Contract Assets and Liabilities
|6 Months Ended|
Jun. 30, 2020
|Revenue from Contract with Customer [Abstract]|
|Contract Assets and Liabilities||
Contract Assets and Liabilities
The Company classifies contract assets and liabilities that may be settled beyond one year from the balance sheet date as current, consistent with the length of time of the Company’s project operating cycle.
Contract assets include amounts due under retainage provisions and costs and estimated earnings in excess of billings. The components of the contract asset balances as of the respective dates were as follows:
Retainage receivable represents amounts invoiced to customers where payments have been partially withheld, typically 10%, pending the completion of certain milestones, satisfaction of other contractual conditions or the completion of the project. Retainage agreements vary from project to project and balances could be outstanding for several months or years depending on a number of circumstances such as contract-specific terms, project performance and other variables that may arise as the Company makes progress towards completion.
Contract assets represent the excess of contract costs and profits (or contract revenue) over the amount of contract billings to date and are classified as a current asset. Contract assets result when either: 1) the appropriate contract revenue amount has been recognized over time in accordance with ASC Topic 606, but a portion of the revenue recorded cannot be currently billed due to the billing terms defined in the contract, or 2) costs are incurred related to certain claims and unapproved change orders. Claims occur when there is a dispute regarding both a change in the scope of work and the price associated with that change. Unapproved change orders occur when a change in the scope of work results in additional work being performed before the parties have agreed on the corresponding change in the contract price. The Company routinely estimates recovery related to claims and unapproved change orders as a form of variable consideration at the most likely amount it expects to receive and to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Claims and unapproved change orders are billable upon the agreement and resolution between the contractual parties and after the execution of contractual amendments. Increases in claims and unapproved change orders typically result from costs being incurred against existing or new positions; decreases normally result from resolutions and subsequent billings.
The current estimated net realizable value on such claims and unapproved change orders as recorded in contract assets and contract liabilities in the condensed consolidated balance sheets was $39.4 million and $38.4 million as of June 30, 2020 and December 31, 2019, respectively. The Company anticipates that the majority of such amounts will be approved or executed within one year. The resolution of these claims and unapproved change orders may require litigation or other forms of dispute resolution proceedings.
Contract liabilities include billings in excess of contract costs and provisions for losses. The components of the contract liability balances as of the respective dates were as follows:
Billings in excess of costs represent the excess of contract billings to date over the amount of contract costs and profits (or contract revenue) recognized to date. The balance may fluctuate depending on the timing of contract billings and the recognition of contract revenue.
Provisions for losses are recognized in the condensed consolidated statements of operations at the uncompleted performance obligation level for the amount of total estimated losses in the period that evidence indicates that the estimated total cost of a performance obligation exceeds its estimated total revenue.
The net (overbilling) underbilling position for contracts in process consist of the following:
We recorded revisions in our contract estimates for certain construction projects. For projects having revisions with a material gross profit impact, this resulted in gross profit write downs on four construction projects of $1.5 million for the three months ended June 30, 2020, two of which were within the Southern California region for a total of $0.7 million. No material project revisions resulting in gross profit write ups were recorded for the three months ended June 30, 2020.
For the six months ended June 30, 2020, we recorded revisions in our contract estimates for certain construction projects. We recorded gross profit write downs on eight construction projects and two gross profit write ups on construction projects for the six months ended June 30, 2020, each of which had a material gross profit impact, for an aggregate revision of $5.2 million and $1.2 million, respectively.
For the three months ended June 30, 2019, we recorded revisions in our contract estimates for certain construction and service projects. For individual projects with revisions having a material gross profit impact, this resulted in gross profit write ups totaling $0.3 million on one construction project and $0.3 million on one service project. We also recorded revisions in contract estimates that resulted in project write downs totaling $1.9 million on three construction projects for our Southern California region.
For the six months ended June 30, 2019, we recorded revisions in our contract estimates for certain construction and service projects. For individual projects with revisions having a material gross profit impact, this resulted in gross profit write ups totaling $3.0 million on six projects, including three projects totaling $1.0 million for our Mid-Atlantic region. One of these project write ups in the amount of $1.4 million resulted from our settlement of a significant Michigan project. We also recorded revisions in contract estimates that resulted in project write downs totaling $3.5 million on seven projects, including four projects totaling $2.2 million in our Southern California region and one project for $0.5 million in our Mid-Atlantic region. Revisions in our contract estimates on one service project resulted in a gross profit write up of $0.3 million on a Mid-Atlantic project during this period and one Southern California project resulted in a gross profit write down of $0.3 million.
The entire disclosure of revenue from contract with customer to transfer good or service and to transfer nonfinancial asset. Includes, but is not limited to, disaggregation of revenue, credit loss recognized from contract with customer, judgment and change in judgment related to contract with customer, and asset recognized from cost incurred to obtain or fulfill contract with customer. Excludes insurance and lease contracts.
Reference 1: http://www.xbrl.org/2003/role/disclosureRef