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BP Business Economic Loss Claim Appeal 2016-3: Construction methodology addresses revenue recording deficiencies


The following is an Appeal Panel Decision issued pursuant to Section 6 of the BP Deepwater Horizon Economic & Property Damages Settlement Agreement and the Rules Governing the BP Appeals Process. Links may have been added to assist the reader. The original decision may be found here, as well as a glossary of BP Settlement terms.

BP appeals this award to a home construction company, raising 2 points of error. First, appellant suggests the Settlement Program improperly utilized the AVM methodology instead of the Construction methodology despite the fact that the NAICS code applicable to Residential Building Construction is included in the list of codes in Policy 495 which are to be covered by the Construction methodology. Additionally, BP contends the Claims Administrator improperly allocated $32,204 of December 2009 COGS to April 2010, thus raising the variable profit for 2009 and depressing it for 2010.

The Construction methodology is premised on the assumption that variable expenses are more accurately recorded on monthly P and Ls than are revenues. Claimant suggests that application of the AVM was appropriate since claimant typically bills on a monthly basis and the decision as to which methodology should be used is within the Settlement Program’s discretion. BP, on the other hand, quotes claimant who acknowledges that “jobs typically take 6 months to a year to complete.” Further, BP pointed out that claimant’s revenues are inconsistent, spiking in some months and dropping to zero in other months, consistent with a construction company that gets paid relative to the completion status of certain projects.

Under these circumstances, there is a finding herein that it was inappropriate not to apply the Construction methodology. Residential Building Construction is specifically listed in Policy 495 as covered by the Construction methodology. While it is true that the Settlement Program should be afforded wide latitude in selecting the most appropriate methodology, this case does not seem to merit deviation from the prescribed guidelines. The revenue pattern indicated on the financials does not show a steady stream of monthly revenue. Moreover, claimant acknowledges the long term nature of most of its projects. There is nothing in the record to necessitate this residential construction company falling outside of the scope of the construction methodology.

Likewise, the reallocation of 2009 COGS to 2010 seems to be without basis. As appellant pointed out, claimant’s total revenues in 2010 were only $33,166 which would not seem to correlate with an additional $32,204 of COGS being moved to that year. As with the methodology issue, there is scant justification for the Settlement Program’s decision with respect to the reallocation of the COGS. It is not enough, as claimant contends, to simply allow for “the exercise of professional judgment ” by the Settlement Program. It should be noted that COGS can be considered a variable or fixed expense pursuant to Exhibit 4D of the Settlement Agreement but this issue was not raised by the parties.

Due to the finding that there was not sufficient justification for the application of the AVM methodology or the reallocation of the 2009 COGS, there is a ruling herein that BP’s final number is closest to correct. Therefore, there is a decision in favor of BP’s final proposal.

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