that arise from time to time in the ordinary course of its business. MasTec cannot provide assurance that it will be successful in recovering all or any of the potential damages it has claimed or in defending claims against it. The outcome of such cases, claims and disputes, including those set forth below, cannot be predicted with certainty and an unfavorable resolution of one or more of them could have a material adverse effect on the Company's business, financial condition, results of operations and cash flows.

SunLight Entities. In 2011, Power Partners MasTec, LLC., a MasTec, Inc. subsidiary (“Power Partners”), entered into engineering, procurement, and construction agreements (the “EPC Agreements”) with special purpose entities, SunLight General Somerset Solar, LLC, SunLight General Morris Solar, LLC and SunLight General Sussex Solar, LLC (collectively, the “SunLight Entities”), respectively, to perform design and construction services for three public solar projects in New Jersey located in Somerset, Morris and Sussex Counties (the “Projects”). The initial contract price of each of the Projects was, subject to adjustment, approximately as follows: Somerset ($29 million); Morris ($36 million); and Sussex ($26 million). The Projects were funded, in part, with proceeds of municipal bonds issued by the Morris County and Somerset County Improvement Authorities (collectively, the “Authorities”).

Power Partners and the SunLight Entities engaged in three separate arbitration proceedings against each other to address various disputes that existed between the parties on the Projects. The arbitration panel rendered awards in Power Partners’ favor in the aggregate amount of $59.6 million in August 2014. The arbitrators found that SunLight breached the EPC Agreements, that Power Partners had the right to terminate the EPC Agreements for cause because of the SunLight Entities’ breach of contract and breach of the covenant of good faith and fair dealing. The arbitrators dismissed all of the SunLight Entities’ affirmative claims. Power Partners has filed a petition in federal court in New Jersey as part of the process of confirming the arbitration awards into final judgments against the SunLight Entities. The arbitrators also held that Power Partners was the prevailing party and that it is entitled to an additional award of interest, attorney’s fees and costs. Power Partners has filed an application with the arbitration panel to set the amount of interest, attorney’s fees and costs and expects a ruling before the end of the year.

Power Partners intends to vigorously pursue collection of all arbitration awards including interest, attorney's fees and costs. Power Partners believes it will successfully collect the arbitration awards, however, there can be no assurance that its collection efforts will be successful or that Power Partners will recover all amounts previously recorded. As part of its collection efforts, Power Partners filed municipal mechanic’s liens and construction liens of approximately $50 million against the solar projects and public construction funds for the work Power Partners had performed on the Projects. SunLight Entities and the Authorities challenged the mechanic’s liens and construction liens in court. In March 2014, a New Jersey appellate court found that Power Partners did not have municipal mechanic’s liens or construction liens on the municipal bond funds that are held in trust to pay for construction of the Projects. Power Partners petitioned the New Jersey Supreme Court to review the appellate court’s ruling, and, in July 2014, the New Jersey Supreme Court agreed to accept the case for review and also entered an order staying the appellate court’s ruling.

Power Partners also filed a lawsuit in June 2013 in federal court in New Jersey against the Authorities and the principals of the SunLight Entities with claims exceeding $60 million as part of its efforts to seek payment of amounts that were also the subject of the arbitration proceedings. The claims against the Authorities include violations of the New Jersey Public Works Bond Act, violations of the New Jersey Construction Trust Fund Act, tortious interference with Power Partners' contract rights, unjust enrichment and quantum meruit for the value of the work performed by Power Partners.
Other Commitments and Contingencies
Leases. In the ordinary course of business, the Company enters into non-cancelable operating leases for certain of its facility, vehicle and equipment needs, including related party leases. See Note 10 - Lease Obligations.
Letters of Credit. In the ordinary course of business, the Company is required to post letters of credit for its insurance carriers, surety bond providers and in support of performance under certain contracts. Such letters of credit are generally issued by a bank or similar financial institution. The letter of credit commits the issuer to pay specified amounts to the holder of the letter of credit under certain conditions. If this were to occur, the Company would be required to reimburse the issuer of the letter of credit, which, depending upon the circumstances, could result in a charge to earnings. As of September 30, 2014 and December 31, 2013, there were $135.6 million and $134.8 million, respectively, of letters of credit issued under the Company's Credit Facility. See Note 9 - Debt. The Company was not aware of any material claims relating to outstanding letters of credit as of September 30, 2014 or December 31, 2013.
Performance and Payment Bonds. In the ordinary course of business, MasTec is required by certain customers to provide performance and payment bonds for certain of its contractual commitments associated with projects in process. These bonds provide a guarantee to the customer that the Company will perform under the terms of a contract and that the Company will pay subcontractors and vendors. If the Company fails to perform under a contract or to pay subcontractors and vendors, the customer may demand that the surety make payments or provide services under the bond. The Company must reimburse the surety for any expenses or outlays it incurs. As of September 30, 2014, the estimated cost to complete projects secured by the Company’s $748.6 million in performance and payment bonds was $53.1 million. As of December 31, 2013, the estimated cost to complete projects secured by the Company’s $1.1 billion in performance and payment bonds was $297.1 million.

Investments in Affiliates and Other Entities. The Company holds an undivided interest in a contractual joint venture with a third party for the purpose of providing infrastructure construction services under certain customer contracts. Losses incurred by the joint venture are generally shared proportionally by the joint venture members, with members of the joint venture jointly and severally liable for all of the obligations of the joint venture. The joint venture agreement provides that each joint venturer indemnify the other parties for any liabilities incurred. Thus, it is possible that the Company could be required to pay or perform obligations in excess of its share if the other joint venturer fails or refuses to pay or perform its share of the obligations. As of September 30, 2014, the Company was not aware of any circumstances that would lead to future claims against it for material amounts. In addition, from time to time, the Company may provide financing to its unconsolidated affiliates. As of September 30, 2014, there were no amounts committed under such financing arrangements.
Self-Insurance. MasTec maintains insurance policies for workers’ compensation, general liability and automobile liability, which are subject to per claim deductibles. The Company also maintains excess umbrella coverage. As of September 30, 2014 and December 31, 2013, MasTec’s liability for unpaid claims and associated expenses, including incurred but not reported losses related to its workers compensation, general liability and automobile liability insurance policies, totaled $60.3 million and $50.8 million, respectively, of which $36.3 million and $31.3 million, respectively, was reflected within non-current other liabilities in the condensed unaudited consolidated balance sheets. MasTec also maintains an insurance policy with respect to employee group medical claims, which is subject to annual per employee maximum losses. MasTec’s liability for employee group medical claims as of September 30, 2014 and December 31, 2013 totaled $1.9 million and $2.1 million, respectively.
The Company is required to post letters of credit and provide cash collateral to certain of its insurance carriers and to provide surety bonds in certain states. Insurance-related letters of credit for the Company's workers' compensation, general liability and automobile liability policies amounted to $57.2 million and $57.4 million as of September 30, 2014 and December 31, 2013, respectively. In addition, cash collateral deposited with insurance carriers, which is included in other long-term assets in the condensed unaudited consolidated balance sheets, amounted to $1.1 million and $1.4 million for these policies as of September 30, 2014 and December 31, 2013, respectively. Outstanding surety bonds related to workers’ compensation self-insurance programs amounted to $13.0 million and $10.9 million as of September 30, 2014 and December 31, 2013, respectively.
Employment Agreements. The Company has employment agreements with certain executives and other employees, which provide for compensation and certain other benefits and for severance payments under certain circumstances. Certain employment agreements also contain clauses that become effective upon a change of control of the Company. Upon the occurrence of any of the defined events in the various employment agreements, the Company would be obligated to pay certain amounts to the relevant employees, which vary with the level of the employees’ respective responsibility.
Collective Bargaining Agreements and Multi-Employer Plans. Certain of MasTec’s subsidiaries are party to various collective bargaining agreements with unions representing certain of their employees. The agreements require the subsidiaries party to the agreements to pay specified wages, provide certain benefits to their union employees and contribute certain amounts to multi-employer pension plans and employee benefit trusts. The collective bargaining agreements expire at various times and have typically been renegotiated and renewed on terms similar to the ones contained in the expiring agreements.
The Employee Retirement Income Security Act of 1974, as amended by the Multi-Employer Pension Plan Amendments Act of 1980 (collectively, “ERISA”), which governs U.S. registered multi-employer pension plans, subjects employers to substantial liabilities in the event of the employer’s complete or partial withdrawal from, or upon termination of, such plans. Under current law regarding employers who are contributors to U.S. registered multi-employer defined benefit plans, a plan’s termination, an employer’s voluntary withdrawal from, or the mass withdrawal of contributing employers from, an underfunded multi-employer defined benefit plan requires participating employers to make payments to the plan for their proportionate share of the multi-employer plan’s unfunded vested liabilities. Furthermore, the Pension Protection Act of 2006 added new funding rules to U.S. registered plans that are generally applicable to plan years beginning after 2007 for multi-employer plans classified as “endangered,” “seriously endangered,” or “critical” status. If plans in which the Company’s subsidiaries participate are in critical status, benefit reductions may apply and/or the Company could be required to make additional contributions. Based upon the information available to the Company from plan administrators as of September 30, 2014, several of the multi-employer pension plans in which it participates are underfunded and, as a result, the Company could be required to increase its contributions.
On November 15, 2011, the Company, along with other members of the Pipe Line Contractors Association (“PLCA”), voluntarily withdrew from the Central States Southeast and Southwest Areas Pension Fund (“Central States”), a defined benefit multi-employer pension plan that is in critical status. In connection with this withdrawal, a $6.4 million withdrawal liability was established based on an estimate provided by the Central States administrator of such liability as of the date of withdrawal. The Company began paying installments towards this withdrawal liability in 2013, of which $4.5 million was outstanding as of September 30, 2014. The Company withdrew from Central States in order to mitigate its liability in connection with the plan; however, Central States has asserted that the PLCA members did not effectively withdraw in 2011 and are, therefore, responsible for a withdrawal liability that includes 2011 contribution amounts. By letter dated March 14, 2013, Central States demanded $11 million in withdrawal liability from the Company, which included 2011 contribution amounts. The Company is vigorously opposing this demand because it believes that it legally and effectively withdrew from Central States on November 15, 2011. If Central States were to prevail in its assertion that the Company withdrew after that date, then the initial amount of the Company’s withdrawal liability would increase to approximately $11 million. The Company currently does not have plans to withdraw from any other multi-employer pension plan.
Indemnities. The Company generally indemnifies its customers for the services it provides under its contracts, as well as other specified liabilities, which may subject the Company to indemnity claims, liabilities and related litigation. As of September 30, 2014 and December 31, 2013, the Company was not aware of any material asserted or unasserted claims in connection with these indemnity obligations.
Other Guarantees. In the ordinary course of its business, from time to time, MasTec guarantees the obligations of its subsidiaries, including obligations under certain contracts with customers, certain lease obligations and in some states, obligations in connection with obtaining contractors’ licenses. MasTec has also issued performance and other guarantees in connection with its undivided interest in a contractual joint venture and certain of its equity investees. See Note 3 - Acquisitions. MasTec generally warrants the work it performs for a one to two year period following substantial completion of a project. MasTec has not historically accrued any reserves for potential warranty claims as they have been immaterial.
Concentrations of Risk. The Company had approximately 480 customers for the nine month period ended September 30, 2014. For the three month periods ended September 30, 2014 and 2013, the Company derived 64% and 73% respectively, of revenues from its top ten customers. For the nine month periods ended September 30, 2014 and 2013, the Company derived 66% and 69%, respectively, of revenues from its top ten customers. See Note 15 - Segments and Related Information for significant customer revenue concentration information.