“Fiscal year 2020 was one of the most challenging years in Granite’s history as we navigated the pandemic and the Audit/Compliance Committee’s internal investigation,” said Kyle Larkin, Granite president.

Last month Granite reported that internal financial controls broke down, inflating Granite Construction's initial financial performance report for 2019. Some staff and managers provided auditors investigating what had happened with "potentially misleading" information, the company said in its 2019 annual report.

The wording of the Granite statement appeared to open the door to further investigation for civil or criminal violations of securities law. The contractor, which had already informed the U.S. Securities and Exchange Commission of its investigation, says the agency has now issued subpoenas related to the financial disclosure problems.

But investors seem to believe the company is on the right track. Granite Construction shares are up 41% so far in 2021.

Backlog Down as Risk Is Limited

The company's backlog has decreased, but only 2.3%, to $4.3 billion. Granite is shifting away from work it now deems too risky performed on traditional bid-build or design-build procurement contracts with longer durations. “Historically, these projects are very large and complex,” Larkin said during a conference call for investors and analysts. “But there was often limited design visibility at the time of it.”

Now Granite only performs that work when the risk and price are right, said Larkin. The company instead seeks more of what it calls best-value procurement work, and classifies the project delivery style as construction management/general contractor. In that work, Granite and owners mitigate overall project risk during the design process, Larkin said, which subsequently also reduces the likelihood of future claims.

The backlog burn, according to Granite, reflects its heavy civil operating group's “old-risk portfolio,” offset partly by recently acquired best-value work.