

4.	REVENUE FROM CUSTOMERS

Backlog

The Company had the following backlog, by segment:



	December 31,
	2019		2018
Heavy Civil Backlog	$	834,049	$	780,706
Specialty Services Backlog	233,976		70,019
Total Heavy Civil and Specialty Services Backlog	$	1,068,025	$	850,725

The Company expects to recognize approximately 70% of its backlog as revenue during the next twelve months, and the balance thereafter.

Revenue Disaggregation

The following tables present the Company’s revenue disaggregated by major end market and contract type:



	Years Ended December 31,
Revenue by major end market	2019		2018		2017
Heavy Highway	$	483,175	$	513,376	$	579,157
Aviation	141,371		111,824		77,399
Water Containment and Treatment	65,795		66,928		59,593
Other	69,984		73,510		85,503
Heavy Civil Revenue	$	760,325	$	765,638	$	801,652

Land Development	$	84,637	$	—	$	—
Commercial	128,187		120,333		48,314
Specialty Services Revenue	$	212,824	$	120,333	$	48,314

Residential Revenue	$	153,129	$	151,696	$	107,992

Revenues	$	1,126,278	$	1,037,667	$	957,958

Revenue by contract type
Fixed-Unit Price	$	708,638	$	733,047	$	755,840
Lump Sum	262,237		146,874		57,823
Residential and Other	155,403		157,746		144,295
Revenues	$	1,126,278	$	1,037,667	$	957,958

Each of these contract types presents advantages and disadvantages. Typically, the Company assumes more risk with lump-sum contracts. However, these types of contracts offer additional profits if the work is completed for less than originally estimated. Under fixed-unit price contracts, the Company’s profit may vary if actual labor-hour costs vary significantly from the negotiated rates. Also, because some contracts can provide little or no fee for managing material costs, the components of contract cost can impact profitability.

Variable Consideration

The Company has projects that it is in the process of negotiating, or awaiting final approval of, unapproved change orders and claims with its customers. The Company is proceeding with its contractual rights to recoup additional costs incurred from its customers based on completing work associated with change orders, including change orders with pending change order pricing, or claims related to significant changes in scope which resulted in substantial delays and additional costs in completing the work. Unapproved change order and claim information has been provided to the Company’s customers and negotiations with the customers are ongoing. If additional progress with an acceptable resolution is not reached, legal action will be taken.

Based upon the Company’s review of the provisions of its contracts, specific costs incurred and other related evidence supporting the unapproved change orders and claims, together in some cases as necessary with the views of the Company’s outside claim consultants, the Company concluded it was appropriate to include in project price amounts of $3,000 and $9,300, at December 31, 2019 and 2018, respectively. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined.

Contract Estimates

Accounting for long-term contracts and programs involves the use of various techniques to estimate total contract revenue and costs. For long-term contracts, the Company estimates the profit on a contract as the difference between the total estimated revenue and expected costs to complete a contract and recognizes such profit over the life of the contract.

Contract estimates are based on various assumptions to project the outcome of future events that often span several years. These assumptions include labor productivity and availability, the complexity of the work to be performed, the cost and availability of materials and the performance of subcontractors. Changes in job performance, job conditions and estimated profitability, including those changes arising from contract penalty provisions and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined.

In December 2019, Sterling was able to come to an interim agreement related to a 2014 project involving the construction of three separate bridges in Texas that had suffered from significant schedule delays and cost overruns due to major owner design flaws. This agreement enabled Sterling to recover approximately $17,000 in costs to date related to these delays and defined a better dispute resolution process along with agreed upon rates for future work if there are further delays. As part of this agreement, Sterling agreed to work on all three bridges simultaneously (versus doing one at a time) to accelerate the final completion schedule. This revised schedule has significantly increased the amount of labor, equipment and infrastructure required to complete the project under the new terms of the agreement and resulted in a reduction of gross profit in the quarter of $10,200.

Changes in estimated revenues and gross margin resulted in a net decrease of $9,044 for the year ended December 31, 2019, and net increases of $7,098 and $923 for the years ended December 31, 2018 and 2017 respectively, included in “Operating income” on the Consolidated Statements of Operations. The 2019 decrease primarily related to the aforementioned bridge project in Texas.