Revenue Recognition

We earn revenue from the following principal sources:


•	Transaction commissions;


•	Advisory and management fees;


•	Incentive fees;


•	Project and development management fees; and


•	Construction management fees.

We recognize transaction commissions related to leasing services and capital markets services as revenue when we provide the related service unless future contingencies exist. If future contingencies exist, we defer recognition of this revenue until the respective contingencies have been satisfied.

We recognize advisory and management fees related to property management services, valuation services, corporate property services, consulting services and investment management as income in the period in which we perform the related services.

We recognize incentive fees based on the performance of underlying funds’ investments, contractual benchmarks and other contractual formulas.

We recognize project and development management and construction management fees by applying the percentage of completion method of accounting. We use the efforts expended method to determine the extent of progress towards completion for project and development management fees, and costs incurred to total estimated costs for construction management fees.

Construction management fees, which are gross construction services revenue net of subcontract costs, were $1.9 million and $1.8 million for the three months ended September 30, 2013 and 2012, respectively, and $4.9 million and $5.0 million for the nine months ended September 30, 2013 and 2012, respectively. Gross construction services revenue totaled $32.6 million and $27.9 million for the three months ended September 30, 2013 and 2012, respectively, and $110.5 million and $84.9 million for the nine months ended September 30, 2013 and 2012, respectively. Subcontract costs totaled $30.7 million and $26.1 million for the three months ended September 30, 2013 and 2012, respectively, and $105.6 million and $79.9 million for the nine months ended September 30, 2013 and 2012, respectively.

At September 30, 2013 and December 31, 2012, Trade receivables included costs in excess of billings on uncompleted construction contacts of $5.2 million and $7.9 million, respectively, and Deferred income included billings in excess of costs on uncompleted construction contracts of $6.2 million and $5.2 million, respectively.

Gross and Net Accounting We follow the guidance of FASB Accounting Standards Codification (“ASC”) 605-45, “Principal and Agent Considerations,” when accounting for reimbursements received from clients. In certain of our businesses, primarily those involving management services, our clients reimburse us for expenses incurred on their behalf. We base the treatment of reimbursable expenses for financial reporting purposes upon the fee structure of the underlying contract. Accordingly, we report a contract that provides a fixed fee billing, fully inclusive of all personnel and other recoverable expenses incurred but not separately scheduled, on a gross basis. When accounting on a gross basis, our reported revenue includes the full billing to our client and our reported expenses include all costs associated with the client. Certain contractual arrangements in our project and development services, including fit-out business activities, and facility management, tend to have characteristics that result in accounting on a gross basis. In Note 4, Business Segments, we identify vendor and subcontract costs on certain client assignments in property and facilities management, and project and development services (“gross contract costs”), and present separately their impact on both revenue and operating expense in our RES segments. We exclude these costs from revenue and operating expenses in determining “fee revenue” and “fee based operating expenses” in our segment presentation.

We account for a contract on a net basis when the fee structure is comprised of at least two distinct elements, namely (1) a fixed management fee and (2) a separate component that allows for scheduled reimbursable personnel costs or other expenses to be billed directly to the client. When accounting on a net basis, we include the fixed management fee in reported revenue and net the reimbursement against expenses. We base this accounting on the following factors, which define us as an agent rather than a principal:


•	The property owner or client, with ultimate approval rights relating to the employment and compensation of on-site personnel, and bearing all of the economic costs of such personnel, is determined to be the primary obligor in the arrangement;


•	Reimbursement to Jones Lang LaSalle is generally completed simultaneously with payment of payroll or soon thereafter;


•	Because the property owner is contractually obligated to fund all operating costs of the property from existing cash flow or direct funding from its building operating account, Jones Lang LaSalle bears little or no credit risk; and


•	Jones Lang LaSalle generally earns no margin in the reimbursement aspect of the arrangement, obtaining reimbursement only for actual costs incurred.

The majority of our service contracts are accounted for on a net basis. Total costs incurred and reimbursed by our clients for service contracts that were accounted for on a net basis were $410.6 million and $370.8 million for the three months ended September 30, 2013 and 2012, respectively, and $1,211.0 million and $1,123.6 million for the nine months ended September 30, 2013 and 2012, respectively.

Contracts accounted for on a gross basis resulted in certain costs reflected in revenue and operating expenses of $118.3 million and $71.6 million for the three months ended September 30, 2013, and 2012, respectively, and $274.9 million and $209.3 million for the nine months ended September 30, 2013 and 2012, respectively.

The presentation of expenses pursuant to all of these arrangements under either a gross or net basis has no impact on operating income, net income or cash flows.