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BP Business Economic Loss Claim Appeal 2016-1349:Not Error NOT to Reallocate Poultry Farm’s Bulk Revenues to Months In Which They Were “Earned”

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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 Settlement Program awarded Claimant, a poultry farm located in Forest, Mississippi, $42,126 pre-RTP. BP appeals alleging that in generating this award the Settlement Program erred in its treatment of Claimant’s monthly revenues. Specifically, the Settlement Program failed to reallocate bulk payments recorded in a single
month to the months in which those payments were earned. Thus, here again we have a “matching” or “smoothing” issue to resolve.
Claimant contracts with XXX to raise poultry. Claimant grows the chicks for approximately 60 to 90 days and then delivers the grown chickens to XXX. At some point after delivery, XXX pays Claimant a lump sum fee for the service, which Claimant then records on its P&Ls in a single month of the year. For example, in 2010, Claimant recorded poultry revenue in January, March, May, July, September, and November, but $0 in poultry revenue in the other six months of the year. However, Claimant incurs expenses continuously throughout this process. As such, according to BP, there is a clear mismatch between revenues and variable expenses, e.g. the revenue from a particular batch of chickens is recorded in a single month of the year, but the expenses associated with that batch of chickens are recorded over the entire course of the chicken growth cycle (i.e., 60 to 90 days).
Here, according to BP, the Settlement Program failed to address a mismatch between revenues and variable expenses before applying the AVM methodology. In particular, the Settlement Program should have requested documentation from Claimant showing the start and end of the growth cycle for each batch of chickens. BP asserts that the Settlement Program then should have used this information to allocate Claimant’s revenues evenly across the growth cycles in which they were earned in order to match those revenues to the corresponding variable expenses.
Here the accounting vendors reviewed the claim, made adjustments as needed and utilized the Annual Variable Margin methodology (AVM), which was the appropriate methodology to use under the circumstances of this claim. Policy 495 states in pertinent part that: “Consideration of whether revenues and expenses are sufficiently
matched necessarily involves an element of professional judgment. The CSSP recognizes and reserves the right of the CSSP Accounting Vendors to exercise such professional judgment to achieve sufficient matching as ordered by the Court.” It appears that the CSSP Accounting Vendors made appropriate inquires, gathered
additional information as needed, exercised their professional judgment, followed the dictates of Policy 495 and achieved an appropriate award by utilizing the AVM methodology. BP’s appeal is denied.

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