BP Business Economic Loss Claim Appeal 2017-1424: Revenue Variances Treated Correctly and AVM Properly Chosen Over 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

BP appeals the BEL award to claimant,a tool and die manufacturer in Rainbow City, Alabama. BP asserts the Settlement Program(SP) incorrectly treated revenue variances in June 2009 and in October and November 2010; improperly applied the AVM methodology over the Construction Methodology;and inadequately scrutinized related party transactions.
Claimant responds the revenue spikes were explained by claimant after inquiry by the SP and represent only a small portion of total revenues generated in this several month period;that the SP had ample reasons not to use the Construction Methodology and to use the AVM methodology; and that the record reflects the SP delved into any transactions between claimant and a related party fully.
A review of the record discloses that claimant is a company whose NAICS code 332700 is not listed under the Construction Methodology of policy 495. Claimant maintains inventory until such inventory is sold at which point revenues are recorded on the P&Ls to match revenues earned. Revenues are not recorded or measured using a percentage of job completion accounting.Most of claimant’s project undertakings take less than thirty days to complete. These factors were all recited in paragraph 23 of the Calculation Notes and represent adequate reasons to support the decision of the SP to select the AVM methodology over the Construction Methodology.
Next,the revenue spike targeted in November 2010 related to a multi-month project that began in December 2007 and ended in March 2010 (although not billed until
November 2010). The SP noted this anomaly in paragraph 10 of the Calculation Notes and decided to allocate revenues evenly over the beginning and end dates of this project.BP contends if this approach is to be used the end date that should have been used is March 2010 and not November 2010 as used by the SP.(Claimant observes that if this adjustment were accepted it would only reduce the award $6,000,pre-RTP,and impact the award slightly.) Relative to the October 2010 revenue spike,the SP noted this entry related to another multi-month project that began in February 2010 and ended in October 2010 at which time it was billed.As before, the SP used the same allocation approach and allocated revenues evenly over the life of the project which is consistent with decisions interpreting policy 495.
BP avers since expenses were not incurred until the following month of March 2010,these revenues should not be allocated to February 2010 as the starting date.This contention is meritless. Lastly,the June 2009 spike was vetted and attributed to a single customer making one large purchase that caused this aberration.There was no reason to allocate these revenues to other time periods.Parenthetically,this panelist also considers claimant’s assertions that these revenue spikes during the years 2007
through 2010 constituted only 7.5% of claimant’s total revenues and would not have impacted the award herein significantly.Beyond that observation,these alleged errors in this baseball appeal process would not support the zero dollar award contained in BP’s final proposal.Finally,the SP closely examined the relationship between claimant and XXX .See paragraph 14 of the Calculation Notes. Any expense loss attributed to transactions between these two entities was excluded under policy 328 v.2. See paragraph 13 of the Calculation Notes.In light of the foregoing,the decision of the Claims Administrator is affirmed and the appeal of BP is denied.
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BP Business Economic Loss Claim Appeal 2017-1390: AVM More Appropriate Than Construction Methodology for Roofing Contractor Despite NAICS Code

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 is a roofing contractor located in Vicksburg, Mississippi . Claimant appeals the denial of its BEL claim, asserting the Claims Administrator should have selected the AVM methodology under Policy 495, not theConstruction Claim methodology. Claimant failed to meet the causation criteria of Exhibit 4B, and the claim was denied.
BP supports the use of the Construction Claim methodology, first pointing out that Claimant’s assigned NAICS code of 238160 (Roofing Contractors) is listed as one to be covered by the Construction Claim methodology. (See Policy 495, pg. A2). BP argues further that Claimant’s P&Ls display the types of matching problems the Construction Methodology was designed to address.
Essentially, the record here establishes that Claimant’s job materials are purchased and expensed in the same month. This usually occurs the day before or the same day a job is started, and the purchased materials are used on that job and not held in inventory. Corresponding revenues are recorded after Claimant invoices a customer upon a job’s completion and receives payment. Job duration is typically 30 days or less, and collections ordinarily range from within the same month to the month following the job’s completion. Claimant does not use any form of the percentage of completion accounting practices frequently associated with construction contractors.
Attachment A to policy expressly states a Claimant with a given NAICS code will not automatically be assigned to a given methodology by virtue of that code. A de novo review and analysis of this record leads to the finding that Claimant’s financials would be more appropriately matched by applying the AVM methodology. Under Policy 495, the AVM methodology is set forth as the default approach. The specialized methodologies, including the Construction Claim methodology, are available to be utilized if a claimant’s revenue stream does not reasonably reflect economic reality. Here, in the judgment of this panelist, that revenue stream does reflect economic reality, and the AVM approach should have been selected on these facts.
Accordingly, the Denial is overturned, and this matter remanded for reevaluation using the AVM methodology.
By |Appeals Critical of Settlement Program, BP Claim Appeals, Causation, Construction Methodology, Legal Examiner, matching, NAICS Codes, Revenue Recognition|Comments Off on BP Business Economic Loss Claim Appeal 2017-1390: AVM More Appropriate Than Construction Methodology for Roofing Contractor Despite NAICS Code
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