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3/25/22, 9:42 AM
<br />Table of Contents
<br />road -20210930
<br />funding, the geographic location, the likely competition, the construction risks, the gross margin opportunities, the penalties or
<br />incentives and the type of contract.
<br />To ensure the completeness and accuracy of our original bid analysis, the bid preparation for potential projects typically involves three
<br />phases.
<br />• Phase One: We review the plans and specifications of the project so that we can identify (i) the various types of work involved
<br />and related estimated materials, (ii) the contract duration and schedule, and (iii) any unique or risky aspects of the project.
<br />• Phase Two: We estimate the cost and availability of labor, materials and equipment, subcontractors and the project team
<br />required to complete the contract in accordance with the plans, specifications and construction schedule. Substantially all of
<br />our estimates are made on a per-unit basis for each bid item, with the typical contract containing 50 to 200 bid items.
<br />• Phase Three: Management conducts a detailed review of the estimate. This review includes an analysis of assumptions
<br />regarding (i) cost, approach, means and methods of completing the project, (ii) staffing and productivity and (iii) risk After
<br />concluding this detailed review of the cost estimate, management determines the appropriate profit margin to calculate the
<br />total bid amount. This profit amount varies according to management's perception of the degree of difficulty of the contract,
<br />the existing competitive climate, and the size and makeup of our contract backlog. Throughout this process, we work closely
<br />with our project managers so that all issues concerning a contract, including any risks, can be better understood and addressed
<br />as appropriate.
<br />To ensure that subcontracting costs used in submitting bids for construction contracts do not change, we obtain firm quotations from
<br />our subcontractors before submitting a bid. Also, to mitigate the risk of material price changes, we obtain "not to exceed" quotations
<br />from our suppliers, which, for projects of longer duration, usually contain price escalator provisions. These quotations typically include
<br />quantity guarantees that are tied to our prime contract. We have no obligation for materials or subcontract services beyond those
<br />required to complete the respective contracts that we are awarded for which quotations have been provided.
<br />After a contract has been awarded and during the construction phase, we monitor our progress by comparing actual costs incurred and
<br />quantities completed to date with budgeted amounts and the project schedule. We review our estimates of total forecasted revenue, cost
<br />and expected profit for each contract monthly.
<br />During the normal course of some projects, we or our customer may initiate modifications or changes to the original contract to reflect,
<br />among other things, changes in quantities, specifications or design, method or manner of performance, facilities, materials, site
<br />conditions and period for completion of the work. Generally, the scope and price of these modifications are documented in a "change
<br />order" to the original contract and reviewed, approved and paid for in accordance with the normal change order provisions of the
<br />contract. Occasionally, we are asked to perform extra or change order work as directed by the customer even if the customer has not
<br />agreed in advance on the scope or price of the work to be performed. This process may result in disputes over whether the work
<br />performed is beyond the scope of the work included in the original contract plans and specifications or, even if the customer agrees that
<br />the work performed qualifies as extra work, the price that the customer is willing to pay for the extra work. These disputes may not be
<br />settled to our satisfaction_ Even when the customer agrees to pay for the extra work, we may be required to fund the cost of such work
<br />for an extended period of time until the change order is approved and funded by the customer. In addition, any delay caused by the
<br />extra work may adversely impact the timely scheduling of other work on the contract (or on other contracts) and our ability to meet
<br />contract milestone dates. Historically, we have been successful at managing the impacts caused by change orders, and change orders
<br />have not had a material adverse effect on our business.
<br />Most of our contracts with governmental agencies provide for termination at the convenience of the customer, with requirements to pay
<br />us for work performed through the date of termination. The termination of a government contract for the convenience of the customer
<br />is an extremely rare occurrence. Many of our contracts contain provisions that require us to pay liquidated damages if specified
<br />completion schedule requirements are not met. Historically, we have not been materially adversely affected by liquidated damages
<br />provisions.
<br />We act as prime contractor on most of our construction projects. As prime contractor, we are responsible for the performance of the
<br />entire contract, including subcontract work. To manage the risk of non-performance by our subcontractors, we typically require the
<br />subcontractor to furnish a bond or other type of security to guarantee its performance and/or we retain payments in accordance with
<br />contract terms until their performance is complete. Disadvantaged business enterprise regulations require us to use our good faith
<br />efforts to subcontract a specified portion of contract work done for governmental agencies to certain types of disadvantaged contractors
<br />or suppliers.
<br />https://www.sec.gov/Archives/edgar/data/0001718227/000171822721000107/road-20210930.htm 12/144
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