Fluor 2004 Annual Report Download - page 33

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procurement operations of our Global Services segment do not report backlog due to the quick turnaround between
the receipt of new awards and the recognition of revenue. With respect to backlog in our Government segment, if a
contract covers multiple years, we only include the amounts for which Congressional funding has been approved and
then only for that portion of the work to be completed in the next twelve months. For projects related to
unconsolidated or partially consolidated joint ventures, we include only percentage membership of each joint
venture’s backlog.
We expect to perform 45% of our backlog in 2005. The dollar amount of the backlog is not necessarily indicative
of our future earnings related to the performance of such work. Although backlog represents only business which is
considered to be firm, there can be no assurance that cancellations or scope adjustments will not occur. Due to
additional factors outside of our control, such as changes in project schedules, we cannot predict with certainty the
portion of our December 31, 2004 backlog estimated to be performed subsequent to 2005.
For additional information with respect to our backlog, please refer to Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operation, below.
Types of Contracts
While the basic terms and conditions of the contracts that we perform may vary considerably, generally we
perform our work under two groups of contracts: cost reimbursable, and guaranteed maximum and fixed price
contracts. As of December 31, 2004, the following table breaks down the percentage and amount of revenue
associated with these types of contracts for our existing backlog:
2004 Backlog
(in millions)
Cost Reimbursable ****************************************************** 73% $10,779
Guaranteed Maximum and Fixed Price ************************************** 27% $ 3,987
Under cost reimbursable contracts, the client reimburses our costs in developing a project and pays us a pre-
determined fee or a fee based upon a percentage of the costs incurred in completing the project. Our profit may be in
the form of a fee, a simple mark-up applied to labor costs incurred in the contract, or a combination of the two. The
fee element may also vary. The fee may be an incentive fee based upon achieving certain performance factors,
milestones or targets; it may be a fixed amount in the contract; or it may be based upon a percentage of the costs
incurred.
Our Government segment, as a prime contractor or a major subcontractor for a number of United States
government programs, generally performs its services under cost reimbursable contracts although subject to
applicable statutes and regulations. In many cases, these contracts include incentive-fee arrangements. The programs
in question often take many years to complete and may be implemented by the award of many different contracts.
Despite the fact that these programs are generally awarded on a multi-year basis, the funding for the programs is
generally approved on an annual basis by Congress. The government is under no obligation to maintain funding at
any specific level, or funds for a program may even be eliminated thereby significantly curtailing or stopping a
program.
Some of our government contracts are known as Indefinite Delivery Indefinite Quantity agreements. Under these
arrangements, we work closely with the government to define the scope and amount of work required based upon an
estimate of the maximum amount that the government desires to spend. While the scope is often not initially fully
defined or requires any specific amount of work, once the project scope is determined, additional work may be
awarded to us without the need for further competitive bidding.
Guaranteed maximum price contracts, or GMAX contracts, are performed in a manner similar to cost
reimbursable contracts except that the total fee plus the total cost cannot exceed an agreed upon guaranteed
maximum price. We can be responsible for some or all of the total cost of the project if the cost exceeds the
guaranteed maximum price. Where the total cost is less than the negotiated guaranteed maximum price, we will
receive the benefit of the cost savings based upon a negotiated agreement with the client.
Fixed price contracts include both negotiated fixed price contracts and lump sum contracts. Under negotiated
fixed price contracts, we are selected as contractor first, and then we negotiate price with the client. These types of
contracts generally occur where we commence work before a final price is agreed upon. Under lump sum contracts,
we competitively bid based upon specifications provided by the client, agreeing to develop a project at a fixed price.
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