Schexnaydre Law Firm, LLC

Are The P&Ls You Submitted for Your BP Claim Sufficiently "Matched"?

By David Schexnaydre, Esq.

Many people are confused by the term "matched" when it comes to whether the P&Ls they submitted to support a BP Claim are sufficiently "matched." It is a bit confusing, so I have found that many people understand the concept when presented with this simple example:

If you list expenses on your January and February P&Ls related to a project you worked on in January and February, but you record the revenue associated with that project on your June P&L because that is when your customer paid you, then your P&Ls are not "matched" because the expenses and revenue associated with that project are not recorded in the same month or months.  

But that is how the cash basis of accounting works -- you record expenses when you pay for them and you record revenue when cash comes in the door. Under the accrual basis of accounting, on the other hand, you record expenses when you become obligated to pay for them and you record revenue (or a portion of revenue) when others become obligated to pay you, so the accrual basis of accounting generally leads to "matched" P&Ls because as you record expenses, you also record the future revenue associated with those expenses, even though you did not actually receive the money right then.

Even though the BP Settlement Agreement said claimants could base their claims on the P&Ls kept in the ordinary course of their business, the United States Fifth Circuit Court of Appeals ruled that allowing some businesses to base their claims on "unmatched" cash basis P&Ls while allowing others to base their claims on "matched" accrual basis P&Ls would lead to claimants not being "similarly situated," which is a requirement of class actions.

So, in order to comply with the Fifth Circuit's ruling, the Claims Administrator (after receiving input from BP and the Plaintiffs' Steering Committee (PSC)) has come up with a complicated formula to "match" P&Ls that are not currently "matched." The complicated formula is called Policy 495. Unfortunately, for claimants with businesses falling into the categories of Professional Services, Agriculture, Construction, and Educational Services, Policy 495 is even more complicated and will likely require the submission of even more documentation and responding to detailed questions from the Claims Administrator's accountants about the types of projects and jobs that were being worked on from 2007 through 2011.

There will also be more delay for claimants in those categories because the PSC has filed a Motion to Alter or Amend Policy 495 as it relates to those industries. Thus, for now, claimants falling outside of those industries will have their claims reviewed to see if their P&Ls "match." If they do, then their claims will move forward under the methodology the Claims Administrator was using before this whole "matching" issue came up. If, however, the P&Ls do not match, the Claims Administrator will calculate the claimant's Average Variable Margin.

Basically, this will entail leaving revenue alone, but moving variable expenses out of some months and into other months. The goal is to have variable expenses for any given month "match" the percentage that the month's revenue bears to annual revenue. For example, if July's revenue makes up 10% of that year's total revenue, the Claims Administrator will place 10% of that year's total variable expenses onto the July P&L. The Claims Administrator will do that for each month of every year. That way, the P&Ls will "match" and the claim evaluation process can move forward.

In future blog posts, I will discuss the seven criteria the Claims Administrator is using to determine whether a claimant's P&Ls are "matched," and I will also discuss Policy 495's special methodologies for "matching" P&Ls in the Professional Services, Agriculture, Construction, and Educational Services industries.

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