Annual report pursuant to Section 13 and 15(d)

CONTRACT COSTS

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CONTRACT COSTS
12 Months Ended
Dec. 31, 2012
CONTRACT COSTS

11. CONTRACT COSTS

We define material, freight, equipment rental and sub-contractor services included in the direct costs of revenue associated with projects as pass-through costs. Since we use the percentage-of-completion accounting method to recognize revenue on construction contracts, by using a direct labor efforts expended method, pass-through costs have little or no impact in the determination of gross margin for a particular period. Pass-through costs as a percentage of revenue were 48.3%, 45.3% and 36.1% for the years ended December 31, 2012, 2011 and 2010, respectively.

We recorded $33.1 million and $9.7 million of prepaid subcontractor costs at December 31, 2012 and 2011, respectively. These costs represent mainly the materials our subcontractors have purchased yet have not installed into one of our major deepwater projects thus earning physical completion of scope. These purchases were made with funds received by the customer and represent contract costs that will be incurred in future periods.