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Table of Contents
<br />often based on readings of the utility meter where usage is measured. Depending on the project, the measurement and verification may be required only once, upon installation,
<br />based on an analysis of one or more sample installations, or maybe required to be repeated at agreed upon intervals generally over periods of up to 25 years.
<br />Under our contracts, we typically do not take responsibility for a wide variety of factors outside our control and exclude or adjust for such factors in commitment calculations.
<br />These factors include variations in energy prices and utility rates, weather, facility occupancy schedules, the amount of energy -using equipment in a facility, and failure of the
<br />customer to operate or maintain the project properly. We rely in part on warranties from our equipment suppliers and subcontractors to back -stop the warranties we provide to
<br />our customers and, where appropriate, pass on the warranties to our customers. However, the warranties we provide to our customers are sometimes broader in scope or longer
<br />in duration than the corresponding warranties we receive from our suppliers and subcontractors, and we bear the risk for any differences, as well as the risk of warranty default
<br />by our suppliers and subcontractors.
<br />Typically, our performance commitments apply to the aggregate overall performance of a project rather than to individual energy efficiency measures. Therefore, to the extent
<br />an individual measure underperforms, it may be offset by other measures that overperform during the same period. In the event that an energy efficiency project does not
<br />perform according to the agreed -upon specifications, our agreements typically allow us to satisfy our obligation by adjusting or modifying the installed equipment, installing
<br />additional measures to provide substitute energy savings, or paying the customer for lost energy savings based on the assumed conditions specified in the agreement. However,
<br />we may incur additional or increased liabilities or expenses under our ESPCs in the future. Such liabilities or expenses could be substantial, and they could materially harm our
<br />business, financial condition, or operating results. In addition, any disputes with a customer over the extent to which we bear responsibility to improve performance or make
<br />payments to the customer may diminish our prospects for future business from that customer or damage our reputation in the marketplace.
<br />We may assume responsibility under customer contracts for factors outside our control, including, in connection with some customer projects, the risk that fuel prices will
<br />increase.
<br />We typically do not take responsibility under our contracts for a wide variety of factors outside our control. We have, however, in a limited number of contracts assumed some
<br />level of risk and responsibility for certain factors — sometimes only to the extent that variations exceed specified thresholds — and may also do so under certain contracts in the
<br />future, particularly in our contracts for renewable energy projects. For example, under a contract for the construction and operation of a cogeneration facility at the U.S.
<br />Department of Energy Savannah River Site in South Carolina, a subsidiary of ours is exposed to the risk that the price of the biomass that will be used to fuel the cogeneration
<br />facility may rise during the remainder of the 19-year performance period of the contract. Several provisions in that contract mitigate the price risk. In addition, although we
<br />typically structure our contracts so that our obligation to supply a customer with biogas, electricity or steam, for example, does not exceed the quantity produced by the
<br />production facility, in some circumstances we commit to supply a customer with specified minimum quantities based on our projections of the facility's production capacity. In
<br />such circumstances, if we are unable to meet such commitments, we may be required to incur additional costs or face penalties. Despite the steps we have taken to mitigate risks
<br />under these and other contracts, such steps may not be sufficient to avoid the need to incur increased costs to satisfy our commitments, and such costs could be material.
<br />Increased costs that we are unable to pass through to our customers could have a material adverse effect on our operating results.
<br />Our business depends on experienced and skilled personnel and substantial specialty subcontractor resources, and if we lose key personnel or if we are unable to attract
<br />and integrate additional skilled personnel, it will be more difficult for us to manage our business and complete projects.
<br />The success of our business and construction projects depends in large part on the skill of our personnel and on trade labor resources, including with certain specialty
<br />subcontractor skills. Competition for personnel, particularly those with expertise in the energy services and renewable energy industries, is high and may intensify with the IRA
<br />driving more demand for clean energy product and service offerings and as such demand for skilled personnel in the industry. In the event we are unable to attract, hire and
<br />retain the requisite personnel and subcontractors, we may experience delays in completing projects in accordance with project schedules and budgets. Further, any increase in
<br />demand for personnel and specialty subcontractors may result in higher costs, causing us to exceed the budget on a project. Either of these circumstances may have an adverse
<br />effect on our business, financial condition, and operating results, harm our reputation among and relationships with our customers and cause us to curtail our pursuit of new
<br />projects.
<br />Our future success is particularly dependent on the vision, skills, experience, and effort of our senior management team, including our executive officers and our founder,
<br />principal stockholder, president, and chief executive officer, George P. Sakellaris. If we were to lose the services of any of our executive officers or key employees, our ability to
<br />effectively manage our operations and implement our strategy could be harmed and our business may suffer.
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