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. When we experience significant changes in our estimates of costs to complete, we undergo a process that includes reviewing the nature of the changes to ensure that there are no material amounts that should have been recorded in a prior period rather than as revisions in estimates for the current period. 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 revise our cost estimates in the future.

In our review of these changes for the three months ended March 31, 2016, we did not identify any material amounts that should have been recorded in a prior period. In our review of these changes for the three months ended March 31, 2017, we identified and corrected amounts that should have been recorded during the three months ended September 30, 2016. This correction resulted in a $4.9 million decrease to Large Project Construction revenue and gross profit and a $1.6 million increase in net loss attributable to Granite Construction Incorporated. We have assessed the impact of this correction to the financial statements of prior periods’ and to the financial statements for the three months ended March 31, 2017, and have concluded that the amounts were not material and are not expected to be material to the financial statements for the year ending December 31, 2017.

In the normal course of business, we have revisions in estimated costs associated with unresolved affirmative claims and back charges. The estimated or actual recovery related to these estimated costs may be recorded in future periods, which can cause fluctuations in the gross profit impact from revisions in estimates.

Revisions in estimates for the three months ended March 31, 2017 included a net increase in revenue of $1.8 million related to the estimated cost recovery of customer affirmative claims, which included increases of $2.7 million that were also affected by an increase in estimated contract costs in excess of the estimated recovery during the three months ended March 31, 2017. Estimated contract costs in excess of estimated cost recovery were recorded in prior periods for the offsetting decrease of $0.9 million.

Revisions in estimates for the three months ended March 31, 2016 included increases in revenue of $2.8 million related to the estimated cost recovery of customer affirmative claims, which included increases of $1.1 million that were also affected by an increase in estimated contract costs in excess of the estimated recovery during the three months ended March 31, 2016. The remaining $1.7 million had estimated contract costs in excess of estimated cost recovery that were recorded in prior periods.

Revisions in estimates for the three months ended March 31, 2017 included a reduction of cost of revenue of $0.3 million related to the estimated recovery of back charges all of which had estimated contract costs in excess of estimated cost recovery recorded in prior periods. There was no estimated recovery of back charges during the three months ended March 31, 2016.

The impact to gross profit from significant revisions in estimates related to estimated and actual customer affirmative claims and recovery of back charges as well as the associated estimated contract costs are included in the tables below.

Construction

The change in project profitability from revisions in estimates, both increases and decreases, which individually had an impact of $1.0 million or more on gross profit during the three months ended March 31, 2016 was a net increase of $1.7 million for one project due to the settlement of an outstanding claim. There were no changes in project profitability from revisions in estimates, which individually had an impact of $1.0 million or more on gross profit during the three months ended March 31, 2017.

Large Project Construction

The changes in project profitability from revisions in estimates, both increases and decreases, which individually had an impact of $1.0 million or more on gross profit were net decreases of $13.0 million and $2.8 million for the three months ended March 31, 2017 and 2016, respectively. The amounts attributable to non-controlling interests were $1.6 million of the net decrease for the three months ended March 31, 2017 and there were no amounts attributable to non-controlling interests during the three months ended March 31, 2016. The projects are summarized as follows:

Increases



	Three Months Ended March 31,
(dollars in millions)		2017		2016
Number of projects with upward estimate changes		—		2
Range of increase in gross profit from each project, net	$	—	$	1.0 - 1.4
Increase on project profitability	$	—	$	2.4

The increases during the three months ended March 31, 2016 were due to owner-directed scope changes.

Decreases



	Three Months Ended March 31,
(dollars in millions)		2017		2016
Number of projects with downward estimate changes		5		2
Range of reduction in gross profit from each project, net	$	1.3 - 4.7	$	2.1 - 3.1
Decrease on project profitability	$	13.0	$	5.2

The decreases during the three months ended March 31, 2017 were due to higher costs than originally anticipated as well as additional design, weather and owner-related costs, net of estimated and actual recovery from customer affirmative claims. The decreases during the three months ended March 31, 2016 were due to lower productivity and higher costs than originally anticipated.