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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.

In this appeal of a Business Economic Loss award to a Hoover, Alabama, based entity which designs and manufactures water pollution control and water treatment systems, BP contends that the Claims Administrator committed error in utilizing the Annual Variable Margin Methodology to correct matching issues, instead of the Construction Methodology. In support of its position, BP points to Claimant’s statement that its work is done on a per project basis based on component and engineering values established at the beginning of a particular project. The billings are based on progress of the associated items in a manner substantially similar to percentage of completion billing. It further submits that Claimant’s recorded revenues are highly erratic in that there are multiple months in its Benchmark and Compensation Periods with no revenue; however, with the exception of one month, each of those months reflect variable expenses that are broadly consistent with their respective annual averages. Similarly, Claimant recorded several unusual revenue spikes, one of which comes at the end of a four-month period during which Claimant recorded 77% of its variable expenses for the entire year. BP claims that demonstrates the work associated with that revenue was actually being performed over the course of the preceding months.

Finally, BP argues that the claims analyst applied the AVM Methodology solely because its NAICS Code is not included among the industries to which CAO Approved Policy 495 requires application of the Construction Methodology.

Claimant, in opposition, points out that in addition to designing and manufacturing water pollution control equipment, also earns considerable revenue from commissions on the sale of systems and provision of consulting services. Indeed, virtually the entirety of its 2011 revenue was generated by consulting services. Furthermore, its profit and loss statements reflect little or no material purchases or other costs of sales during that year; in fact, many months show no costs of sales. The lack of material purchases or other costs of sale, says Claimant, means the fundamental premise of the Construction Methodology is absent. Consequently, moving all the revenue earned in the year to those few months with significant variable expenses would be untenable.

Following initial review, this panelist concluded that input from the Claims Administrator would be helpful. A Summary of Review was requested and promptly received. It provided the following analysis:

As the claim has an AVM designated NAICS code and the Profit and Loss statements indicate fluctuations in the variable margin percentage, DWH 4/8/16 Accountant determined that the Annual Variable Margin methodology was best suited to achieve sufficient matching.

Additionally, as the 2011 Profit and Loss statements contained minimal or no COGS purchases as compared to prior years, DWH Accountant determined that the Construction methodology would inconsistently allocate revenue as a percentage of variable expenses.

As the appeal panelists have observed on many occasions and as the supervising District Court has held, Policy 495 grants substantial discretion to the Settlement Program claims analysts in making such determinations. De novo review of this entire record, with careful attention to the analyst’s inquiries and Claimant’s responses, discloses no evidence of an abuse of that discretion in this case.

For the foregoing reasons, this BP appeal is declined and the determination of the Claims Administrator is hereby affirmed.

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