Fluor 2008 Annual Report Download - page 49

If we guarantee the timely completion or performance standards of a project, we could incur additional cost to cover
our guarantee obligations.
In some instances and in many of our fixed-price contracts, we guarantee a client that we will
complete a project by a scheduled date. We sometimes provide that the project, when completed, will also
achieve certain performance standards. From time to time, we may also assume a project’s technical risk,
which means that we may have to satisfy certain technical requirements of a project despite the fact that at
the time of project award, we may not have previously produced the system or product in question. If we
subsequently fail to complete the project as scheduled, or if the project subsequently fails to meet
guaranteed performance standards, we may be held responsible for cost impacts to the client resulting
from any delay or the cost to cause the project to achieve the performance standards, generally in the form
of contractually agreed-upon liquidated damages. To the extent that these events occur, the total cost of
the project could exceed our original estimates and we could experience reduced profits or, in some cases,
a loss for that project.
The nature of our engineering and construction business exposes us to potential liability claims and contract
disputes which may reduce our profits.
We engage in engineering and construction activities for large facilities where design, construction or
systems failures can result in substantial injury or damage to third parties. In addition, the nature of our
business results in clients, subcontractors and vendors occasionally presenting claims against us for
recovery of cost they incurred in excess of what they expected to incur, or for which they believe they are
not contractually liable. We have been and may in the future be named as a defendant in legal proceedings
where parties may make a claim for damages or other remedies with respect to our projects or other
matters. These claims generally arise in the normal course of our business. When it is determined that we
have liability, we may not be covered by insurance or, if covered, the dollar amount of these liabilities may
exceed our policy limits. Our professional liability coverage is on a ‘‘claims-made’’ basis covering only
claims actually made during the policy period currently in effect. In addition, even where insurance is
maintained for such exposures, the policies have deductibles resulting in our assuming exposure for a layer
of coverage with respect to any such claims. Any liability not covered by our insurance, in excess of our
insurance limits or, if covered by insurance but subject to a high deductible, could result in a significant loss
for us, which claims may reduce our profits and cash available for operations.
Our failure to recover adequately on claims against project owners for payment could have a material effect on us.
We occasionally bring claims against project owners for additional cost exceeding the contract price or
for amounts not included in the original contract price. These types of claims occur due to matters such as
owner-caused delays or changes from the initial project scope, which result in additional cost, both direct
and indirect. Often, these claims can be the subject of lengthy arbitration or litigation proceedings, and it is
often difficult to accurately predict when these claims will be fully resolved. When these types of events
occur and unresolved claims are pending, we may invest significant working capital in projects to cover cost
overruns pending the resolution of the relevant claims. A failure to promptly recover on these types of
claims could have a material adverse impact on our liquidity and financial results.
Intense competition in the engineering and construction industry could reduce our market share and profits.
We serve markets that are highly competitive and in which a large number of multinational companies
compete. Among our competitors are U.S. companies such as Bechtel Group, Inc., Jacobs Engineering
Group, Inc., KBR Inc., Chicago Bridge and Iron Company N.V., CH2M Hill Companies Limited, the Shaw
Group and URS Corporation, and international companies such as Foster Wheeler AG, Technip,
WorleyParsons Limited and AMEC plc. In particular, the engineering and construction markets are highly
competitive and require substantial resources and investment in technology and skilled personnel.
Competition also places downward pressure on our contract prices and profit margins. Intense competition
is expected to continue in these markets, presenting us with significant challenges in our ability to maintain
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