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BP Business Economic Loss Claim Appeal 2016-1240: “Commencing Operations” Not Same as “Producing Revenue” Under Policy 343

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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.

BP appeals a BEL award in the pre-RTP amount of $106,329.57 to a Zone D utility contractor on a single basis, claiming error by the Program vendors in application of the Step 2 Growth Factor for Claimant.

Under Exhibit 4C of the Settlement Agreement and as interpreted by Policy 343, a Claimant’s Step 2 Growth Factor is composed of a standard 2% General Adjustment Factor (“GAF”) plus a Claimant-Specific Growth Factor “CSGF”). Policy 343 requires that in computing the latter Factor a Claimant must not have “commenced operations” during January through April of the given Benchmark Period.
Here, posits BP, Claimant’s allotted Benchmark included 2007, and records in the portal  indicate that it had in fact not commenced operations as of January of 2007. In
support, BP points to a reference in correspondence from Claimant’s CPA to the effect that Claimant “was not in business” in January of 2007. It also refers to Claimant’s Articles of Incorporation, which are dated February 5, 2007. BP argues that this evidence was apparently “overlooked” by the Program vendors, and that had a CSGF not been erroneously added to the 2% GAF, the pre-RTP award would be reduced to $83,174.57. The latter amount constitutes its Final Proposal, together with an alternative request for a remand for recalculation of the award after deleting the CSGF.
In one of the best written and comprehensive briefs this panelist has encountered, Claimant argues forcefully for affirmance of the Program award. First, after standard arguments concerning the “claimant-friendly” nature of the Agreement, Claimant asserts that there is a fundamental difference between not producing revenue in a given month and not commencing operations during that month. Claimant points to substantial expenditures documented as being incurred by Claimant in January of 2007($10,966.59) reflecting its substantial efforts and commitment to start producing business revenue as soon as possible thereafter. These expenditures included  legal consultation concerning the type of business entity it would become; arrangements and commitments concerning necessary business vehicles and equipment;
inquiries and commitments for liability and other insurance coverage; and efforts to locate and situate both a business shop and a warehouse. Claimant further responds that the isolated references elide upon by BP that it”was not in business” by its CPA has little relevance to construction of what constitutes “commencing operations” under this Agreement. Similarly, it asserts that its February, 2007 incorporation date is irrelevant to the central inquiry of this appeal, eg, when it “commenced operations.”
A de novo review of this record confirms that far from “overlooking” any matter relevant to this appeal, the Program accountants engaged in a thorough and comprehensive analysis of the nature and scope of Claimant’s operations. In sum, based upon review of this record, this panelist cannot undermine the professional judgment of the Program accountants in granting a Step 2 CSGF to Claimant. The totality of circumstances reviewed strongly indicate that this Claimant, by any
reasonable interpretation of that term, had “commenced operations” as of January 2007 as reflected in its actions and its financial commitments that resulted soon thereafter in production of revenue. Claimant’s proposal is therefore chosen, and the alternative proposals of BP (including a remand not justified in this record)
is rejected.

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