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BP Business Economic Loss Claim Appeal 2017-196: AVM Applied Over Construction Methodology Despite Construction NAICS Code


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. Claimant failed to pass causation. Notwithstanding that Claimant’s tax returns list a construction NAICS code, Claimant contends that the AVM Methodology should have been applied instead of the Construction Methodology. According to Claimant, had the AVM Methodology
been applied, Claimant would have satisfied causation.
The Construction Methodology “is premised on the assumption that variable expenses of a construction claimant are more accurately recorded on monthly P&Ls than are revenues.” Policy 495, Attachment C-1. Claimant lists the following reasons why the Construction Methodology should not have been applied to Claimant:
1. The majority (approximately 80%) of Claimant’s projects are completed in less than three weeks and billed at completion.
2. Claimant maintains its books on an accrual basis. Thus, revenue is recognized at the time of billing and recorded in the month that the work is done.
3. All payments are received within 10 to 60 days of invoicing.
A number of other Appeal Decisions have determined that the AVM Methodology should have been applied to businesses who were assigned a construction NAICS code. For example,  “The AVM Methodology is intended to be the default approach. The specialized methodologies are exceptions to the rule to be used if a claimant’s revenue does not reasonably reflect economic reality.” “Given the short duration of about 80% of Claimant’s jobs, monthly revenue were not unreliable.”
Appeal Panel Decision 2016-1840 – “Based on review of numerous BEL appeals in which the Construction Methodology has been applied, a sixty day revenue cycle
does not approach the lengthy revenue and expense cycles of many construction companies.”
This Panel has reviewed Claimant’s financials and agrees that they do not present the issues which the Construction Methodology was designed to address.
Hence, this Panel concludes that the AVM Methodology should have been applied.
The Claimant has raised a number of other accounting issues. In light of the necessity to remand this matter in order to apply a different methodology, this Panel

declines to address these other issues at this time. In light of the above, this matter is remanded with the following instructions: First, the Program is directed to review Claimant’s Opening Memorandum, Parts II and III. If the Program agrees with any of Claimant’s requested  corrections, the Program shall modify its previous calculations accordingly. Second, the Program shall apply the AVM Methodology.

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