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BP Business Economic Loss Claim Appeal 2017-1415: Rental Equipment Fixed Cost; Disposable Expense 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, a utility construction company, filed a BEL claim which was denied due to a failure to pass Causation under Exhibit 4B. Claimant contends the Program
improperly classified ” Equipment Rental” as a variable expense, and also erred in characterizing “Disposal Costs” as a fixed expense.  Claimant contends  if these items are properly categorized it would satisfy causation.
BP suggests that Equipment Rental ” directly relates to business operations” and, therefore, was properly classified as a variable expense. With respect to disposal costs, BP asserts this is a “contract service” expense and since ” a spike in this expense was probably due to the need for special waste disposal”, it was appropriate to consider this item to be fixed.
This Panelist disagrees with BP on both counts. Exhibit 4D sets forth the proper classification of expenses. If there is an enumerated cost included in this section which matches up to the item in question , and the expense has been properly described, the dictates of the Settlement Agreement must be followed.
In this instance, Equipment Rental qualifies as a ” Rental Expense” which is listed as fixed in 4D. It is of no consequence that, according to BP, this expense fluctuates in relation to the level of sales; if an item is characterized as fixed under the Settlement Agreement, then that description controls.
With respect to disposal expenses, this item would qualify as fixed if it is considered ” contract services” and variable if it is ” contract labor”. See 4D. Admittedly, it is difficult to ascertain the difference between “contact services” and ” contract labor” but if a particular cost item has a significant component of labor, it probably fits into the contract labor category. Accordingly, in an effort to determine if disposal costs merely involved the rental of a bin or if it required labor, this Panelist sent an inquiry to get additional information on the nature of ” disposal expense”.
Claimant responded as follows: ” These fees are paid to dispose of plant waste removal from job or work sites…has to pay ” disposal fees” to take the waste to certain approved disposal sites..pays the subcontractor at a rate based on volume hauled and other transportation costs…” Based on these details, it is reasonable to consider this to be an expense for ” contract labor”.  dditionally, claimant provided numerous receipts which demonstrate that this expense is paid for tank cleaning and the processing and transport of waste materials.
Accordingly, disposal expense fits within the category of ” contract labor” which is identified as a variable cost under 4D. This matter is remanded for the Settlement Program to determine if causation is satisfied with equipment rental considered a fixed cost and disposal expense considered a variable cost. If claimant satisfies causation, the appropriate award should then be determined.

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