CONTRACT COSTS |
9 Months Ended |
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Sep. 30, 2015 | |
| 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 45.3% and 42.6% for the three months ended September 30, 2015, and 2014, respectively. Pass-through costs as a percentage of revenue were 43.2% and 47.8% for the nine months ended September 30, 2015 and 2014, respectively.
Costs and estimated earnings in excess of billings on uncompleted contracts at September 30, 2015, include unbilled costs of $16.4 million relating to four major customers. Billings in excess of costs and estimated earnings at September 30, 2015, include advances of $3.4 million from three major customers. Revenues and gross profit on contracts can be significantly affected by change orders and claims that may not be ultimately negotiated until the later stages of the contract including after the contract has been completed and delivery occurs.
During the quarter ended September 30, 2015, we recorded contract losses of $14.3 million as a result of our inability to recover certain costs related to a deck and jacket for one of our large deepwater projects. We are currently in negotiations with this customer concerning change orders with respect to the adjusted amounts due under this contract. Our intention is to resolve the disputed cost amounts and finalize the change orders with our customer during the fourth quarter of 2015; however, we can give no assurance that these negotiations will conclude or that the change orders will be finalized during the fourth quarter of 2015. While we believe we will be able to recover the remaining costs and estimated earnings for this project reflected on our consolidated balance sheet at September 30, 2015, we can provide no assurance that the amounts ultimately recovered from our customer will not differ materially from the amounts recorded in our financial statements as of September 30, 2015.
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