CONTRACT COSTS |
3 Months Ended |
|---|---|
Mar. 31, 2016 | |
| Contractors [Abstract] | |
| CONTRACT COSTS |
CONTRACT COSTS
The Company uses the percentage-of-completion accounting method for fabrication contracts. Revenue from fixed-price or unit rate contracts is recognized on the percentage-of-completion method, computed by the efforts-expended method using the percentage of labor hours incurred as compared to estimated total labor hours to complete each contract. This progress percentage is applied to our estimate of total anticipated gross profit for each contract to determine gross profit earned to date. Revenue recognized in a period for a contract is the amount of gross profit recognized for that period plus labor costs and pass-through costs incurred on the contract during the period. We define pass-through costs as material, freight, equipment rental, and sub-contractor services included in the direct costs of revenue associated with projects. Consequently, pass-through costs are included in revenue but have no impact on the gross profit realized for that particular period.
Pass-through costs as a percentage of revenue were 40.0% and 44.7% for the three months ended March 31, 2016, and 2015, respectively.
Costs and estimated earnings in excess of billings on uncompleted contracts at March 31, 2016, include unbilled costs of $11.3 million relating to seven major customers. Billings in excess of costs and estimated earnings at March 31, 2016, include advances of $3.3 million from two major customers. Revenues and gross profit on contracts can be significantly affected by change orders and claims that may not be resolved until the later stages of the contract or after the contract has been completed and delivery occurs. At March 31, 2016, we included $1.4 million in revenue related change orders on two projects which have been approved as to scope but not price. Total unapproved change orders included within our percent complete estimates as of March 31, 2016 were $3.2 million. We expect to resolve these change orders before the end of the second quarter of 2016. During the three months ended March 31, 2016, we recorded revisions to revenue of $(488,000) related to disputed change orders recognized in prior periods.
During the third and fourth quarter of 2015, we recorded contract losses of $24.5 million related to a decrease in the contract price due to final weight re-measurements and our inability to recover certain costs on disputed change orders related to a large deepwater project that was delivered during 2015. No amounts with respect to these disputed change orders are included on our balance sheet or in our consolidated statement of operations as of and for the three months ended March 31, 2016. We have recently initiated legal action to recover our costs from these disputed change orders; however, we can give no assurance that our actions will be successful or that we will recover any of these contract losses from our customer.
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