Lendlease Annual Report 2022

124 Lendlease Annual Report 2022 Notes to Consolidated Financial Statements continued 4. Revenue from Contracts with Customers Accounting Policies Provision of Construction and Development services Construction services include project management, design and construction services predominantly in the commercial, residential, mixed use, defence and social infrastructure sectors. Development services include development fees earned on development of inner city mixed use developments, retirement, retail, commercial assets and social and economic infrastructure. Contracts with customers to provide Construction or Development services can include either one performance obligation or multiple performance obligations within each contract. The Group assesses each of its contracts individually and where there are separate performance obligations identified, the transaction price is allocated based on the relative standalone selling prices of the services provided. Typically, the Construction or Development services in contracts are not considered distinct as the services are highly interrelated and an integrated bundle of services and therefore are accounted for as a single performance obligation. The transaction price for each contract may include variable consideration in the form of contract variations or modifications, and contract claims (collectively, ‘Modifications’). Variable consideration may also include performance or other incentive fees. The transaction price is the amount of consideration to which the Group expects to be entitled to receive in exchange for transferring promised goods or services to a customer per the contract. Variable consideration is only included in the transaction price for a contract to the extent it is highly probable that a significant reversal of that revenue will not occur, which is an area of accounting judgement. Factors considered in assessing whether the estimated revenue associated with Modifications should be recognised include the following: i. Status of negotiations with customers ii. The contract or other evidence provides a legal basis for the Modifications iii. Additional costs incurred were caused by circumstances that were unforeseen at the contract date and for which entitlement contractually exists iv. Modification related costs are identifiable, measurable, and considered reasonable in view of the work performed v. Evidence supporting the Modification is objective and verifiable, which may include independent third-party advice vi. Commercial and market factors specific to the Modifications vii. Historical experience in resolving Modifications. This assessment is reviewed each reporting period or when facts and circumstances change during the reporting period. Revenue is recognised over time, typically based on an input method using an estimate of costs incurred to date as a percentage of total estimated costs. These contracts are typically executed on the customer’s land so they control the assets as they are being built or the customer benefits from the service as the work is performed. Differences between amounts recognised as revenue and amounts billed to customers are recognised as contract assets or liabilities in the Statement of Financial Position. The measurement of revenue is an area of accounting judgement. Management uses judgement to estimate: i. Progress in satisfying the performance obligations within the contract, which includes estimating contract costs expected to be incurred to satisfy performance obligations ii. The probability of the amount to be recognised as variable consideration for approved variations and claims where the final price has not been agreed with the customer. Revenue is invoiced based on the terms of each individual contract, which may include a periodic billing schedule or achievement of specific milestones. Invoices are issued under commercial payment terms which are typically 30 days from when an invoice is issued. A provision for loss making contracts is recorded for the difference between the expected costs of fulfilling a contract and the expected remaining economic benefits to be received where the forecast remaining costs exceed the forecast remaining benefits. Provision of Investment services Investment services include funds management, asset management, leasing and origination services. Each contract with a customer to provide Investment services is typically one performance obligation with revenue recognised over time as services are rendered. Typically, our performance obligation is to manage a client’s capital and/or property for a specified period of time and is delivered as a series of daily performance obligations over time. The transaction price for each contract may include variable consideration in the form of performance fees. Variable consideration is only included in the transaction price for a contract to the extent it is highly probable that a significant reversal of that revenue will not occur. The Group assesses probability of receiving variable consideration using a combination of commercial and market factors, and historical experience. Revenue is invoiced either monthly or quarterly based on the terms of each individual contract. Invoices are issued under commercial payment terms which are typically 30 days from when an invoice is issued. Section A. Performance continued