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Table of Contents
<br />AMERESCO, INC.
<br />NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<br />(In thousands, except per share amounts)
<br />15. COMMITMENTS AND CONTINGENCIES
<br />From time to time, we issue letters of credit and performance bonds with our third -party lenders, to provide collateral
<br />Legal Proceedings
<br />We are involved in a variety of other claims and other legal proceedings generally incidental to our normal business activities. When we conclude that it is probable that a
<br />liability has been incurred and the amount of the liability can be reasonably estimated, it is accrued through a charge to earnings and, if material, disclosed below. When only a
<br />range of amounts is reasonably estimable and no amount within the range is more likely than another, the low end of the range is recorded. While the ultimate amount of
<br />liability incurred in any of these matters is dependent on future developments, in our opinion, the recorded liability is adequate to cover the future payment of such liability and
<br />claims. However, the final outcome of any of these claims and legal proceedings cannot be predicted with certainty, and unfavorable or unexpected outcomes could result in
<br />additional accruals that could be significant to results of operations in a particular year or quarter. Any adjustments to the recorded liability will be reflected in earnings in the
<br />periods in which such adjustments become known. For any other claims where a loss may be reasonably possible, but not probable, or is probable but not reasonably estimable,
<br />no accrual is established, but the matter, if potentially material, is disclosed below. We routinely review relevant information with respect to our matters and update our
<br />accruals, disclosures and estimates of reasonably possible loss based on such reviews. While the outcome of any of these matters cannot be accurately predicted, we do not
<br />believe the ultimate resolution of any of these existing matters would have a material adverse effect on our financial condition or results of operations.
<br />In October 2021, we entered into a contract with SCE to design and build three grid scale BESS at three sites near existing substation parcels throughout SCE's service territory
<br />in California with an aggregate capacity of 537.5 MW ("the SCE Agreement"). As previously disclosed, due to supply chain delays, weather and other events, we were unable
<br />to complete the projects by August 1, 2022 (the "Guaranteed Completion Date") and made related force majeure claims. In late 2022, SCE also instructed us to adjust the
<br />completion of the sites into 2023. Under the SCE Agreement, a failure to reach the Guaranteed Completion Date could, under certain circumstances, result in liquidated
<br />damages up to a maximum amount of $89 million being applied. We have been working with SCE to analyze the applicability and scope of force majeure relief based on our
<br />force majeure claims. In February 2024, in response to us issuing an invoice to SCE for one of the sites, SCE notified us that they intend to withhold liquidated damages for that
<br />project. Our view is that liquidated damages should not be applied. It is at least reasonably possible we may incur an obligation to pay liquidated damages up to the maximum
<br />amount.
<br />On November 6, 2017, we were served with a complaint filed by a customer againstnine contractors, including us, claiming both physical damages to the customer's tangible
<br />property and damages caused by various alleged defects in the design of the project through negligent acts and/or omissions, breaches of contract and breaches of the "implied
<br />warranty of good and workmanlike manner." During the year ended December 31, 2021, we accrued a reasonable estimate of the loss, which was included in accrued expenses
<br />and other current liabilities in our consolidated balance sheets, and we accrued a loss recovery from insurance proceeds which was included in prepaid expenses and other
<br />current assets in our consolidated balance sheets. The estimated loss and the loss recovery were included in selling, general, and administrative expenses in our consolidated
<br />statements of income for the year ended December 31, 2021. During the year ended December 31, 2022, we entered into a settlement agreement and the net settlement was paid
<br />and the loss recovery from insurance proceeds was reversed during this same period.
<br />Commitments as a Result of Acquisitions
<br />In August 2018, we completed an acquisition of Chelsea Group Limited which provided for a revenue earn -out contingent upon the acquired business meeting certain
<br />cumulative revenue targets over five years from the acquisition date. We evaluated financial forecasts of the acquired business and concluded that the fair value of this earn -out
<br />was approximately $555 upon acquisition. The fair value was re-evaluated each period and at December 31, 2023 it was determined that the cumulative revenue earn -out targets
<br />were not achieved, and the term expired. Therefore, we decreased the contingent consideration by $358 to $0, which was included in selling, general and administrative
<br />expenses in our consolidated statements of income during the year ended December 31, 2023
<br />In December 2021, we completed an acquisition of Plug Smart which provided for an earn -out based on future EBITDA targets beginning with EBITDA performance for the
<br />month of December 2021 and each fiscal year thereafter, over a five-year period through December 31, 2026. The maximum cumulative earn -out is $5,000 and we evaluated
<br />financial forecasts of the acquired business and concluded that the fair value of this earn -out was approximately $2,160 upon acquisition and remained consistent as of
<br />December 31, 2022. During the year ended December 31, 2022, a payment of $275 was made for the month of December 2021 EBITDA target and during the year ended
<br />December 31, 2023, a payment of $3,040 was made for the fiscal year 2022
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