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Page | 15 Let's take the example of a general contractor who is awarded a contract to construct a new high school campus consisting of a main hall building surrounded by multiple ancillary buildings (administrative, library, etc.). The contract requires the general contractor to perform or subcontract all facets of construction including site work, foundation, vertical erection, build out and fi nishing work. All buildings are to be constructed simultaneously and completed in the timeline set forth in the contract. Each phase of construction and each structure built constitutes promised goods and services that are capable of being distinct such that the project owner could generate economic benefi t from each separate building. Although these promises may be distinct at the individual level, the contractor must also consider whether they are distinct in the context of the overall contract and in the eyes of the customer. From the owner's perspective, the general contractor is charged with satisfying multiple promises through the integration of various goods and services. The combined output of a high school constructed under the terms of the contract is determined to be a single performance obligation. Let's also consider the same contract with an additional assumption; the contractor is also awarded the design and demolition components of the contract. Prior to commencing actual construction, the general contractor is to deliver plans to the school board and must also raze an existing storage building on the site. The actual construction has already been determined to constitute a single performance obligation, now the contractor must evaluate the design and demolition aspects of the contract. The general contractor notes the demolition of the single small shed on-site is estimated to be completed in one day at minimal cost, therefore, is considered immaterial in the context of the contract. As such, this promise is not required to be considered as a separate performance obligation and may be allocated to the existing performance obligation. The design of the high school campus is deemed to be a distinct service since the owner could utilize the plans separate from the actual construction. However, the design component is signifi cantly interrelated to the construction phases. As the design function directs and customizes the construction phase, the two services are not distinct in the context of the contract or in the eyes of the customer based on the criteria in ASC 606-10-25-19. The design and construction services when combined result in a single output, the high school, and should be combined into one performance obligation. EXAMPLE: GENERAL CONTRACTOR / DESIGN-BUILD Assessing Multiple Performance Obligations (continued) >

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