04282017Headline:

Tampa, Florida

HomeFloridaTampa

Email Tom Young Tom Young on LinkedIn Tom Young on Twitter Tom Young on Facebook Tom Young on Avvo
Tom Young
Tom Young
Attorney • (813) 251-9706

BP Business Economic Loss Claim Appeal 2016-1840: AVM Prevails Over Construction Methodology In Close Case Due To Claimant-Friendly Settlement Program

0 comments
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.

This appeal presents a close question on whether the Construction Methodology or the AVM methodology is most appropriate in restating the financials of this insulation installer in GrandCatou, Louisiana (Zone D).
The program accountant concluded that Claimant’s NAICS Code and short earnings cycle required application of the Construction Methodology. As a result, Claimant
was unable to satisfy the causation requirements of Exhibit 4B.
On appeal, Claimant challenges this determination, asserting that the AVM methodology is more appropriate. Claimant argues first that it is not a construction company but an installer of insulation materials directly to customers. Claimant argues that the Construction Methodology unfairly penalizes it for jobs completed in one or two days that are invoiced immediately with payment received the following month. In essence, Claimant argues that its jobs are short term projects lasting between two and sixty days. Because customers are invoiced monthly and payment is due upon receipt, Claimant’s entire revenue cycle does not exceed sixty days per job. Thus, Claimant argues that it does not fit the criteria for the Construction Methodology. If the AVM had been applied, Claimant asserts that causation would have been satisfied.
BP argues that Claimant’s NAICS Code falls within those listed under the Construction Methodology in Attachment A to Policy 495. Because Claimant’s materials are purchased on a job by job basis with no inventory maintained, BP argues that variable expenses most accurately represent Claimant’s monthly activities.
In the Calculation Notes, the program accountant noted that Claimant’s projects are short term, lasting between two and sixty days. On re-review, the Settlement Program stated that Claimant “does not operate on a short earnings cycle” and that Claimant “ has projects that can last longer than thirty days.” These statements appear inconsistent.
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. The program accountant placed significant weight on two factors: Claimant’s NAICS Code of 236220 – Commercial and Institutional Building Construction and his conclusion that “the Claimant’s materials are based on a job by job basis and no inventory is maintained. As such, variable expenses were deemed to accurately represent the Claimant’s monthly business activity and thus the Construction
Methodology was applied.”
Policy 495 affords the program accountant with the discretion to exercise professional judgment in determining the appropriate methodology for restating revenue and expenses. In the view of this panelist, the accountant exceeded that discretion in placing undue emphasis on Claimant’s expenses rather than its very short earnings
cycle. Moreover, the NAICS Code does not automatically require a given methodology, especially where there is other evidence that would make a different methodology more appropriate.
Ultimately, the construction versus AVM determination could have gone either way. In baseball, a tie goes to the runner. In a Claimant – friendly Settlement Program, this panelist concludes that the benefit of the doubt should go to the Claimant. Although Claimant asserts that application of the AVM methodology would allow it to pass causation, this is a calculation that should be made by the Claims Administrator. Accordingly, this claim is remanded to the Settlement Program with instructions to restate the financials utilizing the AVM methodology. No opinion is expressed as to the result of that calculation.

Leave a Comment

Have an opinion? Please leave a comment using the box below.

For information on acceptable commenting practices, please visit Lifehacker's guide to weblog comments. Comments containing spam or profanity will be filtered or deleted.