In re BRADLEY R. SCOTT

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 UNITED STATES OF AMERICA 
 Before the 
 SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 98296 / September 6, 2023 
 
ADMINISTRATIVE PROCEEDING 
File No. 3-21615 
 
In the Matter of 
 
 BRADLEY R. SCOTT,  
 
Respondent. 
 
ORDER INSTITUTING CEASE-AND-
DESIST PROCEEDINGS, PURSUANT TO 
SECTION 21C OF THE SECURITIES 
EXCHANGE ACT OF 1934, MAKING 
FINDINGS, AND IMPOSING A CEASE-
AND-DESIST ORDER  
   
I. 
 
 The Securities and Exchange Commission (“Commission” or “SEC”) deems it appropriate 
that cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the 
Securities Exchange Act of 1934 (“Exchange Act”) against Bradley R. Scott (“Scott” or 
“Respondent”).   
 
II. 
 
 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
purpose of these proceedings and any other proceedings brought by or on behalf of the 
Commission, or to which the Commission is a party, and without admitting or denying the findings 
herein, except as to the Commission’s jurisdiction over the Respondent and the subject matter of 
these proceedings, which are admitted, and except as provided herein in Section V, Respondent 
consents to the entry of this Order Instituting Cease-and-Desist Proceedings, Pursuant to Section 
21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist 
Order (“Order”), as set forth below. 
 
III. 
 
 On the basis of this Order and Respondent’s Offer, the Commission finds
1
 that  
 
1
 The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding 
on any other person or entity in this or any other proceeding.  

 2 
Summary 
 
1. This matter stems from Scott’s involvement in Fluor Corporation’s (“Fluor”) 
percentage of completion (“POC”) accounting for a fixed-price construction project on which Fluor 
served as the subcontractor and carried a risk of cost overruns with respect to the work within the 
contract’s scope.  
  
2. The project required Fluor to validate and complete the design and to build a one-of-
a-kind U.S Army facility for manufacturing nitrocellulose, an ammunition propellant, (“Radford” or 
the “Radford Project”).  Fluor submitted a bid on the Radford Project, relying on overly optimistic 
cost and timing estimates.  Following the Radford Project’s subcontract award, Fluor experienced 
cost overruns that worsened over time. 
 
3. From the quarter ending March 31, 2018 through the quarter ending March 31, 2019 
(“Relevant Period”), Scott, first as a Controller of a business unit of the Fluor Government Group 
(“FGG”), a segment of Fluor, and then as the Chief Financial Officer (“CFO”) of FGG, accepted 
financial estimates for Radford that Scott knew or should have known materially overstated 
revenue. The result was that the project forecast was kept from a loss position and that overstated 
revenue was recorded on Fluor’s books and records. Further, in support of the foregoing, he helped 
generate, reviewed, and accepted documents required by Fluor’s internal accounting controls, but 
which reflected the incorrect revenue estimates and overstated revenue.  He also accepted 
inaccurate project forecasts that Scott knew or should have known failed to include all anticipated 
costs.  Scott thereby was a cause of Fluor’s failure to maintain a system of internal accounting 
controls sufficient to account for the Radford contract in accordance with U.S. Generally Accepted 
Accounting Principles (“GAAP”).  These failings resulted in Fluor maintaining inaccurate books 
and records and ultimately in Fluor including materially misstated financial statements in periodic 
reports filed with the SEC for the quarter ending March 31, 2018 through the quarter ending March 
31, 2019.  Scott was a cause of Fluor’s filing these materially inaccurate financial statements in its 
periodic reports. 
 
4. In August 2019, Fluor announced $714 million in pre-tax charges stemming from an 
“operational and strategic review” of sixteen projects, including Radford.  Prompted by the SEC 
staff’s investigation, Fluor undertook an internal investigation in 2020 that identified material 
weaknesses in its internal control over financial reporting and material errors in its financial 
statements, and resulted in Fluor restating its annual and quarterly financial statements for its fiscal 
year 2016 through the third quarter of 2019, as disclosed in its 2019 Form 10-K filed with the SEC 
on September 25, 2020 (the “Restatement”).  The material weaknesses identified in the Restatement 
were attributable in part to control failures associated with the Radford Project, which resulted in 
material errors.  Throughout the Relevant Period, Fluor’s accounting issues on Radford resulted in 
materially overstated net earnings in Fluor’s reported financial statements.  Regarding the Radford 
Project, Fluor overstated its annual net earnings by $43 million (25%) in 2018, and understated its 
net loss by $3 million (5%) in the first quarter of 2019.   
 

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5. As a result of conduct detailed herein, Scott was a cause of Fluor’s violations of 
Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 13a-1, 13a-13, and 
12b-20 thereunder. 
 
Respondent 
 
6. Bradley R. Scott, age 54, is a resident of Aldie, Virginia.  He became a Controller 
of a business unit of FGG and then the CFO of FGG in December 2017 and June 2018, 
respectively.  He continues to hold the latter position.  He has never been licensed as an accountant 
or registered with the Commission in any capacity.   
 
Relevant Entity 
 
7. Fluor Corporation is a Delaware corporation with its principal place of business in 
Irving, Texas.  Since registering its common stock with the SEC under Section 12(b) of the 
Exchange Act in 2000, Fluor has been required to file periodic reports on Forms 10-K and 10-Q 
with the SEC pursuant to Section 13(a) of the Exchange Act and related rules thereunder.  During 
the Relevant Period, the stock traded on the New York Stock Exchange under the ticker symbol 
“FLR.”  Fluor performs engineering, procurement, and construction services worldwide and 
operates through business segments, including FGG. 
 
Background 
 
8. Under GAAP, Fluor accounted for its fixed-price projects using the POC method, 
whereby it was required to periodically recognize the project’s costs as incurred and the revenue as 
a percentage of the work completed to date.  Under this method, for each reporting period, Fluor 
project personnel are required to develop dependable estimates of expected total revenues, total 
costs, and total project gross margin (“PGM”) to arrive at a project’s financial forecast (known as 
the Estimate at Completion or “EAC”).  A project must recognize the entire amount of an 
anticipated loss as soon as the loss becomes evident. 
 
9. To periodically record a project’s EAC, Fluor required use of the Project Margin 
Analysis Report (“PMAR”), which should document project management’s most likely current 
estimate of the project’s revenue, cost, and PGM forecast and use of a PMAR review checklist to 
“provide adequate assurances that project forecasts are best estimates in accordance with GAAP.”  
Fluor’s internal accounting controls required that project management approve the PMAR; that 
Scott, as the segment CFO, and other segment personnel sign the PMAR review checklist 
quarterly; and, that Scott, along with two other segment officers, provide sub-certifications to 
corporate-level management with each signer representing that “to the best of our knowledge and 
belief,” the project forecasts represent management’s best estimate, and are in  compliance with the 
applicable GAAP and Fluor’s policies.   
 
 
 
 

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Radford Project 
 
10. In December 2015, Fluor finalized a $245 million fixed price subcontract with its 
customer (“Customer”) for the Radford Project to validate and complete the design and to build the 
Radford Project.  As part of the scope of work, Fluor was provided an incomplete design from the 
prior, terminated contractor (“Prior Design”) that it was required to validate and complete when 
performing the subcontract.   
 
11. During the Relevant Period, the difference between the subcontract price and the 
anticipated total cost of the Radford Project grew significantly as delays and cost overruns 
worsened.  This growing anticipated costs over the subcontract price should have prompted Fluor 
to revise the EAC to reflect all the additional anticipated costs.  Scott recognized early in 2018 that 
the project controls group for the Radford project was experiencing challenges in generating an 
EAC that accurately reflected the status of the project and took preliminary steps to address those 
challenges.  That said, Scott knew or should have known that Fluor personnel generally added 
costs to the EAC only to the extent that the costs could be offset by corresponding additional 
forecasted revenues.  As a result, Fluor’s forecasted cost in the EAC remained incorrectly low and 
delayed a loss recognition.  
 
12. For costs included in the EAC over the original subcontract price, Fluor sought to 
recover most excess costs and offset them using additional forecasted revenues on change orders, 
also known as Project Change Notices (“PCNs”).  PCNs are proposed modifications of a contract 
that change the price or scope of work of the contract, or both, and that are subject to approval of 
the Customer.  For the majority of PCNs, Fluor never obtained Customer approval.  The 
additional forecasted revenues recorded on the unapproved PCNs were determined using overly 
high assumed rates of recovery, as described below.    
 
13. Throughout the Relevant Period, Fluor was required to record revenue for 
unapproved PCNs under POC accounting in compliance with ASC 606, Revenue from Contracts 
with Customers (“ASC 606”), which Fluor adopted in the first quarter of 2018.  Under ASC 606, 
Fluor could only include the unapproved PCNs in the revenue forecast if Fluor had an enforceable 
contractual right to additional revenue beyond the fixed contract price, considering all relevant 
facts and circumstances, including the terms of the contract.  During the Relevant Period, Fluor did 
not sufficiently evaluate under ASC 606 if it had an enforceable contractual right to the 
unapproved PCNs.  Without such an evaluation, it was improper to include revenue from the 
unapproved PCNs in its forecast.  Even if Fluor had sufficiently evaluated under ASC 606 whether 
it had an enforceable contractual right to the unapproved PCNs, it was only permitted to increase 
forecast revenue to the extent it was probable that a significant reversal in the amount of 
cumulative revenue recognized would not occur, weighing factors such as the limited predictive 
value from Fluor’s prior experience given the low recovery rates, the length of time it would take 
to resolve and susceptibility to the judgment of third-parties.   
 
14. Scott, with others’ input and involvement, approved of the inclusion of forecasted 
additional revenue from unapproved PCNs, including rejected and not yet submitted PCNs, using 
overly high rates of assumed cost recovery.  Although Scott initiated Fluor’s using recovery rates 

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less than 100%, there was insufficient evidence of it being probable under ASC 606 that a 
significant reversal of revenue would not occur for unapproved PCNs at those assumed recovery 
rates.  As a result, this revenue  offset additional forecasted costs and minimized the adverse 
impact on the PGM.  The amount of unapproved PCNs in the forecast increased during the 
Relevant Period, but Fluor’s actual rates of recovery from approved PCNs remained low, as 
reflected below: 
 
Radford Project 1Q 2018 2Q 2018 3Q 2018 4Q 2018 1Q 2019 
Unapproved PCNs in revenue forecast, 
net of profit fee  
$68M  $69M  $68M  $118M $132M  
Assumed recovery rate of net PCN 
revenue in revenue forecast  
100% 90% 80% 80% 78% 
Percent of total PCN revenue actually 
approved by Customer 
3.9% 3.4% 2.4% 3.9% 6.1% 
 
15. Scott and others prepared documentation, at the request of Fluor financial 
personnel, to support the Radford accounting for year-end 2018 and the first quarter of 2019.  This 
control activity’s objective was to document the facts and analysis supporting revenue estimates on 
projects with significant risks and judgments, in accordance with GAAP.  This documentation did 
not adequately support Fluor’s enforceable right to the revenue and failed to support that it was 
probable that a significant reversal in the amount of revenue recognized would not occur.  Fluor 
stated that it was entitled to payment because the Customer misrepresented the status of the Prior 
Design.  But it was not probable under GAAP that Fluor would recover money from the 
Customer to pay for the delays and design issues underlying the majority of PCNs.  Rather, 
throughout the Relevant Period, the Customer rejected most PCNs, blamed Fluor for the design 
problems, and maintained that Fluor was responsible for the additional costs under the terms of 
the existing fixed-price contract.   
 
16. For year-end 2018 and for the first quarter of 2019, with the involvement of 
others, Scott justified the assumed recovery rates based, in part, on the Customer’s approvals of a 
subset of monetarily small PCNs that were considered “less contentious” than the majority of 
outstanding PCNs.  These recovery rates were not probable, particularly because, in January 
2019 the Customer rejected $54 million of the large and contentious PCNs and, in doing so, 
refuted Fluor’s central arguments on entitlement to the revenue.  A Fluor employee informed 
Scott that these rejections signaled that the Customer was done negotiating the PCNs, that Fluor 
would not be able to recover 80% of the value of the PCNs as reflected in the revenue forecasts, 
and that the resolution of many of the PCNs would require mediation or litigation.  In support of 
the probability determination, Scott prepared documentation, with the input and involvement of 
others, for year-end 2018 and the first quarter of 2019 asserting that the rejections were the 
Customer’s initial negotiation position, but Scott did not obtain sufficient evidence to support 
recording the additional revenue during the Relevant Period.  As such, it was improper to include 
revenue from the unapproved PCNs in the forecast. 
 
17. For the quarter ending June 30, 2018 through the quarter ending March 31, 2019, 
Scott signed a PMAR review checklist for Radford stating erroneously that the project forecasted 

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revenue, costs, and PGM are best estimates in compliance with GAAP.  Scott also signed sub-
certifications to Fluor’s Chief Executive Officer and CFO, for the Relevant Period, erroneously 
representing “to the best of his knowledge and belief” that, among other things, the financial 
information was presented in conformity with GAAP, that change orders unapproved as to 
scope, price, or both, had been recorded in accordance with ASC 606, and that all project 
forecasts represented management’s best estimate of Fluor’s financial results.   
 
18. The conduct described above was a cause of inaccurate books and records in the 
Relevant Period.  As described above, Scott knew or should have known that anticipated costs 
were not included in the EAC, and that the assumed rate of recovery for the PCNs was too high.  
Scott was a cause of Fluor’s improper inclusion of the unapproved PCN revenue and the improper 
exclusion of anticipated costs, which delayed the recognition of a loss.  The errors described above 
were a cause of Fluor materially misstating its net earnings in periodic reports filed with the SEC 
as follows:  
 
Reporting Period Overstated Net Earnings 
 
As % of Reported Net 
Earnings (Loss) 
Q1 2018 $8.7 million (33%) 
Q2 2018 $7.5 million 10% 
Q3 2018 $8.8 million 12% 
Q4 2018 $17.8 million 37% 
2018 (annual) $42.8 million 25% 
Q1 2019 $3.3 million (5%) 
 
Violations 
 
19. As a result of the conduct described above, Scott was a cause of Fluor’s violations 
of Section 13(a) of the Exchange Act and Rules 13a-1, 13a-13, and 12b-20 thereunder.  Section 
13(a) of the Exchange Act requires issuers with a class of securities registered pursuant to Section 
12 of the Exchange Act to file such periodic and other reports as the Commission may prescribe 
and in conformity with such rules as the Commission may promulgate. Exchange Act Rules 13a-1 
and 13a-13 require the filing of annual and quarterly reports, respectively. The obligation to file 
such reports embodies the requirement that they be true and correct. See, e.g., SEC v. Savoy Indus., 
Inc., 587 F.2d 1149, 1165 (D.C. Cir. 1978), cert. denied, 440 U.S. 913 (1979). In addition to the 
information expressly required to be included in such reports, Rule 12b-20 of the Exchange Act 
requires issuers to add such further material information, if any, as may be necessary to make the 
required statements, in the light of the circumstances under which they are made not misleading.  
 
20. As a result of the conduct described above, Scott was a cause of Fluor’s violations 
of Section 13(b)(2)( A) of the Exchange Act, which requires an issuer of a security registered 
pursuant to Section 12 of the Exchange Act to make and keep books, records, and accounts which, 
in reasonable detail, accurately and fairly reflect the issuer’s transactions and disposition of assets.   
 
21. As a result of the conduct described above, Scott was a cause of Fluor’s violations 
of Section 13(b)(2)(B) of the Exchange Act, which requires an issuer of a security registered 

 7 
pursuant to Section 12 of the Exchange Act to devise and maintain a system of internal accounting 
controls sufficient to provide reasonable assurances that: transactions are executed in accordance 
with management’s general and specific authorization; transactions are recorded as necessary to 
permit preparation of financial statements in conformity with GAAP or any other criteria 
applicable to such statements, and to maintain accountability for assets; access to assets is 
permitted only in accordance with management’s general or specific authorization; and the 
recorded accountability for assets is compared with the existing assets at reasonable intervals and 
appropriate action is taken with respect to any differences.   
 
IV. 
 
 In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
agreed to in Respondent’s Offer. 
 
 Accordingly, it is hereby ORDERED that: 
 
 A. Pursuant to Section 21C of the Exchange Act, Respondent cease and desist from 
committing or causing any violations and any future violations of Sections 13(a), 13(b)(2)(A), and 
13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder.   
 
B. Respondent shall, within 10 business days of the entry of this Order, pay a civil 
money penalty in the amount of $25,000 to the Securities and Exchange Commission.  If timely 
payment is not made, additional interest shall accrue pursuant to 31 U.S.C. §3717.   
 
Payment must be made in one of the following ways:   
 
(1) Respondent may transmit payment electronically to the Commission, which 
will provide detailed ACH transfer/Fedwire instructions upon request;  
 
(2) Respondent may make direct payment from a bank account via Pay.gov 
through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
 
(3) Respondent may pay by certified check, bank cashier’s check, or United 
States postal money order, made payable to the Securities and Exchange 
Commission and hand-delivered or mailed to:  
 
Enterprise Services Center 
Accounts Receivable Branch 
HQ Bldg., Room 181, AMZ-341 
6500 South MacArthur Boulevard 
Oklahoma City, OK 73169 
 
Payments by check or money order must be accompanied by a cover letter identifying 
Bradley R. Scott as a Respondent in these proceedings, and the file number of these proceedings; a 

 8 
copy of the cover letter and check or money order must be sent to Carolyn M. Welshhans, Division 
of Enforcement, Securities and Exchange Commission, 100 F St., NE, Washington, DC 20549   
 
 C.  Pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, a Fair Fund is 
created for the penalties referenced in paragraph B above.  This Fair Fund may be combined with 
the Fair Fund created in In the Matter of Fluor Corporation, AP File No. 3-21610. Amounts 
ordered to be paid as civil money penalties pursuant to this Order shall be treated as penalties paid 
to the government for all purposes, including all tax purposes.  To preserve the deterrent effect of 
the civil penalty, Respondent agrees that in any Related Investor Action, he shall not argue that he 
is entitled to, nor shall he benefit by, offset or reduction of any award of compensatory damages by 
the amount of any part of Respondent’s payment of a civil penalty in this action (“Penalty Offset”).  
If the court in any Related Investor Action grants such a Penalty Offset, Respondent agrees that he 
shall, within 30 days after entry of a final order granting the Penalty Offset, notify the 
Commission's counsel in this action and pay the amount of the Penalty Offset to the Securities and 
Exchange Commission.  Such a payment shall not be deemed an additional civil penalty and shall 
not be deemed to change the amount of the civil penalty imposed in this proceeding.  For purposes 
of this paragraph, a “Related Investor Action” means a private damages action brought against 
Respondent by or on behalf of one or more investors based on substantially the same facts as 
alleged in the Order instituted by the Commission in this proceeding. 
 
V. 
It is further Ordered that, solely for purposes of exceptions to discharge set forth in Section 
523 of the Bankruptcy Code, 11 U.S.C. §523, the findings in this Order are true and admitted by 
Respondent, and further, any debt for disgorgement, prejudgment interest, civil penalty or other 
amounts due by Respondent under this Order or any other judgment, order, consent order, decree 
or settlement agreement entered in connection with this proceeding, is a debt for the violation by 
Respondent of the federal securities laws or any regulation or order issued under such laws, as set 
forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. §523(a)(19). 
 
 By the Commission. 
 
 
 
Vanessa A. Countryman 
Secretary 

UNITED STATES OF AMERICA 

 Before the 

 SECURITIES AND EXCHANGE COMMISSION 

 

SECURITIES EXCHANGE ACT OF 1934 

Release No. 98296 / September 6, 2023 

 

ADMINISTRATIVE PROCEEDING 

File No. 3-21615 

 

In the Matter of 

 

 BRADLEY R. SCOTT,  

 

Respondent. 

 

ORDER INSTITUTING CEASE-AND-

DESIST PROCEEDINGS, PURSUANT TO 

SECTION 21C OF THE SECURITIES 

EXCHANGE ACT OF 1934, MAKING 

FINDINGS, AND IMPOSING A CEASE-

AND-DESIST ORDER  

   

I. 

 

 The Securities and Exchange Commission (“Commission” or “SEC”) deems it appropriate 

that cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the 

Securities Exchange Act of 1934 (“Exchange Act”) against Bradley R. Scott (“Scott” or 

“Respondent”).   

 

II. 

 

 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 

of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 

purpose of these proceedings and any other proceedings brought by or on behalf of the 

Commission, or to which the Commission is a party, and without admitting or denying the findings 

herein, except as to the Commission’s jurisdiction over the Respondent and the subject matter of 

these proceedings, which are admitted, and except as provided herein in Section V, Respondent 

consents to the entry of this Order Instituting Cease-and-Desist Proceedings, Pursuant to Section 

21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist 

Order (“Order”), as set forth below. 

 

III. 

 

 On the basis of this Order and Respondent’s Offer, the Commission finds1 that  

 
1 The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding 

on any other person or entity in this or any other proceeding.  



 2 

Summary 

 

1. This matter stems from Scott’s involvement in Fluor Corporation’s (“Fluor”) 

percentage of completion (“POC”) accounting for a fixed-price construction project on which Fluor 

served as the subcontractor and carried a risk of cost overruns with respect to the work within the 

contract’s scope.  

  

2. The project required Fluor to validate and complete the design and to build a one-of-

a-kind U.S Army facility for manufacturing nitrocellulose, an ammunition propellant, (“Radford” or 

the “Radford Project”).  Fluor submitted a bid on the Radford Project, relying on overly optimistic 

cost and timing estimates.  Following the Radford Project’s subcontract award, Fluor experienced 

cost overruns that worsened over time. 

 

3. From the quarter ending March 31, 2018 through the quarter ending March 31, 2019 

(“Relevant Period”), Scott, first as a Controller of a business unit of the Fluor Government Group 

(“FGG”), a segment of Fluor, and then as the Chief Financial Officer (“CFO”) of FGG, accepted 

financial estimates for Radford that Scott knew or should have known materially overstated 

revenue. The result was that the project forecast was kept from a loss position and that overstated 

revenue was recorded on Fluor’s books and records. Further, in support of the foregoing, he helped 

generate, reviewed, and accepted documents required by Fluor’s internal accounting controls, but 

which reflected the incorrect revenue estimates and overstated revenue.  He also accepted 

inaccurate project forecasts that Scott knew or should have known failed to include all anticipated 

costs.  Scott thereby was a cause of Fluor’s failure to maintain a system of internal accounting 

controls sufficient to account for the Radford contract in accordance with U.S. Generally Accepted 

Accounting Principles (“GAAP”).  These failings resulted in Fluor maintaining inaccurate books 

and records and ultimately in Fluor including materially misstated financial statements in periodic 

reports filed with the SEC for the quarter ending March 31, 2018 through the quarter ending March 

31, 2019.  Scott was a cause of Fluor’s filing these materially inaccurate financial statements in its 

periodic reports. 

 

4. In August 2019, Fluor announced $714 million in pre-tax charges stemming from an 

“operational and strategic review” of sixteen projects, including Radford.  Prompted by the SEC 

staff’s investigation, Fluor undertook an internal investigation in 2020 that identified material 

weaknesses in its internal control over financial reporting and material errors in its financial 

statements, and resulted in Fluor restating its annual and quarterly financial statements for its fiscal 

year 2016 through the third quarter of 2019, as disclosed in its 2019 Form 10-K filed with the SEC 

on September 25, 2020 (the “Restatement”).  The material weaknesses identified in the Restatement 

were attributable in part to control failures associated with the Radford Project, which resulted in 

material errors.  Throughout the Relevant Period, Fluor’s accounting issues on Radford resulted in 

materially overstated net earnings in Fluor’s reported financial statements.  Regarding the Radford 

Project, Fluor overstated its annual net earnings by $43 million (25%) in 2018, and understated its 

net loss by $3 million (5%) in the first quarter of 2019.   

 



 3 

5. As a result of conduct detailed herein, Scott was a cause of Fluor’s violations of 

Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 13a-1, 13a-13, and 

12b-20 thereunder. 

 

Respondent 

 

6. Bradley R. Scott, age 54, is a resident of Aldie, Virginia.  He became a Controller 

of a business unit of FGG and then the CFO of FGG in December 2017 and June 2018, 

respectively.  He continues to hold the latter position.  He has never been licensed as an accountant 

or registered with the Commission in any capacity.   

 

Relevant Entity 

 

7. Fluor Corporation is a Delaware corporation with its principal place of business in 

Irving, Texas.  Since registering its common stock with the SEC under Section 12(b) of the 

Exchange Act in 2000, Fluor has been required to file periodic reports on Forms 10-K and 10-Q 

with the SEC pursuant to Section 13(a) of the Exchange Act and related rules thereunder.  During 

the Relevant Period, the stock traded on the New York Stock Exchange under the ticker symbol 

“FLR.”  Fluor performs engineering, procurement, and construction services worldwide and 

operates through business segments, including FGG. 

 

Background 

 

8. Under GAAP, Fluor accounted for its fixed-price projects using the POC method, 

whereby it was required to periodically recognize the project’s costs as incurred and the revenue as 

a percentage of the work completed to date.  Under this method, for each reporting period, Fluor 

project personnel are required to develop dependable estimates of expected total revenues, total 

costs, and total project gross margin (“PGM”) to arrive at a project’s financial forecast (known as 

the Estimate at Completion or “EAC”).  A project must recognize the entire amount of an 

anticipated loss as soon as the loss becomes evident. 

 

9. To periodically record a project’s EAC, Fluor required use of the Project Margin 

Analysis Report (“PMAR”), which should document project management’s most likely current 

estimate of the project’s revenue, cost, and PGM forecast and use of a PMAR review checklist to 

“provide adequate assurances that project forecasts are best estimates in accordance with GAAP.”  

Fluor’s internal accounting controls required that project management approve the PMAR; that 

Scott, as the segment CFO, and other segment personnel sign the PMAR review checklist 

quarterly; and, that Scott, along with two other segment officers, provide sub-certifications to 

corporate-level management with each signer representing that “to the best of our knowledge and 

belief,” the project forecasts represent management’s best estimate, and are in  compliance with the 

applicable GAAP and Fluor’s policies.   

 

 

 

 



 4 

Radford Project 

 

10. In December 2015, Fluor finalized a $245 million fixed price subcontract with its 

customer (“Customer”) for the Radford Project to validate and complete the design and to build the 

Radford Project.  As part of the scope of work, Fluor was provided an incomplete design from the 

prior, terminated contractor (“Prior Design”) that it was required to validate and complete when 

performing the subcontract.   

 

11. During the Relevant Period, the difference between the subcontract price and the 

anticipated total cost of the Radford Project grew significantly as delays and cost overruns 

worsened.  This growing anticipated costs over the subcontract price should have prompted Fluor 

to revise the EAC to reflect all the additional anticipated costs.  Scott recognized early in 2018 that 

the project controls group for the Radford project was experiencing challenges in generating an 

EAC that accurately reflected the status of the project and took preliminary steps to address those 

challenges.  That said, Scott knew or should have known that Fluor personnel generally added 

costs to the EAC only to the extent that the costs could be offset by corresponding additional 

forecasted revenues.  As a result, Fluor’s forecasted cost in the EAC remained incorrectly low and 

delayed a loss recognition.  

 

12. For costs included in the EAC over the original subcontract price, Fluor sought to 

recover most excess costs and offset them using additional forecasted revenues on change orders, 

also known as Project Change Notices (“PCNs”).  PCNs are proposed modifications of a contract 

that change the price or scope of work of the contract, or both, and that are subject to approval of 

the Customer.  For the majority of PCNs, Fluor never obtained Customer approval.  The 

additional forecasted revenues recorded on the unapproved PCNs were determined using overly 

high assumed rates of recovery, as described below.    

 

13. Throughout the Relevant Period, Fluor was required to record revenue for 

unapproved PCNs under POC accounting in compliance with ASC 606, Revenue from Contracts 

with Customers (“ASC 606”), which Fluor adopted in the first quarter of 2018.  Under ASC 606, 

Fluor could only include the unapproved PCNs in the revenue forecast if Fluor had an enforceable 

contractual right to additional revenue beyond the fixed contract price, considering all relevant 

facts and circumstances, including the terms of the contract.  During the Relevant Period, Fluor did 

not sufficiently evaluate under ASC 606 if it had an enforceable contractual right to the 

unapproved PCNs.  Without such an evaluation, it was improper to include revenue from the 

unapproved PCNs in its forecast.  Even if Fluor had sufficiently evaluated under ASC 606 whether 

it had an enforceable contractual right to the unapproved PCNs, it was only permitted to increase 

forecast revenue to the extent it was probable that a significant reversal in the amount of 

cumulative revenue recognized would not occur, weighing factors such as the limited predictive 

value from Fluor’s prior experience given the low recovery rates, the length of time it would take 

to resolve and susceptibility to the judgment of third-parties.   

 

14. Scott, with others’ input and involvement, approved of the inclusion of forecasted 

additional revenue from unapproved PCNs, including rejected and not yet submitted PCNs, using 

overly high rates of assumed cost recovery.  Although Scott initiated Fluor’s using recovery rates 



 5 

less than 100%, there was insufficient evidence of it being probable under ASC 606 that a 

significant reversal of revenue would not occur for unapproved PCNs at those assumed recovery 

rates.  As a result, this revenue  offset additional forecasted costs and minimized the adverse 

impact on the PGM.  The amount of unapproved PCNs in the forecast increased during the 

Relevant Period, but Fluor’s actual rates of recovery from approved PCNs remained low, as 

reflected below: 

 
Radford Project 1Q 2018 2Q 2018 3Q 2018 4Q 2018 1Q 2019 

Unapproved PCNs in revenue forecast, 

net of profit fee  
$68M  $69M  $68M  $118M $132M  

Assumed recovery rate of net PCN 

revenue in revenue forecast  
100% 90% 80% 80% 78% 

Percent of total PCN revenue actually 

approved by Customer 
3.9% 3.4% 2.4% 3.9% 6.1% 

 

15. Scott and others prepared documentation, at the request of Fluor financial 

personnel, to support the Radford accounting for year-end 2018 and the first quarter of 2019.  This 

control activity’s objective was to document the facts and analysis supporting revenue estimates on 

projects with significant risks and judgments, in accordance with GAAP.  This documentation did 

not adequately support Fluor’s enforceable right to the revenue and failed to support that it was 

probable that a significant reversal in the amount of revenue recognized would not occur.  Fluor 

stated that it was entitled to payment because the Customer misrepresented the status of the Prior 

Design.  But it was not probable under GAAP that Fluor would recover money from the 

Customer to pay for the delays and design issues underlying the majority of PCNs.  Rather, 

throughout the Relevant Period, the Customer rejected most PCNs, blamed Fluor for the design 

problems, and maintained that Fluor was responsible for the additional costs under the terms of 

the existing fixed-price contract.   

 

16. For year-end 2018 and for the first quarter of 2019, with the involvement of 

others, Scott justified the assumed recovery rates based, in part, on the Customer’s approvals of a 

subset of monetarily small PCNs that were considered “less contentious” than the majority of 

outstanding PCNs.  These recovery rates were not probable, particularly because, in January 

2019 the Customer rejected $54 million of the large and contentious PCNs and, in doing so, 

refuted Fluor’s central arguments on entitlement to the revenue.  A Fluor employee informed 

Scott that these rejections signaled that the Customer was done negotiating the PCNs, that Fluor 

would not be able to recover 80% of the value of the PCNs as reflected in the revenue forecasts, 

and that the resolution of many of the PCNs would require mediation or litigation.  In support of 

the probability determination, Scott prepared documentation, with the input and involvement of 

others, for year-end 2018 and the first quarter of 2019 asserting that the rejections were the 

Customer’s initial negotiation position, but Scott did not obtain sufficient evidence to support 

recording the additional revenue during the Relevant Period.  As such, it was improper to include 

revenue from the unapproved PCNs in the forecast. 

 

17. For the quarter ending June 30, 2018 through the quarter ending March 31, 2019, 

Scott signed a PMAR review checklist for Radford stating erroneously that the project forecasted 



 6 

revenue, costs, and PGM are best estimates in compliance with GAAP.  Scott also signed sub-

certifications to Fluor’s Chief Executive Officer and CFO, for the Relevant Period, erroneously 

representing “to the best of his knowledge and belief” that, among other things, the financial 

information was presented in conformity with GAAP, that change orders unapproved as to 

scope, price, or both, had been recorded in accordance with ASC 606, and that all project 

forecasts represented management’s best estimate of Fluor’s financial results.   

 

18. The conduct described above was a cause of inaccurate books and records in the 

Relevant Period.  As described above, Scott knew or should have known that anticipated costs 

were not included in the EAC, and that the assumed rate of recovery for the PCNs was too high.  

Scott was a cause of Fluor’s improper inclusion of the unapproved PCN revenue and the improper 

exclusion of anticipated costs, which delayed the recognition of a loss.  The errors described above 

were a cause of Fluor materially misstating its net earnings in periodic reports filed with the SEC 

as follows:  

 

Reporting Period Overstated Net Earnings 

 

As % of Reported Net 

Earnings (Loss) 

Q1 2018 $8.7 million (33%) 

Q2 2018 $7.5 million 10% 

Q3 2018 $8.8 million 12% 

Q4 2018 $17.8 million 37% 

2018 (annual) $42.8 million 25% 

Q1 2019 $3.3 million (5%) 

 

Violations 

 

19. As a result of the conduct described above, Scott was a cause of Fluor’s violations 

of Section 13(a) of the Exchange Act and Rules 13a-1, 13a-13, and 12b-20 thereunder.  Section 

13(a) of the Exchange Act requires issuers with a class of securities registered pursuant to Section 

12 of the Exchange Act to file such periodic and other reports as the Commission may prescribe 

and in conformity with such rules as the Commission may promulgate. Exchange Act Rules 13a-1 

and 13a-13 require the filing of annual and quarterly reports, respectively. The obligation to file 

such reports embodies the requirement that they be true and correct. See, e.g., SEC v. Savoy Indus., 

Inc., 587 F.2d 1149, 1165 (D.C. Cir. 1978), cert. denied, 440 U.S. 913 (1979). In addition to the 

information expressly required to be included in such reports, Rule 12b-20 of the Exchange Act 

requires issuers to add such further material information, if any, as may be necessary to make the 

required statements, in the light of the circumstances under which they are made not misleading.  

 

20. As a result of the conduct described above, Scott was a cause of Fluor’s violations 

of Section 13(b)(2)( A) of the Exchange Act, which requires an issuer of a security registered 

pursuant to Section 12 of the Exchange Act to make and keep books, records, and accounts which, 

in reasonable detail, accurately and fairly reflect the issuer’s transactions and disposition of assets.   

 

21. As a result of the conduct described above, Scott was a cause of Fluor’s violations 

of Section 13(b)(2)(B) of the Exchange Act, which requires an issuer of a security registered 



 7 

pursuant to Section 12 of the Exchange Act to devise and maintain a system of internal accounting 

controls sufficient to provide reasonable assurances that: transactions are executed in accordance 

with management’s general and specific authorization; transactions are recorded as necessary to 

permit preparation of financial statements in conformity with GAAP or any other criteria 

applicable to such statements, and to maintain accountability for assets; access to assets is 

permitted only in accordance with management’s general or specific authorization; and the 

recorded accountability for assets is compared with the existing assets at reasonable intervals and 

appropriate action is taken with respect to any differences.   

 

IV. 

 

 In view of the foregoing, the Commission deems it appropriate to impose the sanctions 

agreed to in Respondent’s Offer. 

 

 Accordingly, it is hereby ORDERED that: 

 

 A. Pursuant to Section 21C of the Exchange Act, Respondent cease and desist from 

committing or causing any violations and any future violations of Sections 13(a), 13(b)(2)(A), and 

13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder.   

 

B. Respondent shall, within 10 business days of the entry of this Order, pay a civil 

money penalty in the amount of $25,000 to the Securities and Exchange Commission.  If timely 

payment is not made, additional interest shall accrue pursuant to 31 U.S.C. §3717.   

 

Payment must be made in one of the following ways:   

 

(1) Respondent may transmit payment electronically to the Commission, which 

will provide detailed ACH transfer/Fedwire instructions upon request;  

 

(2) Respondent may make direct payment from a bank account via Pay.gov 

through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  

 

(3) Respondent may pay by certified check, bank cashier’s check, or United 

States postal money order, made payable to the Securities and Exchange 

Commission and hand-delivered or mailed to:  

 

Enterprise Services Center 

Accounts Receivable Branch 

HQ Bldg., Room 181, AMZ-341 

6500 South MacArthur Boulevard 

Oklahoma City, OK 73169 

 

Payments by check or money order must be accompanied by a cover letter identifying 

Bradley R. Scott as a Respondent in these proceedings, and the file number of these proceedings; a 

http://www.sec.gov/about/offices/ofm.htm


 8 

copy of the cover letter and check or money order must be sent to Carolyn M. Welshhans, Division 

of Enforcement, Securities and Exchange Commission, 100 F St., NE, Washington, DC 20549   

 

 C.  Pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, a Fair Fund is 

created for the penalties referenced in paragraph B above.  This Fair Fund may be combined with 

the Fair Fund created in In the Matter of Fluor Corporation, AP File No. 3-21610. Amounts 

ordered to be paid as civil money penalties pursuant to this Order shall be treated as penalties paid 

to the government for all purposes, including all tax purposes.  To preserve the deterrent effect of 

the civil penalty, Respondent agrees that in any Related Investor Action, he shall not argue that he 

is entitled to, nor shall he benefit by, offset or reduction of any award of compensatory damages by 

the amount of any part of Respondent’s payment of a civil penalty in this action (“Penalty Offset”).  

If the court in any Related Investor Action grants such a Penalty Offset, Respondent agrees that he 

shall, within 30 days after entry of a final order granting the Penalty Offset, notify the 

Commission's counsel in this action and pay the amount of the Penalty Offset to the Securities and 

Exchange Commission.  Such a payment shall not be deemed an additional civil penalty and shall 

not be deemed to change the amount of the civil penalty imposed in this proceeding.  For purposes 

of this paragraph, a “Related Investor Action” means a private damages action brought against 

Respondent by or on behalf of one or more investors based on substantially the same facts as 

alleged in the Order instituted by the Commission in this proceeding. 

 

V. 

It is further Ordered that, solely for purposes of exceptions to discharge set forth in Section 

523 of the Bankruptcy Code, 11 U.S.C. §523, the findings in this Order are true and admitted by 

Respondent, and further, any debt for disgorgement, prejudgment interest, civil penalty or other 

amounts due by Respondent under this Order or any other judgment, order, consent order, decree 

or settlement agreement entered in connection with this proceeding, is a debt for the violation by 

Respondent of the federal securities laws or any regulation or order issued under such laws, as set 

forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. §523(a)(19). 

 

 By the Commission. 

 

 

 

Vanessa A. Countryman 

Secretary