Construction Contract Concepts: Force Majeure Provisions
Prior to the start of the COVID-19 Pandemic in 2020, contractors often glossed-over force majeure clauses during contract negotiations without ever considering the importance of the provision. Admittedly, phrases like “acts of terrorism, civil or military disturbances, or acts of God” seemed to be an unlikely risk to most contractors compared to the risk of not receiving payment, having a change order dispute, or other more common issues on a job.
Even post-pandemic, some contractors still miss the importance of these provisions. In contrast, others have become familiar with the provision but want to include every possible obstacle encountered on a job in the provision to excuse non-performance. Either way, failing to understand force majeure provisions from a legal and practical perspective leaves contractors exposed to liability that could otherwise be avoided.
A well written force majeure clause will excuse timely performance made impossible by an enumerated, unforeseen event that is entirely out of the contractor’s control.
From a legal perspective, a force majeure provision is a critical tool that can excuse a party’s failure to perform its contractual obligations under the contract should certain enumerated events occur. To be enforceable, the event must be specified in the force majeure provision and be an event that was beyond the no-performing party’s control and cannot be caused by the party’s own fault or negligence. The event must also be one that is unforeseeable, as foreseeable events carry a known risk that can be allocated through other contract terms during the negotiation process.
Some force majeure provisions require the non-performing party to provide notice of the force-majeure events and provide a specified time period for completion of work after the event occurs or provides other remedies. Regardless of whether the contract requires notice, a non-performing party will want to document any force majeure event properly and what measures it took to attempt performance, as it will bear the burden of proof in demonstrating that the non-performance was due to an event entirely out of its control.
Often, a force majeure event is a time to sit down and find an alternative plan that can lead to contract modification or a change order, to preserve the relationship between the parties and the mutual benefits of the contract.
From a practical perspective, it is critical that a contractor understand the scope of the force majeure clause and act appropriately. For example, if a contractor washes his hands of performance assuming that the item is covered under a force majeure clause, but that clause is later found to be unenforceable, the contractor likely will be liable for breach of contract and may have made its position worse in relying upon the protection. Additionally, while a force majeure clause may excuse performance entirely in certain circumstances, doing so is not always beneficial as it will likely damage the business relationship. Excusing performance entirely also may prevent the contractor from earning certain payments under the contract depending on how the provision ties in with other provisions, especially relating to payment, default, suspension of work, and termination provisions. Often, a force majeure event is a time to sit down and find an alternative plan that can lead to contract modification or a change order.
Misunderstanding a force majeure clause or failing to act as the provision requires can lead to liability for non-performance and have other practical implications.
If you have any questions regarding force majeure provisions or handling non-performance on your construction project, please reach out at 484-531-1702 or email@example.com.
ABOUT KARIN CORBETT
firstname.lastname@example.org | 484.531.1702
Karin Corbett is a litigator and business attorney who effectively prevents, resolves and litigates legal disputes for businesses and individuals in the construction & real estate industry.