2021-207A - Laserfiche WebLink

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FERREIRA CONSTRUCTION COMPANY INC., AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Due to the nature of the work required to be performed on many of the Company's fixed price contracts, estimating total revenue and cost at completion is complex, subject to variables and requires judgment. The most material estimate involved in the revenue recognition process is management's estimated costs to complete contracts in progress. Due to uncertainties inherent in the estimation process, it is possible that actual completion costs may vary from estimates. Assumptions about future events and the likelihood and amount of variable consideration are made during the contract performance period. The Company estimates variable consideration at the most likely amount it expects to receive. The Company includes estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of anticipated performance and all information (historical, current and forecasted) that is reasonably available to management. The Company typically invoices customers with payment terms of net due in 30 days. In most instances, the Company receives payment within 30 to 90 days of the date of the invoice. The Company has elected the practical expedient to not adjust the contract price for the effects of a significant financing component where, at contract inception, the period between performance and customer payment will be one year or less. Disaggregation of Revenue - The below types of contracts best depict the nature, amount and uncertainty of revenue and cash flows of the Company: Tunes of Contracts: Fixed price -Fixed price or lump sum contracts generally commit the Company to provide all of the resources required to complete a project for a fixed sum. Billings on fixed price contracts are typically based on estimated progress against predetermined contractual milestones. On this type of contract, there is less uncertainty as the contract price is set at the beginning of the project based on a defined scope of work. Cost plus fee - Cost plus fee contracts include cost plus fixed fee contracts and cost plus award fee contracts. Cost plus fixed fee contracts provide for reimbursement of approved project costs plus a fixed fee. Cost plus award fee contracts provide for reimbursement of the project costs plus a base fee, as well as an incentive fee based on cost and/or schedule performance. Billings on cost plus fee contracts typically occur on a monthly basis based on actual costs incurred plus a negotiated margin. On this type of contract, there is less uncertainty as to the contract value as it's based on the amount of costs incurred plus an agreed upon fee. Unit price / Work order - Unit price / work order contracts generally commit the Company to provide an estimated or undetermined number of units or components that comprise a project at a fixed price per unit. Billings on unit price contracts typically occur on a daily or work order specific basis and are based on actual quantity of work performed or completed during the billing period. The Company elects the practical expedient for revenue recognition purposes on this type of contract. There is inherent uncertainty as to the final contract value as the contract value is based on actual units installed, up to the maximum dollar value of the purchase order or blanket contract issued.