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BP Business Economic Loss Claim Appeal 2016-1835: AVM Fixed vs. Variable Income

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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.

BP appeals the BEL award to the claimant, a custom steel fabricator in Birmingham, Alabama. Matching criteria were triggered and the claim proceeded under the AVM methodology, resulting in a pre-RTP award of $250,406.41.
BP initially contended on appeal that the summary tab of the spreadsheet that the Program relied upon contained errors and resulted in an overstatement of Claimant’s award. Claimant acknowledged the error and corrected the spreadsheet in the attachment to its supplemental memorandum.  In addition, Claimant raises on cross appeal that the Program erred by including officer’s wages benefits as a variable payroll cost. BP concedes that this argument is meritorious. Both parties revised their
proposals with the claimant submitting a final proposal of $153,459 (pre-RTP) and BP submitting a final proposal of $108,707 (pre-RTP).
Claimant next argues on cross-appeal that the Program erred in classifying three of its expenses as variable. Claimant asserts that under Exhibit 4D, its Utilities and Rent expenses were classified as variable, but should be classified as fixed and its Shop Repairs and Maintenance line item should have been classified as 50% fixed, 50% variable rather than as variable. BP disagrees and argues that Exhibit 4C applies instead of 4D because these items were included as COGS in its financials.
BP argues that under Exhibit 4C, COGS will be treated as variable expenses except for certain items such as fixed COGS payroll, amortization, depreciation, insurance and interest expense and contract services. BP contends that, because Rent, Utilities, Shop Repairs & Maintenance are not excluded, the Program properly classified them as variable.
Exhibit 4D represents categories of expenses that the parties have agreed are fixed and variable. Rent and utilities are fixed costs. Maintenance is a fixed cost as well, unless the claimant’s financial statements do not separately identify Maintenance and Repair costs in which case they should be allocated 50% to each as Claimant proposes.

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