5. Revenue and Contract Receivables, net

Revenue Recognition

Substantially all of the Company's revenue is derived from environmental consulting work. The consulting revenue is principally derived from the sale of labor hours. The consulting work is performed under a mix of fixed price, cost-type, and time and material contracts. Contracts are required from all customers. Revenue is recognized as follows:

Contract Type	Work Type	Revenue Recognition Policy

Time and Materials	Consulting	As incurred at contract rates.

Fixed Price	Consulting	Percentage of completion, approximating the ratio of either total costs or Level of Effort (LOE) hours incurred to date to total estimated costs or LOE hours.

Cost-Type	Consulting	Costs as incurred. Fixed fee portion is recognized using percentage of completion determined by the percentage of LOE hours incurred to total LOE hours in the respective contracts.

Substantially all of the Company's cost-type work is with federal governmental agencies and, as such, is subject to audits after contract completion. Under these cost-type contracts, provisions for adjustments to accrued revenue are recognized on a quarterly basis and based on past audit settlement history. Government audits have been completed and final rates have been negotiated through fiscal year 2005. The Company records an allowance for contract adjustments which is recorded in other accrued liabilities principally represents a reserve for contract adjustments for the fiscal years 1996-2013.

The Company reduces contract receivables and revenues by establishing an allowance for billed and earned contract revenues that may become unrealizable in the future. Management reviews contract receivables and determines allowance amounts based on historical experience, geopolitical considerations, client acknowledgment of the amount owed, client ability to pay, relationship history with the client and the probability of payment.

Change orders can occur when changes in scope are made after project work has begun, and can be initiated by either the Company or its clients. Claims are amounts in excess of the agreed contract price which the Company seeks to recover from a client for customer delays and / or errors or unapproved change orders that are in dispute. Costs related to change orders and claims are recognized as incurred. Revenues and profit are recognized on change orders when it is probable that the change order will be approved and the amount can be reasonably estimated. Revenues are recognized only up to the amount of costs incurred on contract claims when realization is probable, estimatable and reasonable support from the customer exists.

All bid and proposal and other pre-contract costs are expensed as incurred. Out of pocket expenses such as travel, meals, field supplies, and other costs billed direct to contracts are included in both revenues and cost of professional services. Sales and cost of sales at the Company's South American subsidiaries exclude tax assessments by governmental authorities, which are collected by the Company from its customers and then remitted to governmental authorities.

Contract Receivables, Net

Contract receivables, net are summarized in the following table.

	January 31, 2013			July 31, 2012

Contract Receivables:
Billed	$	35,556,793		$	42,977,016
Unbilled		26,308,875			28,829,818
		61,865,668			71,806,834

Allowance for doubtful accounts and contract adjustments		(10,216,404	)		(10,238,391	)

Total contract receivables, net	$	51,649,264		$	61,568,443

Billed Contract Receivables

Billed contract receivables included $7.7 million and $14.5 million of amounts due under contracts with clients in the Middle East at January 31, 2013 and July 31, 2012, respectively. Billed contract receivables also included $1.9 million of billings in excess of revenue associated with clients within the Middle East at July 31, 2012.

Billed contract receivables include contractual retainages of approximately $0.2 million at January 31, 2013 and July 31, 2012, which are expected to be collected within one year.

Unbilled Contract Receivables

Unbilled contract receivables include amounts recorded as earned revenue that are not yet billed as of period-end, including contract costs not yet included in provisional billings and contractual fees not yet processed. Unbilled contract receivables included $6.5 million and $2.8 million of amounts due under contracts with clients in Asia at January 31, 2013 and July 31, 2012, respectively.

Allowance for Doubtful Accounts and Contract Adjustments

Activity within the allowance for doubtful accounts includes provision for bad debts that are recorded within administrative and indirect operating expenses and contract adjustments that are recorded as direct adjustments to revenue in the consolidated statements of income.

An analysis of the allowance for doubtful accounts and contract adjustments is summarized in the following table.

	Three Months ended January 31,						Six Months ended January 31,
	2013			2012			2013			2012

Balance at beginning of period	$	11,322,000		$	7,850,597		$	10,238,391		$	6,755,087
Net change recorded during the period	(1,105,596		)	(118,525		)	(21,987		)	976,985

Balance at end of period

10,216,404

7,732,072

10,216,404

7,732,072