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BP Business Economic Loss Claim Appeal 2017-405:Fees and Professional Expenses Are Fixed Under Exhibit 4D Even Though They Might in Reality Be “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 is an architect and provides plans and designs for residential and commercial buildings in the Northwest Florida area. The Settlement Program awarded Claimant $8,993.24, pre-RTP. Claimant appeals, arguing that the Settlement Program incorrectly classified certain of its professional services/fees expenses as
variable.
Claimant asserts that four of its professional services/fees expenses — “Prof. Fees – Artist,” “Prof. Fees- Architectural,” “Prof. Fees – Consulting,” and “Prof. Fees – Engineering” — “are specifically listed as fixed costs and should not have been treated as variable expenses.” Claimant believes that “regardless of the nature of the expense account, . . . these expenses are required to be classified as fixed.”
BP argues that the Settlement Program classified such expenses as variable because they are tied directly to Claimant’s services and the revenue-generating aspects of its business, and that the Settlement Agreement classifies costs tied directly to the revenue-generating aspects of a Claimant’s business as Variable expenses. BP goes on to assert that Policy 361 v 5 grants the Vendor Accountants the discretion to use their professional judgment when determining the nature of the revenues/expenses. Thus, BP asserts that expenses must be classified based on the nature of the expense, not simply by the label a claimant used in its financial statements, and expenses
labeled by claimants as fixed may actually be variable pursuant to both economic reality and Exhibit 4D. Therefore, according to BP, although Fees and Professional Services are listed as Fixed Costs under Exhibit 4D, the four expenses listed above are in fact variable due to the nature of the expense in relationship to Claimant’s
business.
By Claimant’s admission, those expenses “are used for professional artists, engineers, consultants, etc. that Claimant uses for various jobs.” The Settlement Program, therefore, properly found that such expenses are variable because “they relate directly to business expenses” and “[C]laimant incurs these expenses in relation to
specific jobs/engagements.” Furthermore, BP asserts that Claimant’s financial data demonstrates the variable nature of these expenses, as they show that Claimant’s expenses for “Prof. Fees – Artist,” “Prof. Fees -Architectural,” “Prof. Fees – Consulting,” and “Prof. Fees – Engineering” fluctuated from month to month.
Policy 361 v5 provides that ”the Claims Administrator will treat expenses as Variable or Fixed it they fall within either of these categories pursuant to Exhibit 4D Attachment A…[I}if an expense does not fit the description of the Variable or Fixed expense categories in Exhibit 4D Attachment A, the accountants will use discretion to apply the classification that best conforms to delineations made by the Parties as reflected in Ex. 4D.” What that means to this panelist is that if the expense is listed it is placed where it is listed, and only if it is not specifically listed do the accountants have discretion to use their professional judgment to place the expense in one category or the other. Otherwise it makes little sense for the Parties to have negotiated specific lists.
Failure to uniformly apply the definitions as agreed to in the Settlement Agreement would result in each accountant applying subjective classifications of Fixed and Variable expenses agreed to by the Parties. The discretionary determination on how an expense should be classified comes into play only when the expense is not specifically listed in Exhibit 4B. Otherwise it makes little sense to have these lists. The Appeal Panel decision cited by BP could be distinguished on the basis that in that appeal they were dealing with a “hybrid” expense-“Auto and Travel” was involved in the claim and Exhibit 4D list “Auto Expense” as Fixed, but also list “Travel and Entertainment” as Variable. This panelist would concede that “hybrid” expenses may involve the accountant’s discretion. However, the classifications specifically listed in Exhibit 4D are controlling and not the nature of Claimant’s Business.
Claimant’s Final Proposal is adopted.

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