Revisions in Estimates

Our profit recognition related to construction contracts is based on estimates of costs to complete each project. These estimates can vary in the normal course of business as projects progress and uncertainties are resolved. We do not recognize revenue on contract change orders or claims until we have a signed agreement; however, we do recognize costs as incurred and revisions to estimated total costs as soon as the obligation to perform is determined. Approved change orders and claims, as well as changes in related estimates of costs to complete, are considered revisions in estimates. We use the cumulative catch-up method applicable to construction contract accounting to account for revisions in estimates. Under this option, revisions in estimates are accounted for in their entirety in the period of change. As of September 30, 2011, we had no revisions in estimates that are reasonably certain to impact future periods.

Construction

The net change in project profitability from revisions in estimates, both increases and decreases, that individually had an impact of $1.0 million or more on gross profit was a net decrease of $1.3 million and a net increase of $1.6 million for the three and nine months ended September 30, 2011, respectively. The net change in project profitability from revisions in estimates, both increases and decreases, that individually had an impact of $1.0 million or more on gross profit was a net increase of $0.7 million and a net decrease of $0.4 million for the three and nine months ended September 30, 2010, respectively. The projects are summarized as follows:

Increases



		Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in millions)		2011		2010		2011		2010
Number of projects with upward estimate changes		2		2		4		3
Range of increase in gross profit from each project, net	$	1.3 - 1.4	$	2.2 - 2.9	$	1.1 - 2.9	$	1.0 - 2.9
Increase on project profitability	$	2.7	$	5.1	$	7.0	$	6.5

The increases during the three and nine months ended September 30, 2011 were primarily due to improved salvage prices for excess material, the settlement of outstanding cost issues and owner directed scope changes. The increases during the three and nine months ended September 30, 2010 were due to the resolution of certain project uncertainties and owner directed scope changes.

Decreases



		Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in millions)		2011		2010		2011		2010
Number of projects with downward estimate changes		2		2		3		3
Range of reduction in gross profit from each project, net	$	1.4 - 2.6	$	2.2 - 2.2	$	1.4 - 2.6	$	1.9 - 2.7
Decrease on project profitability	$	4.0	$	4.4	$	5.4	$	6.9

The decreases during the three and nine months ended September 30, 2011 were due to lower productivity than anticipated and unanticipated rework costs. The downward estimate changes during the three and nine months ended September 30, 2010 were due to lower productivity than anticipated, disputed materials performance issues and unanticipated rework costs.

Large Project Construction

The net changes in project profitability from revisions in estimates, both increases and decreases, that individually had an impact of $1.0 million or more on gross profit were net increases of $2.7 million and $7.9 million for the three and nine months ended September 30, 2011, respectively. The net change for the three and nine months ended September 30, 2010 was a net decrease of $0.1 million and a net increase of $6.5 million, respectively. Amounts attributable to noncontrolling interests were $1.0 million and $0.6 million of the net increases for the three and nine months ended September 30, 2011, respectively, $0.1 million of the net decrease for the three months ended September 30, 2010 and $1.5 million of the net increase for the nine months ended September 30, 2010. The projects are summarized as follows:

Increases



		Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in millions)		2011		2010		2011		2010
Number of projects with upward estimate changes		5		2		6		6
Range of increase in gross profit from each project, net	$	1.0 - 2.6	$	1.4 - 2.8	$	1.4 - 4.2	$	1.0 - 4.2
Increase on project profitability	$	8.8	$	4.2	$	17.7	$	11.6

The increases during the three and nine months ended September 30, 2011 were due to the settlement of outstanding issues with a contract owner, owner directed scope changes, lower than anticipated construction costs and the resolution of a project claim. The increases during the three and nine months ended September 30, 2010 were due to the settlement of design issues with a subcontractor, resolution of project uncertainties, owner directed scope changes and higher productivity than anticipated.

Decreases



		Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in millions)		2011		September 30, 2010		2011		September 30, 2010
Number of projects with downward estimate changes		3		2		2		2
Range of reduction in gross profit from each project, net	$	1.7 - 2.4	$	1.9 - 2.4	$	4.2 - 5.6	$	2.2 - 2.9
Decrease on project profitability	$	6.1	$	4.3	$	9.8	$	5.1

The downward estimate changes during the three and nine months ended September 30, 2011 were due to increased costs to resolve project uncertainties and lower productivity than anticipated. The decreases during the three and nine months ended September 30, 2010 were due to issues with contract owners as well as lower productivity than anticipated.

Our wholly owned subsidiaries, Granite Construction Company and Granite Northwest, Inc., are members of a joint venture known as Yaquina River Constructors (“YRC”) which is contracted by the Oregon Department of Transportation (“ODOT”) to construct a new road alignment of U.S. Highway 20 near Eddyville, Oregon. In addition to previous geologic landslide movements, the project site experienced unanticipated ground movement at several hillsides beginning in 2010. In some locations, the ground movements have caused damage to completed portions of bridge structures. Although design work towards a new mitigation plan on the project is continuing, the corrective work required to complete the project has not yet been determined. YRC and ODOT are engaged in the contractual dispute resolution process to determine the parties’ responsibilities for design issues and which party bears the financial responsibility for the corrective work. At this time, the Company cannot predict the timing of the resolution of the contractual disputes, including the design determination issue, nor reasonably estimate the impact the final resolution will have on the projected financial results for this project. If the required corrective work is determined to be substantial, and YRC is determined to bear the financial responsibility for the corrective work, the Company’s results of operations and cash flows for one or more future periods could be materially and adversely affected. Until the dispute is resolved, we will incur additional costs to maintain the job site. While we believe we are entitled to receive compensation for these additional costs, the contractual dispute resolution process will determine which party bears the financial responsibility for maintaining the job site. During the year ended December 31, 2010, a $10.2 million revision in estimate was recorded in our consolidated statements of operations primarily related to additional costs to maintain the project site until the beginning of the 2012 construction season. In addition, provisions for the estimated total cost of this contract in excess of its estimated total revenue have been made in the condensed consolidated statements of operations. Due to the uncertainties described above, no revisions in this project’s estimates were made during the three and nine months ended September 30, 2011 related to the disputed work.