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BP Business Economic Loss Claim Appeal 2017-773:Progran Accountant Properly Reallocated Construction Claimant’s Direct Job Costs and Owner/Officer/Employee Expenses

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 an award of $1,214,743.00, pre-RTP to this commercial construction company in Flowood, Mississippi (Zone D). Policy 495 criteria were triggered and the claim proceeded under the Construction methodology. BP appeals, raising two assignments of error. Essentially, BP complains about the manner in which the program accountant reallocated Claimant’s direct job costs and its owner/officer and employee expenses. BP seeks remand or alternatively submits a Final Proposal of $0.
Claimant uses the accrual basis of accounting and utilizes the percentage of completion approach to revenue recognition. Claimant adjusts revenue for its incomplete projects on December 31 of each year. The program accountant reallocated these direct job costs over the entire year on a monthly basis. BP argues that this approach was erroneous because the reallocation was based on an unsubstantiated schedule from the P&Ls. “There is no additional support in the record to confirm that the monthly allocation was correct,” according to BP. As BP sees it, the vendor accountant should have requested additional documentation. In response, Claimant points out that its contemporaneous trial balances reconcile with the direct job costs. Claimant therefore argues that the reallocation was an appropriate exercise of the accountant’s professional judgment.
BP also challenges the method in which the program accountant reallocated Claimant’s owner/officer and employee payroll expenses. The accountant allocated these costs in proportion to the owner/officer and employee salaries. BP argues that this methodology was flawed because payroll taxes are disproportional when owner/officer compensation is substantial. Further, BP points out that payroll expenses contain workers’ compensation and health insurance premiums that do not
vary in a proportional fashion. Again, BP suggests that the accountant should have engaged in further inquiry regarding the actual allocation of these expenses.
BP’s asserted errors, reduced to their essence, are that the vendor accountant should have obtained additional information so as to engage in a different method of reallocating the direct job costs and owner/officer payroll expenses. The Contact Notes reflect that the accountant engaged in a detailed analysis of these issues:
DWH Accountant noted significant amounts recorded in the ‘Direct Costs of Jobs’ COGS account in December from 2007 to 2011. As these expenses relate to the entire year and not just at year end, an adjustment was performed to remove these expenses (Adjustments 1 & 2), and restate the monthly expenses based on payroll vs non-payroll accounts (Adjustments 3 & 4) according to the schedule found within the Claimant’s P&L’s.
DWH Accountant noted that the Payroll Tax and Fringe Benefit accounts were recorded sporadically in 2007-2011, including multiple months of no or negative expense. Additionally, it is assumed a portion of these expenses relates to owner/officer salaries. As these expenses relate to the entire year and owner/officer payroll
is considered fixed, an adjustment was performed to remove these expenses (Adjustment 5), restate the owner/officer portion to December of each year based on annual owner/officer salaries as a percentage of total annual salaries (Adjustment 6), and restate the remaining employee portion based on monthly employee salaries
expense as a percentage of the annual expense (Adjustment 7).
Policy 495 affords the Claims Administrator’s professional accounting staff with the discretion to exercise professional judgment in order to achieve sufficient matching of revenue and variable expenses. We find no abuse of that judgment by the accountant here, especially since the Construction methodology was also applied to the restated P&Ls. In many appeals, BP has argued that reallocations similar to those employed here were a necessary and appropriate exercise of accounting discretion. We find no basis in this record for disturbing the accountant’s approach.
For the foregoing reasons, this three member panel unanimously adopts the Claimant’s Final Proposal which represents the amount of the award.
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BP Business Economic Loss Claim Appeal 2017-772: Professional Judgment of the Program Duly Exercised; Reallocation “Sufficiently Matched” Under Construction Methodology

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 arises out of a BEL claim whereby the Settlement Program awarded Claimant $2,785,907.81 pre RTP ($3,491,146.76 post RTP with accounting support).
Claimant is a construction, plant maintenance, and fabrication business in Pell City, Alabama (Zone D).
BP argues that the Program erred by adjusting Claimant’s accrual and reversal of purchases expense line item; by not inquiring into the period over which these adjustments applied; and by merely estimating that 6 months was an appropriate adjustment. Indeed, the record shows, and BP acknowledges, Claimant recorded an accrual of purchases COGS expenses at its fiscal year-end in October 2008. Claimant then reversed this adjustment in November 2008. Further the record shows, and BP acknowledges, the Program inquired into this adjustment, and Claimant explained it accrued additional job costs and supported it with documentation. Thereupon, the Program reallocated Claimant’s reversal over a 6 month period from November 2008-April 2009.
Claimant asserts that this inquiry and reallocation was within the professional judgment of the Program and was a sufficient matching of the Construction Methodology as supported by Policy 495. More specifically, Claimant’s revenues declined substantially between May and December post Spill compared to the same months averaged from 2007, 2008, and 2009. Said decrease in revenue was the primary reason for the significant reduction in variable profits in 2010.
Upon review of the record on appeal this Panel agrees that the professional judgment of the Program was duly exercised; that the reallocation was “sufficiently matched”; that remand is not necessary or appropriate.
BP has submitted a Final Proposal of “$0″ and the Panel is obliged under the controlling Baseball Process to choose between that Final Proposal and that of Claimant, which is in the amount of the Settlement Program’s said PRT-award of $2,785,907.81. BP has expressed no disagreement with the Program’s decision to reallocate the amounts in question but, rather, objects only to the period of time over which the Program decided to spread the reallocation, six months. The Settlement Program had extensive information from Claimant about the nature and duration of its jobs and selected the time frame for reallocation based on that information. Even if the adjustment were to be spread over a longer time frame-a year, for example-the resulting change in the award would not produce an award figure closer to “$0″ than to $2,785,907.81, so as to make “$0″ the preferred selection.
Accordingly, the Claimant’s Proposal is selected and the appeal of BP is denied.
By |Appeals Critical of BP, BP Claim Appeals, Causation, Construction Methodology, Fixed v. Variable Expenses, Legal Examiner, matching, Pre-Matching / Smoothing, Professional Judgement, Revenue Recognition, Specialized Methodologies|Comments Off on BP Business Economic Loss Claim Appeal 2017-772: Professional Judgment of the Program Duly Exercised; Reallocation “Sufficiently Matched” Under Construction Methodology
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