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Matrix Agrees to Excessive Scope Changes Without Extra Pay

Gross profit slashed by 80% after engineering firm fails to get paid for extra work requested by client.

February 9, 2024

It’s unclear to us whether Matrix Service Company (MTRX), an engineering and fabrication firm serving the energy infrastructure and industrial markets, was hoodwinked by a customer requesting excessive changes to a midstream gas project or if Matrix’s original cost recovery estimates were wildly optimistic.

In its latest quarterly report, Matrix acknowledged unfavorable changes in the estimated recovery of change orders and increased forecasted costs to complete and close out certain midstream gas processing construction work in the Process and Industrial Facilities segment for which revenue was booked in 2022.

The inability to get the customer to pay for the changes resulted in a reduction of gross profit of $9.6 million and $9.4 million during the three and six months ended December 31, 2022, respectively.

Matrix explained the loss like this:

“This was primarily the result of the client not approving adequate compensation to us for the impact that excessive scope changes had on our ability to progress the work according to forecast and for the impacts of global supply chain issues and inflation.”

The question that begs to be answered, in our view, is why Matrix agreed to the changes without also ensuring the client would pay for the changes.

The loss significantly reduces the results Matrix previously reported in the periods impacted:

—Gross loss increased to $10.9 million, or 838.4% in the quarter ended December 31, 2022
—Gross profit decreased to $2.3 million, or 80.3% in the six months ended December 31, 2022

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