Issue link: https://construction.trimble.com/en/resources/i/1520032
Page | 16 Let's assume a heavy highway contractor enters into a contract to repave 10 miles of state highway for a department of transportation for $50 Million. The contract calls for portland cement paving for the roadway, along with approximately 157 drainage culverts, the demolition and reconstruction of three over-highway bridges, the repaving of three sets of exit/entrance ramps, and the installation of protective road barriers along the entire stretch of road. In this situation, the completion of the specifi c components of the stretch of highway (i.e., drainage culverts, barriers, exit/entrance ramps, etc.) are most likely not separate performance obligations since they are not distinct in the context of the contract. This is due to the fact that the department of transportation contracted for 10 miles of state highway to be completed, and the department of transportation does not derive a benefi t from those component goods being installed. As another example, let's assume that a heavy highway contractor is contracted by an airport authority to construct a new runway for $8 Million. During construction of this runway, the airport authority received authorization and funding for the construction of another runway for $7.5 Million. The airport authority issued a change order amending the original contract for this additional runway instead of a new, stand-alone contract. This additional runway would likely be accounted for as a separate performance obligation, as the airport authority will derive stand-alone benefi t from each runway. In addition, this separate runway would be considered distinct in the context of the contract, since construction of the second runway is a promise in which the contractor does not provide a combined output contracted for by customer (two separate runways), assuming that the second runway does not signifi cantly modify or customize the fi rst runway and assuming the second runway is not highly interdependent or highly interrelated with the fi rst runway. EXAMPLE: HEAVY HIGHWAY CONTRACTOR Assessing Multiple Performance Obligations (continued) >