Contract Assets and Liabilities

The Company classifies contract assets and liabilities that may be settled beyond one year from the balance sheet date as current, consistent with the length of time of the Company’s project operating cycle.

Contract assets include amounts due under retainage provisions and costs and estimated earnings in excess of billings. The components of the contract asset balances as of the respective dates were as follows:



(in thousands)	December 31, 2019		January 1, 2019^*		Change
Contract assets
Costs in excess of billings and estimated earnings	$	44,315	$	33,943	$	10,372
Retainage receivable	32,873		29,867		3,006
Total contract assets	$	77,188	$	63,810	$	13,378

Certain construction contracts include retainage provisions that were included in contract assets as of December 31, 2019 and in accounts receivable, net as of December 31, 2018, in our consolidated balance sheets.

Retainage receivable represents amounts invoiced to customers where payments have been partially withheld, typically 10%, pending the completion of certain milestones, satisfaction of other contractual conditions or the completion of the project. Retainage agreements vary from project to project and balances could be outstanding for several months or years depending on a number of circumstances such as contract-specific terms, project performance and other variables that may arise as the Company makes progress towards completion.

Contract assets represent the excess of contract costs and profits (or contract revenue) over the amount of contract billings to date and are classified as a current asset. Contract assets result when either: (1) the appropriate contract revenue amount has been recognized over time in accordance with ASC Topic 606, but a portion of the revenue recorded cannot be currently billed due to the billing terms defined in the contract, or (2) costs are incurred related to certain claims and unapproved change orders. Claims occur when there is a dispute regarding both a change in the scope of work and the price associated with that change. Unapproved change orders occur when a change in the scope of work results in additional work being performed before the parties have agreed on the corresponding change in the contract price. The Company routinely estimates recovery related to claims and unapproved change orders as a form of variable consideration at the most likely amount it expects to receive and to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Claims and unapproved change orders are billable upon the agreement and resolution between the contractual parties and after the execution of contractual amendments. Increases in claims and unapproved change orders typically result from costs being incurred against existing or new positions; decreases normally result from resolutions and subsequent billings.

The current estimated net realizable value on such items as recorded in contract assets in the consolidated balance sheets was $38.4 million and $23.1 million as of December 31, 2019 and 2018, respectively. The Company anticipates that the majority of such amounts will be approved or executed within one year. The resolution of these claims and unapproved change orders may require litigation or other forms of dispute resolution proceedings.

Contract liabilities include billings in excess of contract costs and provisions for losses. The components of the contract liability balances as of the respective dates were as follows:



(in thousands)	December 31, 2019		January 1, 2019 ^*		Change
Contract liabilities
Billings in excess of costs and estimated earnings	$	40,662	$	46,968	$	(6,306	)
Provisions for losses	1,708		1,848		(140		)
Total contract liabilities	$	42,370	$	48,816	$	(6,446	)

Billings in excess of costs represent the excess of contract billings to date over the amount of contract costs and profits (or contract revenue) recognized to date. The balance may fluctuate depending on the timing of contract billings and the recognition of contract revenue.

Provisions for losses are recognized in the consolidated statements of operations at the uncompleted performance obligation level for the amount of total estimated losses in the period that evidence indicates that the estimated total cost of a performance obligation exceeds its estimated total revenue.

The net overbilling (underbilling) position for contracts in process consisted of the following:



(in thousands)	December 31, 2019		January 1, 2019 ^*
Revenue earned on uncompleted contracts	726,215		737,043
Less: Billings to date	(722,562	)	(750,068	)
Net underbilling (overbilling)	3,653		(13,025	)



(in thousands)	December 31, 2019		January 1, 2019 ^*
Costs in excess of billings and estimated earnings	44,315		33,943
Billings in excess of costs and estimated earnings	(40,662	)	(46,968	)
Net underbilling (overbilling)	3,653		(13,025	)

* See Note 3 - Accounting Standards for the impact of adoption of new accounting standards.

During the years ended December 31, 2019 and 2018, we recorded revisions in our contract estimates for certain Construction and Service projects. For individual projects with revisions having a material gross profit impact, this resulted in 2019 gross profit write downs totaling $12.4 million on sixteen Construction projects, twelve of which were in the Southern California region for a total of $9.9 million and $1.4 million on a single Western Pennsylvania project. We also recorded an $0.4 million gross profit write down on a single Southern California region Service project. The Company is pursuing recovery remedies for costs incurred due to delays and disruptions, but is not currently in a position to recognize any potential recoveries in its financial statements. We also recorded revisions in 2019 gross profit write ups totaling $4.7 million on ten Construction projects, including a gross profit write up of $0.4 million on a single Southern California Service project and $0.3 million on a single Mid-Atlantic region Service project. During the year ended December 31, 2018, the Company recorded revisions in contract estimates on fourteen Construction projects resulting in cumulative write downs of $16.6 million, ten of which were in the Mid-Atlantic region and $1.7 million on a single Mid-Atlantic Service project. Certain operating locations recorded revisions in gross profit write ups totaling $3.3 million on six Construction projects and $0.5 million on a single Service project during the year ended December 31, 2018.