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BP Business Economic Loss Claim Appeal 2017-1518:The AVM is Proper Methodology Unless Other [industry-related] Framework Is Specifically Mandated

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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

The Settlement Program issued a pre-RTP award of $278,341.53 to Claimant, a surface cleaning and coating business located in Zephyrhills, FL. BP appeals contending It was an error for the Settlement Program to fail to inquire into the reasons for a single spike in revenue in the Benchmark Period which materially affects the award. BP points out that Claimant recorded revenue of $843,588 in June 2009, nearly three times the average revenue of the previous five months, and nearly four times the revenue of the lowest month in 2009.
Claimant had other spikes in revenue of the same magnitude, most notably November 2007 and December 2008. BP asserts that the Settlement Program should have
evaluated whether these extreme income spikes represent income earned on “projects that require months of labor” and thus should have been reallocated to the months when earned. Thus, BP appeals that award arguing that “[t]he Settlement Program erred in its treatment of Claimant’s revenues” because it failed to evaluate spikes in revenue– particularly in June 2009 and also in November 2007 and December 2008.
BP requests remand so that the Settlement Program can conduct an inquiry into the sharp revenue increase in June 2009. In the alternative, BP submits a Final
Proposal of $0.
Claimant responds that BP does not suggest that these revenue entries were “errors” under Policy 495 and merely speculates that these spikes were the result of
expenses incurred by Claimant in prior months. Claimant asserts that BP fundamentally misunderstands Policy 495 and especially its AVM methodology which was applied by the reviewing accountant here, a fact BP failed even to acknowledge. Policy 495 requires sufficient matching, not exact matching, of revenues to expenses. The AVM methodology is the proper mechanism unless some other [industry-related] framework is specifically mandated. The AVM methodology smooths the effect of a possible spike in revenue by determining the total variable expenses for the year as a percentage of annual revenue in that year, and then applying that percentage to each month’s revenue to determine the portion of variable expenses to be applied to that month. As a result, the higher monthly revenue in any particular month results in a higher adjusted variable expense for that month, which in turn smooths the critical component of compensation – the variable profit margin percentage – across each month in the year.
Moreover, neither 2007 nor 2008 is a benchmark year anyway and thus plays no role in compensation. Even setting aside the use of the AVM methodology, BP’s appeal has no merit as its speculation that the spikes in revenue reflect work done in multiple prior months is inaccurate. Claimant records its revenue as work is performed, typically weekly. Accordingly, if a project lasts several months, there will be multiple billings in each of those months rather than a single billing upon project completion. And conversely, where large quantities of work must be done in a compressed time period, Claimant’s workforce and the third parties with which it works are sufficiently flexible to accomplish that objective. Thus, BP’s speculation is contradicted by the facts. There is no support for its allegation that the revenue “spikes” reflect work done over multiple months. Nor does the record reflect that the accountant reviewer abused his or her professional judgment in evaluating Claimant’s claim and applying the AVM methodology to sufficiently match Claimant’s revenue and expenses.
This panelist finds that the Claimant has the more compelling argument, and that the facts, Settlement Agreement and applicable Policy, along with prior Appeal Panel decisions, support the position of the Settlement Program. There is no error, and therefore, BP’s appeal is denied.

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