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BP Business Economic Loss Claim Appeal 2016-2287: AVM Methodology, Not Construction Methodology, More Appropriate for Roofing Contractor’s Claim

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 commercial and residential roofing contractor in Tampa, Florida, appeals from the net award of $0 following the Settlement Program’s use of the Construction Methodology pursuant to Policy 495. Claimant asserts this constituted error, as under the facts in this record, the AVM Methodology should have been applied.
The Settlement Program found that the Construction Methodology was appropriate to address the matching issues present in Claimant’s financial data, and that the claim was classified under a construction NAICS code per Appendix A of Policy 495. According to the Accountant Compensation Schedule, the DWH accountant adopted the Construction Methodology, explaining at Note 15, in addressing Claimant’s Reconsideration Request, as follows:
“We have reviewed the Reconsideration Request regarding the use of the Annual Variable Margin Methodology. No changes have been made to the previous compensation calculation with regard to the methodology selection as the Claimant confirmed that materials and cost of goods sold are expensed in the same month as purchased, there is no lag between purchases and use of materials, and revenue is generally recorded in the month work is performed.”
The Construction Methodology is premised on the assumption that variable expenses of a construction claimant are more accurately recorded on monthly P&L’s than
are revenues. See Policy 495 at C1 (Exhibit E). The Construction Methodology contemplates that expenses are recorded in the months they are incurred, while revenues are often recorded in subsequent months. This is understandable, as construction jobs generally take some length of time, and revenues may lag expenses by months. The underlying premise of Policy 495 and the differing methodologies are to assess whether revenues match expenses, and apply the appropriate methodology to achieve matching. For this reason the NAICS Codes used by claimants are not necessarily dispositive, as provided for in the Policy, and as has been frequently held in similar cases. If a claimant’s business revenues are generally recorded in the month where revenue was earned, then the Program Accountant should use the AVM Methodology.
If a construction industry claimant’s revenues are not recorded in the month earned, then the claim defaults to the Construction Methodology, which recasts revenues to
approximately match corresponding costs. However, here the DWH accountant made the case for application of the AVM Methodology, not the Construction Methodology, when he stated at Note 15, cited above, that “revenue is generally recorded in the month work is performed,” and the record reflects Claimant’s business
operates on a short term cycle, where jobs are of short term duration, billed upon completion, and generally paid in 7-10 days.
This was a classic AVM Methodology situation, and the Construction Methodology was inappropriately applied. Accordingly, the appeal is well taken, and Claimant’s Final Proposal is hereby selected.

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