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Commitments and Contingencies
 3 Months Ended
Mar. 31, 2023
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies Commitments and Contingencies
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, including project contract price and other project disputes, other project-related liabilities and acquisition purchase price disputes. 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 the Company. The outcome of such cases, claims and disputes 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.
Acquired Legacy Solar Matter. On April 28, 2023, a jury found IEA and its subsidiary, IEA Constructors, LLC ("IEAC"), liable to plaintiffs H&L Farms LLC, Shaun Harris and Amie Harris following a trial in the U.S. District Court for the Middle District of Georgia, Columbus Division (the “Court”), against the IEA entities, IEAC’s customer, Silicon Ranch Corporation, the owner of a solar farm project (“SRC”), and engineering firm Westwood Professional Services, Inc. The suit, filed in August 2021, arose out of a project that commenced in 2021 involving the construction by IEAC of a solar farm for SRC. The project was being constructed on SRC’s property located adjacent to a 1,400 acre tract of land owned by the plaintiffs, purchased by the plaintiffs in March 2021 for approximately $3.3 million, which tract contained a 21 acre lake.
The plaintiffs brought various causes of action under Georgia law, including trespass, nuisance and negligence, arising out of the defendants’ alleged failure to exercise appropriate efforts required by Georgia law to prevent and remediate soil erosion and sedimentary run-off that flowed from SRC’s property into the plaintiffs’ lake. Following trial, the jury awarded compensatory damages of $4.5 million for emotional distress/loss of enjoyment for each of Mr. and Mrs. Harris, and another $1.5 million in remediation costs, which damages were apportioned 30% to SRC and 70% to IEA and IEAC. The jury also awarded $25 million in punitive damages against SRC and $50 million in punitive damages against each of IEA and IEAC. The Court entered judgment on the verdict on May 3, 2023. Injunctive relief is also expected to be awarded to expedite the continued lake clean-up efforts under threat of further sanction by the Court.
IEA and IEAC believe that the compensatory damages awards are excessive and the punitive damages are both excessive and unwarranted as a matter of law because, among other reasons, the plaintiffs purchased the 1,400 acres of land for $3.3 million in March 2021 and the lake was only 21 acres; IEA has expended significant sums trying to prevent the soil erosion; and Georgia’s statutory cap on punitive damages of $250,000 per plaintiff should have been applied. IEA and IEAC intend to seek an entirely new trial, a reduction or elimination of the damages awards and, if necessary, an appeal of the result of the trial to the Court of Appeals for the 11th Circuit. IEAC’s insurance carrier has agreed to tender the limit of its policy of $10 million.
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 8 - Lease Obligations and Note 15 - Related Party Transactions.
Letters of Credit. In the ordinary course of business, the Company is required to post letters of credit for its insurance carriers and surety bond providers and in support of performance under certain contracts as well as certain obligations associated with the Company’s equity investments and other strategic arrangements, including its variable interest entities. 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 March 31, 2023 and December 31, 2022, there were $162.9 million and $166.7 million, respectively, of letters of credit issued under the Company’s credit facilities. Letter of credit claims have historically not been material. The Company is not aware of any material claims relating to its outstanding letters of credit as of March 31, 2023 or December 31, 2022.
Performance and Payment Bonds. In the ordinary course of business, MasTec is required by certain customers to provide performance and payment bonds for contractual commitments related to its projects. 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 its subcontractors and vendors. If the Company fails to perform under a contract or to pay its 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 expenses or outlays it incurs. As of March 31, 2023 and December 31, 2022, outstanding performance and payment bonds approximated $5,374.0 million and $4,855.5 million, respectively, and estimated costs to complete projects secured by these bonds totaled $1,942.2 million and $1,739.9 million, respectively. Included in these balances as of March 31, 2023 and December 31, 2022 are $254.5 million and $115.8 million, respectively, of outstanding performance and payment bonds issued on behalf of the Company’s proportionately consolidated non-controlled contractual joint ventures, representing the Company’s proportionate share of the total bond obligation for the related projects.
Investment and Strategic Arrangements. The Company holds undivided interests, ranging from 85% to 90%, in multiple proportionately consolidated non-controlled contractual joint ventures that provide infrastructure construction services for electrical transmission projects, as well as undivided interests ranging from 25% to 50% in four civil construction projects. Income and/or losses incurred by these joint ventures are generally shared proportionally by the respective joint venture members, with the members of the joint ventures jointly and severally liable for all of the obligations of the joint venture. The respective joint venture agreements provide that each joint venture partner indemnify the other party for any liabilities incurred by such joint venture in excess of its ratable portion of such liabilities. Thus, it is possible that the Company could be required to pay or perform obligations in excess of its share if the other joint venture partners fail or refuse to pay or perform their respective share of the obligations. As of March 31, 2023, the Company was not aware of material future claims against it in connection with these arrangements. For the three month period ended March 31, 2023, the Company provided $0.3 million of project-related financing to its contractual joint ventures, which amount was outstanding as of March 31, 2023. Included in the Company’s cash balances as of March 31, 2023 and December 31, 2022 are amounts held by entities that are proportionately consolidated totaling $16.7 million and $25.7 million, respectively. These amounts are available to support the operations of those entities, but are not available for the Company’s other operations.
The Company has other investment and strategic arrangements, under which it may incur costs or provide financing, performance, financial and/or other guarantees. See Note 4 - Fair Value of Financial Instruments and Note 15 - Related Party Transactions for additional information pertaining to the Company’s investment and strategic arrangements.
Self-Insurance. MasTec maintains insurance policies for workers’ compensation, general liability and automobile liability, which are subject to per claim deductibles. The Company is self-insured up to the amount of the deductible. The Company also maintains excess umbrella coverage. The Company manages certain of its insurance liabilities indirectly through its wholly-owned captive insurance companies, which reimburse claims up to the applicable insurance limits. Cash balances held by the Company’s captive insurance companies, which totaled approximately $0.9 million and $1.1 million as of March 31, 2023 and December 31, 2022, respectively, are generally not available for use in the Company’s other operations.
As of March 31, 2023 and December 31, 2022, MasTec’s estimated liability for unpaid claims and associated expenses, including incurred but not reported losses related to these policies, totaled $190.1 million and $176.7 million, respectively, of which $118.8 million and $109.3 million, respectively, were reflected within other long-term liabilities in the 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 estimated liability for employee group medical claims totaled $4.3 million and $4.1 million as of March 31, 2023 and December 31, 2022, respectively.
The Company is required to post collateral, generally in the form of letters of credit, surety bonds and cash to certain of its insurance carriers. Insurance-related letters of credit for the Company’s workers’ compensation, general liability and automobile liability policies amounted to $95.6 million as of both March 31, 2023 and December 31, 2022. Outstanding surety bonds related to self-insurance programs amounted to $110.9 million as of both March 31, 2023 and December 31, 2022.
Collective Bargaining Agreements and Multiemployer Plans. As discussed in Note 10 - Other Retirement Plans, certain of MasTec’s subsidiaries are party to various collective bargaining agreements with unions representing certain of their employees, which require the Company to pay specified wages, provide certain benefits and contribute certain amounts to MEPPs. The Employee Retirement Income Security Act of 1974, as amended by the Multiemployer Pension Plan Amendments Act of 1980 (collectively, “ERISA”), which governs U.S.-registered MEPPs, subjects employers to substantial liabilities in the event of an employer’s complete or partial withdrawal from, or upon termination of, such plans.
The Company currently contributes, and in the past, has contributed to, plans that are underfunded, and, therefore, could have potential liability associated with a voluntary or involuntary withdrawal from, or termination of, these plans. As of March 31, 2023, the Company does not have plans to withdraw from, and is not aware of circumstances that would reasonably lead to material claims against it, in connection with the MEPPs in which it participates. There can be no assurance, however, that the Company will not be assessed liabilities in the future, including in the form of a surcharge on future benefit contributions or increased contributions on underfunded plans. The amount the Company could be obligated to pay or contribute in the future cannot be estimated, as these amounts are based on future levels of work of the union employees covered by these plans, investment returns, which could be negatively affected by economic and market conditions, and the level of underfunding of such plans. In connection with the IEA acquisition, the Company assumed a multiemployer pension plan withdrawal liability, under which IEA is obligated to make monthly payments of approximately $10,000. As of both March 31, 2023 and December 31, 2022, the remaining obligation approximated $1.9 million.
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 both March 31, 2023 and December 31, 2022, the Company had accrued project close-out liabilities of approximately $40 million. The Company is not aware of any other material asserted or unasserted claims in connection with its potential indemnity obligations.
Other Guarantees. From time to time in the ordinary course of its business, 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 certain of its equity investments. MasTec also generally warrants the work it performs following substantial completion of a project. Much of the work performed by the Company is evaluated for defects shortly after the work is completed. If warranty claims occur, the Company could be required to repair or replace warrantied items, or, if customers elect to repair or replace the warrantied item using the services of another provider, the Company could be required to pay for the cost of the repair or replacement. Warranty claims have historically not been material.
Concentrations of Risk. The Company had approximately 995 customers for the three month period ended March 31, 2023. No customer represented greater than 10% of the Company’s consolidated net accounts receivable position, which is calculated as accounts receivable, net, less deferred revenue, as of either March 31, 2023 or December 31, 2022. For the three month periods ended March 31, 2023 and 2022, the Company derived approximately 39% and 42%, respectively, of its revenue from its top ten customers.