Fluor 2007 Annual Report Download - page 41

the next 12 months. For projects related to proportionately consolidated joint ventures, we include only
our percentage ownership of each joint venture’s backlog.
We expect to perform approximately 50% of our backlog in 2008. The dollar amount of the backlog is
not necessarily indicative of our future revenue or 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 the portion of our December 31, 2007 backlog estimated to
be performed annually subsequent to 2008.
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 contracts, and guaranteed
maximum or fixed-price contracts. In some markets, we are seeing ‘‘hybrid’’ contracts containing both
fixed-price and cost reimbursable elements. As of December 31, 2007, the following table breaks down the
percentage and amount of revenue associated with these types of contracts for our existing backlog:
2007 Backlog
(in millions) Percentage
Cost Reimbursable ............................................ $22,931 76%
Guaranteed Maximum and Fixed-Price .............................. 7,240 24%
Under cost reimbursable contracts, the client reimburses our cost in performing a project and pays us
a pre-determined fee or a fee based upon a percentage of the cost incurred in completing the project. Our
profit may be in the form of a fee, a simple mark-up applied to labor cost incurred in performing 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 cost 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 (IDIQ)
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.
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