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The Force Majeure Clause, Version 2.0

How to account for unforeseen circumstances in contracts

Manufacturers, suppliers and customers should undertake a heightened level of vigilance to identify ways to operate in the face of today’s challenges.

The challenge, of course, is to identify and account for the disruption these events can cause. For centuries, legal doctrines such as the doctrine of “commercial frustration” and laws such as the Uniform Commercial Code were developed to help parties to commercial transactions respond to such challenges. However, it might be worthwhile today to evaluate whether these legal concepts can be augmented to address current conditions. 

One important way is to evaluate one’s own contract documents to see whether they should be updated. Contractual force majeure provisions should address the effects of overall uncertainty that exist between a contract’s parties. This helps present a better way to identify specific risks and negotiate provisions for dealing with them. 

Current iterations

Some currently published construction contract forms do not isolate a specific definition for force majeure. For example, AIA A210-2017 instead addresses the challenges posed by unforeseen events in different sections of the contract that deal with the cause and effect of delays and the inability to perform. The AIA C191-2009 document form for Multi-Party Integrated Projects, on the other hand, combines the concepts of Act of God and force majeure in its definition of a force majeure “event.” 

These construction industry forms address the central purpose for acknowledging unforeseen and irresistible events in the contract documents. That is, to seek fairness to the party seeking relief from performance (the affected party) as well as to the party that will bear the brunt of non-performance or delay.

These particular forms do so by requiring the party invoking the force majeure to provide timely notice to the other parties of the imminent disruption to performance. They achieve this by setting limits on delays and allowing the other parties options for alternate remedies to mitigate the effects of disrupted performance as much as possible.

Addressing current conditions

The typical modern approach to force majeure clauses has been to identify and generally acknowledge there may be unforeseen events beyond the parties’ control that may affect the ability to perform the contract’s terms. This is usually indicated with, “including but not limited to…war, insurrection, civil unrest, rioting, pandemics, labor strikes or disputes of employees other than those of the contracting party.” These descriptions help define the types of disruptive events that “qualify” as force majeure events without necessarily limiting the causes only to those that are listed. 

When drafting contractual terms today, manufacturers may consider adding to the definition of what constitutes unforeseen and forceful event conditions with language “including, but not limited to” the governmental response to a pandemic, such as workplace, labor and transportation restrictions. So, too, with civil unrest conditions. 

Consider that the COVID-19 pandemic has been an ongoing event.

Protests in some communities have been ongoing for three months or more. These potential disruptions in and of themselves might not be totally “unforeseen.” Nevertheless, while these events are ongoing, what is potentially unforeseen are events such as increases in infection rates, corresponding worker absences and the government’s reaction to these potentially recurring conditions. Businesses should consider whether broadening the contract terms of force majeure would be better than limiting them to the “epidemic” itself, or the “civil unrest” itself, so that the clause captures the corresponding uncertainty of how these conditions will be addressed. 

After broadening the definition of what constitutes a force majeure, the contract should recognize that, while aspects of the contract may not be impossible, the contract should still account for ensuing delays and disruption by balancing the effect of increased costs associated with later performance. For instance, aside from accounting for the delays themselves, the contract should also address corresponding price escalation clauses in the context of such events. Manufacturers may want to establish notice requirements—24 hours, three days, etc. 

Provisions of a force majeure may establish that suspension of performance may not continue “unreasonably” beyond the time frame of the disruptive event. Also, stipulations may outline that the party that invokes the clause will make affirmative efforts to limit the economic effect to other parties—requiring an alternate supply of materials, for example.

Certainly, whether the affected party reasonably complies with these affirmative obligations in the face of such an event may be the focus of a later dispute. However, acknowledging in writing that the parties must endeavor to act in good faith helps to frame and focus respective obligations and rights through further clarification of the effects of such events.

Finally, consider whether to make amendments to existing and ongoing contracts to expressly acknowledge COVID-19 and civil unrest disruptions within contract recitals, or as part of the force majeure provisions, so that equitable allocation of these risks can be addressed. With tailored language incorporated into agreements, orders and contracts, the current level of uncertainty and potential disruption can be managed to forestall economic stress and future disputes. 

Author

John Nolan

John Nolan

John Nolan is an attorney with The Gary Law Group, a law firm based in Portland, Oregon, that focuses on legal issues facing manufacturers of windows and doors. He can be reached at 217/526-4063 or john@prgarylaw.com.