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BP Business Economic Loss Claim Appeal 2017-998-Rental Field Income is “Fixed;” Subcontractor Expenses Must Be Matched With Revenue Under Policy 495

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 provides environmental risk consulting services in Fort Myers, Florida. The Settlement Program awarded Claimant $342,066.55, pre-RTP. BP appeals  contending that the Settlement Agreement failed to properly allocated Claimant’s “Subcontractor” expenses and misclassified Claimant’s “Rental Field Equipment” as
fixed while it is in fact variable. These errors, says BP, led to an inflated award.
In its Final Proposal, Claimant concedes that the “Rental Field Equipment” should have been classified as variable rather than fixed. As such this is no longer at issue. As to the “Subcontractor” expenses issue, BP points out that the Claimant provided a detailed project summary document listing all individual jobs including start dates, end dates, and breakdown of cash basis revenue recognition for each job. This document showed that Claimant reported $332,172 in revenues for a single job, Job
in two large amounts in March and May 2010, despite the fact that this job lasted from May 2009 to July 2010. Claimant’s “Subcontractor” expenses account similarly shows two large spikes in March and May 2010.
The Settlement Program utilized the project summary document to restate these revenues on a straight line basis in accordance with the Professional Services Methodology by appropriately allocating the revenues associated with Job to the May 2009 to July 2010 period. However, says BP, the Settlement Program neglected to reallocate the corresponding Subcontractor expenses. BP asserts that this failure is contrary to the Settlement Agreement’s requirement that that the Settlement Program “sum the monthly revenue” and “[s]ubtract the corresponding variable expenses from revenue over the same time period.” As a result of the movement of revenue without corresponding expenses, revenue is recorded in the year before corresponding expenses are incurred, thus exacerbating the mismatch of revenues and expenses contrary to the plain intent of Policy 495. BP submits that correctly allocating Claimant’s Subcontractor expenses along with the corresponding revenues and properly classifying Claimant’s Rental Field Equipment expense as fixed reduces Claimant’s total award by $144,965, pre-RTP, and BP submits an Final Proposal of $197,101, pre-RTP.
Claimant attempts to raise a cross-appeal regarding the Settlement Program’s application of Policy 495 in its Final Proposal. Claimant’s cross-appeal is untimely. To the extent Claimant wished to cross-appeal the Settlement Program’s award, it was required to do so as part of its Initial Proposal. Rule 9 of the Rules Governing Appeal Process provides that: “The appellee shall be limited to the issues raised in its initial proposal.” The arguments raised by Claimant in its Final Proposal thus cannot be considered by this Appeal Panel.
As to BP’s arguments regarding the misallocation of Claimant’s “Subcontractor expenses, ” Claimant contends without that “no other adjustment could be made to one expense account as the documentation does not exist” to allocate Claimant’s “Subcontractor expenses.” This ignores the fact that Claimant’s description of Job and Claimant’s P&Ls clearly show a correlation between Claimant’s revenues from Job XXX and Claimant’s “Subcontractor expenses” line item. Specifically, both these items had large spikes in March and May 2010, a fact which Claimant does not dispute. Claimant’s description of this job, as well as Claimant’s P&Ls, provided sufficient documentation to reallocate these expenses.
Based on the forgoing, BP’s Final Proposal is adopted.

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