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 December 31, 2011, we had no revisions in estimates that are reasonably certain to impact future periods.

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 $6.2 million, $3.9 million and $39.1 million for the years ended December 31, 2011, 2010 and 2009, respectively. The projects are summarized as follows (dollars in millions):

Increases



Years Ended December 31,		2011		2010		2009
Number of projects with upward estimate changes		7		6		22
Range of increase in gross profit from each project, net	$	1.0 - 3.5	$	1.0 - 4.2	$	1.0 - 7.0
Increase on project profitability	$	13.6	$	12.6	$	48.9

The increases during the year ended December 31, 2011 were due to the settlement of outstanding cost issues, owner directed scope changes and resolution of project uncertainties. The increases during the years ended December 31, 2010 and 2009 were due to the resolution of certain project uncertainties, higher productivity than originally estimated and settlement of outstanding issues with contract owners.

Decreases



Years Ended December 31,		2011		2010		2009
Number of projects with downward estimate changes		4		5		2
Range of reduction in gross profit from each project, net	$	1.4 - 2.6	$	1.1 - 2.5	$	2.4 - 7.4
Decrease on project profitability	$	7.4	$	8.7	$	9.8

The decreases during the year ended December 31, 2011 were due to lower productivity than anticipated and unanticipated rework costs. Two of the projects that had downward estimate changes were complete or substantially complete at December 31, 2011. The other two projects were 49.2% and 70.5% complete and when aggregated constituted less than 1% of Construction contract backlog as of December 31, 2011. The 2010 decreases were due to lower productivity than originally anticipated, disputed materials performance issues and rework costs to meet contract specifications. The reductions in project profitability from revisions in estimates during the year ended December 31, 2009 were due to unanticipated costs, disputed materials performance issues and owner directed design and scope changes.

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 $8.9 million, $6.0 million and $65.0 million, including amounts attributable to noncontrolling interests of $2.8 million, $2.6 million and $12.3 million, for the years ended December 31, 2011, 2010 and 2009, respectively. The projects are summarized as follows (dollars in millions):

Increases



Years Ended December 31,		2011		2010		2009
Number of projects with upward estimate changes		9		6		14
Range of increase in gross profit from each project, net	$	1.1 - 6.9	$	1.1 - 4.8	$	1.0 - 19.8
Increase on project profitability	$	28.3	$	18.0	$	68.4

The increases during the year ended December 31, 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 years ended December 31, 2010 and 2009 were due to settlement of outstanding issues with various contract owners, resolution of project uncertainties and improved productivity on certain projects. The 2009 increases included a negotiated settlement of claims with the owner on a project in Pennsylvania for approximately $17.3 million.

Decreases



Years Ended December 31,		2011		2010		2009
Number of projects with downward estimate changes		5		2		2
Range of reduction in gross profit from each project, net	$	1.2 - 5.1	$	1.8 - 10.2	$	1.3 - 2.1
Decrease on project profitability	$	19.4	$	12.0	$	3.4

The downward estimate changes during the year ended December 31, 2011 were due to increased costs to resolve project uncertainties, additional costs for design work and lower productivity than anticipated. The decreases during the years ended December 31, 2010 and 2009 were due to resolutions of project uncertainties, site conditions different than anticipated, issues with contract owners as well as job level productivity.

Our wholly owned subsidiaries, Granite Construction Company (“GCCO”) 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 issues, unanticipated ground movement was observed 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 by YRC under protest, 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 or of the determination of the corrective work required, nor reasonably estimate the impact those events 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, liquidity and cash flows for one or more future periods could be materially adversely affected. We will continue to incur additional costs to advance the design work and to maintain the job site while the design work is continuing and the dispute resolution process is proceeding. During the years ended December 31, 2011 and 2010, adjustments of $4.5 million and $10.2 million, respectively, have been made in the consolidated statements of operations to account for the revisions in estimated total cost in excess of estimated total revenue. The revisions in 2011 primarily related to additional costs for the design work and the revisions in 2010 were to maintain the project site until the start of the 2012 construction season while the design work is continuing and the Company and ODOT continue to work on a resolution of outstanding issues.