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BP Business Economic Loss Claim Appeal 2016-1764: Related Party Transactions Permissible As Long As At “Arms-Length”

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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 is a steel fabricating company located in West Point, Mississippi in Zone D. The financials were reviewed by the Vendor Accountants and the determination was made that Claimant passed causation for all benchmark periods using the accrual basis of accounting. Therefore, no Policy 495 criteria were triggered. A substantial award was made and BP appeals, raising the singular issue of whether the Claimant engaged in related party business that was not “arms length” under Policy 328 v.2.
A Claimant may engage in related party transactions as long as they are arms-length, neither above nor below fair market in value. Claimant is a member of the XXX
 group of businesses. YYY, a sister company under the umbrella, is a large construction company doing business in numerous states. Claimant, on occasion, is asked for a price to produce fabricated steel for use in bids by YYY.
Although the companies are clearly related parties, Claimant was able to demonstrate that the transactions in question were, in fact, arms length. Claimant produced one example in which it gave YYY the exact same bid to a competitor of the sister construction company. Claimant suggests the records show it does only arms-length transactions with its related companies. It operates independently and is in a different line of business from any affiliate. Its management is separate from the other companies and the management compensation is based on profits so it cannot sell steel to an affiliate below cost and without profit because it financially hurts its employees. It cannot inflate prices because its related entities must bid for jobs and present the lowest and best bid.
The Vendor accountants carefully reviewed the Claimant’s financials. There is no evidence of non arms-length transactions, only speculation by BP. Remand is not proper. The award is affirmed.

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