Kenneth Feinberg’s contract with BP needs revisions

Kenneth Feinberg, the administrator of BP’s $20 billion compensation fund, has assured claimants that his Gulf Coast Claims Facility is not an arm of BP and that he can be fair to people and businesses hurt by the oil spill.

But Mr. Feinberg’s own contract with BP undermines his argument, and the way the contract is set up should be reconsidered to avoid any real or perceived conflicts of interest.

BP has paid the law firm of Feinberg Rozen $850,000 a month to run the claims process. The contract also requires that the fee be renegotiated every three months. Critics argue that the setup makes Mr. Feinberg susceptible to pressure from BP to keep claims payments down. That’s a valid concern.

Mr. Feinberg has said his compensation is not tied to how much the GCCF pays out. But a federal judge ruled last week that the facility is a “hybrid” entity – not a direct arm of BP but also not totally independent from the oil giant. Mr. Feinberg’s contract reinforces the impression among some claimants that he may favor BP, regardless of whether that’s true or not. That’s why the administrative fee for the GCCF should be set for the entity’s term, expected to run at least until 2013. Another option is to have the federal government, and not BP, negotiate the fee.

As of late last month, 168,000 people and businesses had gotten emergency payments, and half of them had taken quick final settlements. During that period, 507 claimants filed appeals of Mr. Feinberg’s decisions with the Coast Guard’s National Pollution Funds Center, an independent entity set up by the Oil Pollution Act of 1990. The center denied all 200 appeals it had adjudicated as of Jan. 27.

In the end, every claimant will judge whether Mr. Feinberg’s settlement offer is fair or not – and anyone can reject it and sue BP directly in court. But Mr. Feinberg should avoid even a perception that he’s beholden to BP, and that’s why his contract with the firm needs a revision.