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BP Business Economic Loss Claim Appeal 2017-185: AVM Methodology Applied Over Construction Methodology to Contractor’s Claims Due To Short-Term Projects


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 appeals the denial of its BEL claim.  The pivotal issue is whether the Settlement Program (“the SP”) correctly decided to apply the Policy 495 Construction Methodology in processing the claim rather than the Annual Variable Margin Methodology (“the AVM”).

Claimant is a Lynn Haven, Florida, subcontractor specializing in residential roofing jobs, such as applying shingles to new homes and replacing old or damaged shingles on existing homes. The projects handles are short-term, usually lasting no more than three days. In fact, it reported to the SP only one job that lasted more than 30 days, being a job that began in late January and concluded in March 2009. is paid in a timely fashion upon completion of each roofing project. does not maintain an inventoryof materials such as shingles and nails, so expenses are incurred when a project is begun. Thus, unlike typical construction companies, as noted in the Construction Methodology, does not use percentage of completion accounting for revenue.

The SP accountant acknowledged those circumstances in Note 9 of the Calculation Notes: “The Claimant’s projects are typically short-term in nature, lasting 30 days or less. The Claimant bills customers and received payment immediately after project completion. As such, revenues are recorded in the period in which they were earned.” Nonetheless, the accountant stated in Note 15, “The Claimant is classified under a construction NAICS code per Appendix A of Policy 495. The Claimant records expenses related to projects in the months the materials are used and the claimant does not hold inventory. Based upon the available information, variable expenses recorded on the Claimant’s P&Ls accurately reflect the nature of the Claimant’s business. As such, the DWH accountant utilized the Construction Methodology.”

Claimant references in its Opening Memorandum the relatively recent panel decisions which, in addressing very similar fact situations, concluded that the AVM, rather than the Construction Methodology, was the proper methodology to use, reversing in each instance SP holdings to the contrary. This panelist is familiar with another on-point panel decision, issued in mid-December 2016 and finds its reasoning appropriate for adoption for this appeal:

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.

This panelist appreciates the exercise of the professional judgment Policy 495 accords theSP in its selection of the appropriate methodology, but in a “close call,” Section 4.3.7 of the Settlement Agreement must be borne in mind:

The Settlement Program, including the Claims Administrator and Claims Administration Vendors, shall use its best efforts to provide Economic Class Members with assistance, information, opportunities and notice so that the Economic Class Member has the best opportunity to be determined eligible for and receive the Settlement Payment(s) to which the Economic Class Member is entitled under the terms of the Agreement.

The panelist concludes that the AVM should have been utilized for this claim, and, therefore, the denial of the claim under the Construction Methodology is overturned. The appealis remanded for application of the AVM. Appeal upheld.

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