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BP Business Economic Loss Claim Appeal 2016-1330:AVM More Appropriate than Professional Services Methodology for Consulting Engineer Firm Despite NAICS Code

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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.

The Claims Administrator awarded $179,711.16, pre-RTP on the BEL claim of this consulting engineering firm in Birmingham, Alabama (Zone D). The program accountant used the AVM methodology to restate the financials after Policy 495 criteria were triggered. BP appeals,arguing that the Settlement Program erred in failing to apply the Professional Services Methodology.
Claimant’s business consists primarily of inspections of buildings and structural analysis for insurance companies and attorneys. Claimant does not appear to engage in traditional civil engineering or construction related engineering services. The program accountant examined the timing of Claimant’s revenue recognition and the length of its projects. The accountant concluded that the majority of Claimant’s work consisted of short term engagements that are typically completed within two weeks. Invoices are issued after the projects are complete. He further concluded that Claimant’s revenue is recognized when payment is received which is typically immediately after project completion. Hence, the accountant concluded that Claimant’s work is generally recorded and rendered on a consistent monthly basis due to relatively short revenue cycles. On this basis, he concluded that the AVM was the appropriate methodology to restate the financials. BP argues that the accountant’s conclusions were erroneous and unsupported by the record.
BP points to several jobs in which Claimant was required to await payment for longer than two weeks with several of these extending several months. BP supports is argument by pointing out that Claimant is an engineering firm with an NAICS code that presumptively requires application of the PSM. BP seeks remand or alternatively submits a Final Proposal of $100,000.
De novo review of the record does not support the arguments advanced by BP. Although the Claims Administrator assigned NAICS Code 541330 – Engineering Services, a designation that is included in the Professional Services Methodology, this fact is not determinative. Policy 495 clearly speaks to this situation, explaining that a “claimant with a given NAICS code will not automatically be assigned to a given methodology by virtue of the NAICS code if, in the judgment of the Claims
Administrator’s office, there are factors that indicate that revenues and expenses will be more sufficiently matched by applying an alternate methodology.” This claim clearly falls within this exception. Among other things, the PSM is intended to facilitate matching where projects or cases require long periods of work before payment is received. An example would be a law firm that handles cases on a contingency fee basis. In such a case, the PSM would be used to reallocate the revenue over the months in which the work was performed and match them with variable expenses over the same period.
Here, the key factor is not the length of time it takes for Claimant to receive payment. Instead, Policy 495 requires the accounting vendor to determine whether a claimant’s revenue or expenses are the more accurate reflection of when services were performed. Here, the nature of Claimant’s consulting work and the palpable absence of lengthy projects are contrary to the purpose of the Professional Services Methodology. The program accountant is accorded deference to exercise professional judgment and no abuse of that judgment has been shown. Accordingly, BP’sappeal is denied

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