2. Accounts Receivable – Net and Revenue Recognition

Net accounts receivable and billings in excess of costs on uncompleted contracts consisted of the following:

	January 1, 2017		October 2, 2016
	(in thousands)

Billed	$	406,173	$	364,287
Unbilled	343,186		356,147
Contract retentions	32,683		29,135

Total accounts receivable – gross	782,042		749,569

Allowance for doubtful accounts	(31,258)		(35,233)

Total accounts receivable – net	$	750,784	$	714,336


Billings in excess of costs on uncompleted contracts	$	112,695	$	88,223

Billed accounts receivable represent amounts billed to clients that have not been collected. Unbilled accounts receivable represent revenue recognized but not yet billed pursuant to contract terms or billed after the period end date. Except for amounts related to claims as discussed below, most of our unbilled receivables at January 1, 2017 are expected to be billed and collected within 12 months. Contract retentions represent amounts withheld by clients until certain conditions are met or the project is completed, which may be several months or years. The allowance for doubtful accounts represents amounts that are expected to become uncollectible or unrealizable in the future. We determine an estimated allowance for uncollectible accounts based on management’s consideration of trends in the actual and forecasted credit quality of our clients, including delinquency and payment history; type of client, such as a government agency or a commercial sector client; and general economic and particular industry conditions that may affect a client’s ability to pay. Billings in excess of costs on uncompleted contracts represent the amount of cash collected from clients and billings to clients on contracts in advance of revenue recognized. The majority of billings in excess of costs on uncompleted contracts will be earned within 12 months.

Once contract performance is underway, we may experience changes in conditions, client requirements, specifications, designs, materials and expectations regarding the period of performance. Such changes result in “change orders” and may be initiated by us or by our clients. In many cases, agreement with the client as to the terms of change orders is reached prior to work commencing; however, sometimes circumstances require that work progress without a definitive client agreement. Unapproved change orders constitute claims in excess of agreed contract prices that we seek to collect from our clients (or other third parties) for delays, errors in specifications and designs, contract terminations, or other causes of unanticipated additional costs. Revenue on claims is recognized when contract costs related to claims have been incurred and when their addition to contract value can be reliably estimated. This can lead to a situation in which costs are recognized in one period and revenue is recognized in a subsequent period, such as when client agreement is obtained or a claims resolution occurs.

Total accounts receivable at January 1, 2017 and October 2, 2016 included $44 million and $45 million, respectively, related to claims, including requests for equitable adjustment, on contracts that provide for price redetermination. We regularly evaluate all unsettled claim amounts and record appropriate adjustments to operating earnings when it is probable that the claim will result in a different contract value than the amount previously estimated. We recorded no gains or losses related to claims in the first quarter of fiscal 2017. In the first quarter of fiscal 2016, we collected $13.4 million to settle claims of $8.8 million, which resulted in gains in operating income of $4.6 million in the RCM reportable segment.

Billed accounts receivable related to U.S. federal government contracts were $76.0 million and $47.4 million at January 1, 2017 and October 2, 2016, respectively. The increase was largely due to the timing of collections on accounts receivable from a large U.S. federal government client. U.S. federal government unbilled receivables were $82.9 million and $92.2 million at January 1, 2017 and October 2, 2016, respectively. Other than the U.S. federal government, no single client accounted for more than 10% of our accounts receivable at January 1, 2017 and October 2, 2016.

We recognize revenue for most of our contracts using the percentage-of-completion method, primarily utilizing the cost-to-cost approach, to estimate the progress towards completion in order to determine the amount of revenue and profit to recognize. Changes in those estimates could result in the recognition of cumulative catch-up adjustments to the contract’s inception-to-date revenue, costs and profit in the period in which such changes are made. As a result, we recognized net unfavorable operating income adjustments during the first quarter of fiscal 2017 of $4.0 million ($2.3 million in the Resource Management and Energy (“RME”) segment and $1.7 million in the Remediation and Construction Management (“RCM”) segment). These adjustments were immaterial in the first quarter of fiscal 2016. Changes in revenue and cost estimates could also result in a projected loss that would be recorded immediately in earnings. As of January 1, 2017 and October 2, 2016, our balance sheet included a liability for anticipated losses of $6.6 million and $6.7 million, respectively. The estimated cost to complete the related contracts as of January 1, 2017 was $18.1 million.