Fixed-price projects continue to be a source of trouble for Fluor Corp (FLR-NYSE).

The U.S. Securities and Exchange Commission is conducting an investigation of the contractor's past accounting and financial reporting and has sought documents related to projects for which the company recorded charges in the second quarter of 2019.

Fluor says it is delaying filing its quarterly 10-K report prior to the end of the month because of its internal report and recent developments on two projects.

In a response to the SEC and for its own review, Executive Chairman Alan Boeckmann told investors Feb. 18 that “the company is looking at its prior revenue recognition, charges and related control environment” on one project at the U.S. Radford Army Ammunition Plant in Radford, Va.

British Aerospace Engineering  is the prime contractor updating power, infrastructure and manufacturing facilities at the site, and Fluor is working on several parts under a design-build, fixed-price contract that covers a package boiler, a cellulous cutter warehouse and a multi-phased new nitrocellulose production facility.

Fluor isn’t alone in its fixed-price problems. In August, ENR reported that Fluor, SNC-Lavalin Group Inc. and Granite Construction Inc. had decided to exit fixed-price contracting as a business-growth strategy in the wake of megaproject risk-sharing imbalance.

Sale Of Unit Cancelled

The company also said it does not intend to sell its government services unit as previously announced.

"We think the default assumption by investors will be that Fluor could not find buyers for the government business at the right price, so management will have to provide color on how it came to the decision to retain the business," said UBS construction sector analyst Steven Fisher in a Feb. 18 note. "The bright spot appeared to be cash, with the balance now at $2 billion, up from $1.85 billion in Q3."

Andrew Wittmann, industry sector analyst at Baird Equity, said "keeping the government segment signals [Fluor doesn't] need the cash; this matters. We do not think it was a price/demand issue."

He said "collection of a $150-million project claim in its fourth quarter positively surprised, bad jobs don't appear to have degraded further,"  adding that the firm's projection of "only $500 million of required cash burn to finish bad jobs all add up to be a better cash forecast than we'd previously feared."

Jamie Cook, Credit Suisse managing director and sector analyst, said Feb. 18 that the government unit "is less cyclical and it could be viewed that management is more constructive on the ability to generate cash from operations or proceeds from other areas." 

She added, however, that "given the known problem projects and recent developments on two large projects, our confidence level is reduced," also noting that "the macro environment broadly has deteriorated" in Fluor's key energy and chemicals market."  Cook lowered the firm's rating to neutral from outperform.