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BP Business Economic Loss Claim Appeal 2015-1780: 50% Department of Defense exclusion applies to subcontractors


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.

Claimant, an electrical component manufacturer, received a pre-RTP award of $80,864.82. BP appeals, asserting that claimant receives over 50% of its annual revenue from contracts or sub-contracts with the Department of Defense and, therefore, should be excluded from the Settlement.

The Agreement at excludes Defense Contractors/Subcontractors, including firms which derive in excess of 50% of their annual revenue from contracts with the United States Department of Defense. Claimant contends it has no direct contracts with the Department of Defense but “may sell to some companies that do have such contracts”. However, since the Settlement Agreement references subcontractors as well as contractors, claimant can be subject to the exclusion if over 50% of its business derives from subcontracts imbedded in projects with the DOD. See also Exhibit 18 listing excluded entities, which references Defense Contractors and their Sub-Contractors and Suppliers.

Claimant never made any assertion that its revenues were not primarily from DOD subcontracts. Instead, Claimant only suggested that the NAICS code listed on its tax return indicates its business involves “Semiconductor and other Electronic Component Manufacturing”. However, this assertion does not address the relevant question in this case. The issue is whether claimant derives at least 50% of its revenues from contracts or subcontracts with the DOD, not the nature of its business activity. Moreover, in this case, there is sufficient indicia of an extensive relationship between claimant and the DOD, even if that relationship is indirect. Claimant’s website states that it services a diverse and prestigious customer base, including [XXXXX]. These entities are largely either Army bases or companies well known to be primarily defense contractors.

A review of the Program’s page on claimant’s website lists [XXXXX]. In fact, according to the publicly disseminated information which is in the file, the great majority of the programs that Claimant is “supporting” involve projects that seem to be Department of Defense enterprises. Additionally, there are other documents in the file which indicate a large portion of business involves work on DOD jobs. Claimant is listed as a member of the [XXXXX] in the group’s membership directory. In 2009, the US Small Business Association named Claimant the Subcontractor of the year, recognizing the company for its “excellence in its role as a vital subcontractor on federal contracts associated with the Department of Defense”.

In the face of this mound of evidence pointing to a predominance of DOD affiliated work, the claimant should be required to submit concrete evidence establishing that DOD contracts and/or subcontracts account for less than 50% of its business. In furtherance of the inquiry, this Panelist requested information from Claimant establishing what percentage of its revenue derived from contracts or subcontracts with the Department of Defense. Claimant only replied that it was not privileged to see their customers’ books. In view of the extensive indicia of DOD affiliated work for claimant, this non-statement is simply not adequate. Claimant, faced with the evidence on file in this case, should have unearthed information regarding the percentage of its work relating to DOD contracts. It strains credibility that a company is knowledgeable about the projects it “supports” but has no knowledge whether any of those projects involve the DOD. This is especially troublesome when most of the projects claimant references in its own materials seem, on their face, to involve weapons systems. Accordingly, in view of the substantial evidence of DOD work, there is a finding that claimant has not adequately refuted the indications that it should be considered a defense subcontractor. As a result, claim is excluded and the Settlement Program’s award is reversed.

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