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BP Business Economic Loss Claim Appeal 2016-1710: SP Accountant Program Correctly Classified Maintenance Expenses as Fixed, Not Variable

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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.

Claimant filed this Business Economic Loss claim under the Settlement Agreement. The Settlement Program determined a Compensation Amount of $337,645.47, pre-RTP was owed. BP appeals.
The appeal presents a single issue: Did the Settlement Program accountants correctly classify inventory maintenance expenses as fixed rather than variable as BP argues. If the expenses are fixed, the Claimant’s Final Proposal, which adopted the Settlement Program’s final determination, prevails. If the expenses are variable in nature, then either BP’s Final Proposal prevails or a remand is necessary.
BP argues that Claimant’s “Vehicle Inventory Maintenance does not refer to the fixed cost of maintaining its physical premises and equipment, but rather refers to the cost of preserving the value of its inventory.” See BP’s Initial Proposal at 1. BP then cites several Appeal Panel decisions holding that if the expense is incurred to
preserve inventory, then the expense is variable. If the prior decisions are directly on point, they control the outcome here unless clearly in error.
Claimant vigorously contests the point, arguing that the expenses in question are fixed expenses because they are associated with the detailing shop, include supplies, and involve the depreciation of Claimant’s vehicle hauler. Attached to Final Proposal is an affidavit from its independent CPA which stated that BP’s assertion “that the accounts contain variable expenses is incorrect.” Further, after opining that the accounts include fixed expenses, stated, “these are maintenance costs that do not correlate with sales or amount of inventory.”
The affidavit is important in several respects. The expenses did not fluctuate with sales or the amount of inventory. This is an essential characteristic of a fixed expense. In addition, the affidavit conclusively establishes that the expenses are not for preserving the inventory. This evidence distinguishes this claim from the claim in which several Appeals Panelists have found expenses to be inventory maintenance in nature and thus variable. The Settlement Program’s determination is upheld. Since
Final Proposal adopts the Settlement Program’s determination, it prevails.

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