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BP Business Economic Loss Claim Appeal 2017-1288: Short Cycle Revenue Recognition Allows Construction Claimant to Avoid Construction Methodology

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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 Wilmer, Alabama company that installs stucco on residential and commercial buildings appeals the Settlement Program’s denial of its BEL claim.

Matching criteria were triggered and the Program applied the Construction Methodology following which it was determined that Claimant failed causation.
Claimant argues on appeal that the application of the Construction Methodology was error and that if the AVM was utilized, Claimant would qualify for compensation.
The record reveals that Claimant is a small company that has an average gross income of less than $300,000 annually. It utilizes the cash basis method of accounting and operates on a short cycle with its jobs lasting between two weeks and two months, the average being 1½ months. Billing varies as some projects are billed during the project while others are billed upon completion. Claimant does not use a percentage of completion for any of its projects. The Program accountant felt that these factors,
combined with a construction NAICS code, supported the application of the Construction Methodology.
Claimant makes a persuasive argument that the premise behind the Construction Methodology is that revenue as recorded on the profit and loss statements is not an
accurate measure of a traditional constructions business’s economic activity, noting that, unlike Claimant, most construction companies use the percentage method of
completion. Claimant argues that since it is on such a short cycle, its revenue is an accurate reflection of its economic activity.
BP maintains that the DWH accountants found that Claimant’s revenue was not always recorded within the month that the work was performed. The same can be said for literally any business that uses the cash basis method of accounting and that fact alone does not justify application of the Construction Methodology. Nor is the NAICS code itself determinative.
The AVM was intended to be the “default” approach with the specialized methodologies reserved for claimants whose revenue does not reasonably reflect economic activity. Such is not the case here. Claimant cites other panel decisions that have overturned the Program’s use of the Construction Methodology in similar claims where the claimant’s revenue is recognized on a short cycle such as Claimant’s.
This panel finds Claimant’s argument persuasive. In this Claimant-friendly process, the Program should have applied the AVM to match Claimant’s financials.
Accordingly, the appeal is sustained and the claim is remanded to the Settlement Program for the application of the AVM and calculation of any award to which Claimant may be so entitled.

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