Question-and-Answer Session
Operator
(Operator instructions). And we'll take our first question from Barry Bannister of Stifel Nicolaus.
Barry Bannister – Stifel Nicolaus
Hi, your LOGCAP III margins deviated from what has been the norm. And I know that LOGCAP IV, when it comes is going to have a different order base fee plus incentive fee structure. So, could you explain why the margin differentiation occurred on LOGCAP III as we start to close out that program?
Bill Utt
Yes, we've looked at the evaluations that we have received over in theater, which historically have been very good to excellent. And we have taken the accruals that we make on the award fee in LOGCAP III, down a bit from what we had seen historically. And so that's affected us in the first quarter and I believe it was also impacting us in the fourth quarter of last year. We also, within that business, we have certain costs that we look at from dining facilities and other matters that we've disclosed and we did make some additions to our accruals during the quarter which also had a negative impact on the margins for LOGCAP III. But I think fundamentally, it was within the range of tolerance that we've come to see on the LOGCAP III project.
On LOGCAP IV, we've commented that the accounting environment that exists for us is different for LOGCAP IV compared to LOGCAP III. And what I referred to there is that the award fees for LOGCAP IV projects will only be recognized upon the receipt of the award and we will not be able to accrue award fees as we have done on LOGCAP III, so that will be a difference. We continue, as we look at the work on LOGCAP IV to believe we'll be able to move margins up from the 1% base fee, 2% award fee that we have on the LOGCAP III project, perhaps more towards the other margins we're seeing on our government work out. So that's kind of the outlook we see for LOGCAP IV.
And I think as far as the awards go and the absence of awards that we've seen to-date on LOGCAP IV, we think there was some effort on the part of the customer to want to stand up the other competitors in theater, so that as we begin looking at the first of the real big awards which could be the Afghan award, they would have a basis with which to compete. And so we really see the Afghan awards as the first opportunity will have to really be in a competitive situation with the other two participants.
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