Revisions in Estimates

Our profit recognition related to construction contracts is based on estimates of costs to complete each project. These estimates can vary significantly in the normal course of business as projects progress, circumstances develop and evolve, and uncertainties are resolved. We do not recognize revenue on contract change orders or affirmative 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 affirmative 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 method, revisions in estimates are accounted for in their entirety in the period of change. There can be no assurance that we will not experience further changes in circumstances or otherwise be required to further revise our profitability estimates.

For the majority of our contracts, revenue in an amount equal to cost incurred is recognized prior to contracts reaching at least 25% completion, thus deferring the related profit. It is our judgment until a project reaches at least 25% completion, there is insufficient information to determine the estimated profit on the project with a reasonable level of certainty. The initial gross profit impact from projects exceeding the 25% threshold is not included in the tables below. During the years ended December 31, 2013, 2012, and 2011, the initial gross profit impact from projects exceeding the threshold was $9.1 million, $16.4 million, and $55.4 million, respectively.

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 a net decrease of $1.7 million, a net decrease of $18.1 million and a net increase of $6.2 million for the years ended December 31, 2013, 2012 and 2011, respectively. The projects are summarized as follows (dollars in millions):

Increases



Years Ended December 31,		2013		2012		2011
Number of projects with upward estimate changes		6		6		7
Range of increase in gross profit from each project, net	$	1.1 - 3.7	$	1.0 - 1.7	$	1.0 - 3.5
Increase on project profitability	$	16.1	$	8.1	$	13.6

The increases during the year ended December 31, 2013 were due to owner-directed scope changes and production at a higher rate than anticipated. The 2012 increases were due to lower than anticipated costs and settlement of outstanding issues with contract owners, and the 2011 increases were due to settlement of outstanding cost issues, owner-directed scope changes and resolution of project uncertainties.

Decreases



Years Ended December 31,		2013		2012		2011
Number of projects with downward estimate changes		5		9		4
Range of reduction in gross profit from each project, net	$	1.2 - 7.4	$	1.0 - 6.6	$	1.4 - 2.6
Decrease on project profitability	$	17.8	$	26.2	$	7.4

The decreases during the year ended December 31, 2013 were due to lower productivity than originally anticipated. Three of the projects that had downward estimate changes were complete or substantially complete at December 31, 2013. The other two projects were 85.2% and 86.2% complete and, when aggregated, constituted 2.0% of Construction contract backlog as of December 31, 2013. The decreases during the years ended December 31, 2012 and 2011 were due to lower productivity than anticipated 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 $25.5 million, $64.6 million and $8.9 million. Amounts attributable to non-controlling interests were $5.6 million, $3.1 million and $2.8 million for the years ended December 31, 2013, 2012 and 2011, respectively. The projects are summarized as follows (dollars in millions):

Increases



Years Ended December 31,		2013		2012		2011
Number of projects with upward estimate changes		7		10		9
Range of increase in gross profit from each project, net	$	2.6 - 41.3	$	1.1 - 24.5	$	1.1 - 6.9
Increase on project profitability	$	77.5	$	92.0	$	28.3

The increases during the year ended December 31, 2013 were due to settlement of outstanding issues with a contract owner and owner-directed scope changes. The increases during the year ended December 31, 2012 were due to owner-directed scope changes and lower than anticipated construction costs. 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.

Decreases



Years Ended December 31,		2013		2012		2011
Number of projects with downward estimate changes		5		1		5
Range of reduction in gross profit from each project, net	$	1.9 - 26.8	$	27.4	$	1.2 - 5.1
Decrease on project profitability	$	52.0	$	27.4	$	19.4

The decreases during the years ended December 31, 2013 and 2012 were primarily related to significant increased costs on a highway project in Washington State. This project has been impacted by lower productivity resulting from previously unforeseen design issues, schedule delays, associated job re-sequencing, and costs related to changes in the project scope. Compensation is being sought from both the client and subcontractors for a portion of the additional costs; however, the amount, sources and timing of any future compensation have yet to be finalized. Additionally, the decrease during 2013 was due to unanticipated production costs. The decreases 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.