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BP Business Economic Loss Claim Appeal 2016-1225: Construction Methodology Over AVM to Resolve Matching Issues

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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.

This Claimant describes itself as a residential and light commercial construction company with offices located in Waggaman, Louisiana (Zone D). It appeals from a negative award it received in response to a Business Economic Loss claim filed on its behalf. Claimant argues the Claims Administrator erred in utilizing the Construction Methodology, as opposed to the Annual Variable Margin Methodology, in order to resolve matching issues raised by its financial data.  According to claimant, the claims analyst failed to recognize that 90% or more of its projects last less than 30 days and are invoiced with payment received within a short period thereafter. Because of the short billing cycle, it claims its revenues are accurately recorded on its monthly P&L statements. Instead of asking the “standard questions for a construction entity,” the analyst incorrectly assumed the construction methodology would be most appropriate for this claim.
According to BP, the record evidence fully supports the Claims Administrator’s determination. Following review of the relevant claim file documentation, this panelist concluded that input from the Claims Administrator would be helpful and requested a Summary of Review. In due course, the following response was received:
The Claims Administrator submits the following response to the Appeal Panelist’s request for further information on the claim referenced above. Specifically, the Appeal Panelist asked for an explanation of why the Program Accountants used the Construction Methodology. Based on correspondence with the claimant and the analysis of the Profit and Loss Statements, DWH Accountant determined the Construction Methodology was appropriate as variable expenses are accurately recorded on a monthly basis and thus more closely reflect when services are performed.
As documented in Calculation Note 15, DWH Accountant stated that “Given the nature of the business and monthly variable expense patterns, the claimant’s variable expenses appear to be representative of the monthly business activity.” Additionally, DWH Accountant noted negative revenue was recorded in December 2009, due to a year end adjusting entry to remove $23,300 in revenues earned from work performed throughout the year, which further indicated the Construction Methodology would sufficiently match the claim. Whereas an adjustment to this negative revenue would have been necessary if the AVM Methodology was applicable, no such adjustment was necessary as the claim was determined to be sufficiently matched using the Construction Methodology which allocated total annual revenues based on monthly variable expenses .
As documented in Calculation Note 8, the claimant stated its projects last from one week to six months, with the smaller jobs billed upon completion while larger jobs are billed as the work is completed and paid in draws. As documented in Calculation Note 9, the claimant stated materials are purchased for each job, and the Claimant does not hold any inventory as materials are used shortly after purchasing.
De novo review of the record leads this panelist to the same conclusion. The Construction Methodology was appropriately utilized to resolve the matching issue raised by this claim.There is no error. This Claimant appeal cannot be sustained. BP’s Final Proposal is therefore selected.

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