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BP Business Economic Loss Claim Appeal 2016-1782:AVM More Appropriate Than Construction Methodology for Fence Company; NAICS Code Note Determinative

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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, a Pensacola, Florida fence company, appeals the denial of its BEL claim. Its financial statements triggered matching criteria under Policy 495 and the claim proceeded under the Construction Methodology.
Herein lies the problem. While the claimant does not dispute that its statements were not sufficiently matched, it argues that the Program erred by using the Construction Methodology when the AVM Methodology is more reflective of the true nature of Claimant’s business.
At first glance, this appears to be an easy issue to resolve. The Program used the same NAICS code used by the claimant on its tax returns – 238990 – All Other Specialty Trade Contractors. This code describes specialized trades in the construction industry other than building and finishing contractors. The code is listed in Policy 495 as one to which the Construction Methodology applies. Further, the calculation notes state that the claimant’s variable expenses were “deemed” to more accurately reflect monthly business activity and that “materials are purchased and used in the months they are recorded.” It is further noted that “Claimant keeps an immaterial
amount of inventory.”
Claimant asserts that the rationale for using the Construction Methodology assumes that the variable expenses of a construction business are more accurately recorded in its financial statements than its revenue and makes a persuasive argument why, in this case, the opposite is true. Claimant installs fences, sells fence products,
repairs fences and operating gates, and does general service/maintenance on fences. Its jobs range in time from three days to three weeks and are invoiced at the end. Fence product sales are same day transactions and most of its service and repair jobs are completed in a day. Thus, unlike most contractors, Claimant does not utilize a percentage of completion to calculate monthly revenue or expenses because its revenue is recorded when the invoice is prepared.
The Program placed great weight upon the claimant’s NAICS code in selecting the appropriate methodology. As has been well established, the NAICS code is not determinative. Indeed, Policy 495 recognizes that the NAICS codes listed would not be determinative if there are factors that indicate that revenues and expenses would be more sufficiently matched by applying an alternate methodology.
While this panelist often defers to the Program’s discretion in selecting the matching methodology, the above factors, together with the details provided by the claimant in its memoranda, indicate that the financials in this instance would be more appropriately matched by the AVM Methodology. Claimant’s argument is well taken and
the claim is remanded to the Program to re-analyze it using the AVM Methodology.

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