By MEGHAN M. LAMPING
It’s safe to say that 2020 isn’t going how anyone had planned.
When it comes to contracts, this can be a very big problem – depending upon the wording in your contract.
Whether you are looking to enforce a contract, renegotiate a contract or escape a contract as a result of the COVID-19 environment, here’s a common starting point for all parties: review the contract carefully and look specifically for an important clause called Force Majeure.
What is a Force Majeure Provision?
A force majeure clause (translated to “superior force”) may free either party from performing under a contract when events beyond their control prevent them from fulfilling their obligations. The clause may be triggered by extraordinary events such as labor strikes, war, government acts, natural disasters – and potentially, global pandemics.
What doesn’t trigger a force majeure clause is almost as important as what does and is often the source of debate. Generally, anything that is foreseeable, resulting from negligence or could be fulfilled with reasonable alternate means will not excuse performance or be covered under a force majeure clause.
What to Be Aware Of
Because force majeure interpretations may differ, the specific language in your contract is critically important. Here are key questions to ask as you review the provisions through a new, COVID-19 lens.
Is it narrow or broad? Does your contract specify what events constitute force majeure? Does it include terms such as “pandemic,” “disease” or “public health emergency?” Or does it use broader, catch-all language such as “events beyond control” or “including, but not limited to?”
Who is responsible for what? Understand which parties are responsible for what actions. For example, which obligations are excused? Does either party have the right to invoke the clause?
What obligations are covered? Are all obligations subject to the clause? Generally speaking, an obligation to pay for materials or work that has already been performed will not be impacted by or subject to a force majeure clause. Are there specified obligations that must be met after invoking the clause? Do you need to provide a specific notice or engage in specific mitigation efforts?
What are the pertinent timeframes? Some clauses may specify a window of time between the event and invocation of the clause, so determining when to use force majeure is important. And moreover, force majeure clauses typically aren’t going to relieve one party’s obligations indefinitely. Instead, they may be suspended for the duration of the force majeure event or require a party to communicate a window of time for delays. The contract may also allow termination for nonperformance after a certain amount of time.
What is required? If you are considering invoking a force majeure clause, carefully review notification and response requirements to understand when and how communication, such as written notices, should be handled. Some contracts may include other requirements, such as the submission of a mitigation plan within a certain time after invoking the clause.
No Force Majeure Clause?
If an express force majeure clause is not present in the contract, there may be other legal theories that allow one party to be excused from performance on the grounds that it is impossible to perform the contract obligations, or the purpose of the contract has been frustrated due to circumstances that could not be anticipated. Whether these legal theories will apply to COVID-19 matters remains to be seen.
Additionally, it’s always good practice to investigate whether there is insurance available to mitigate some or all of the losses.
When we emerge in a post-COVID-19 world, construction leaders will review their standard contracts with fresh eyes. The importance of the force majeure clause is often far underappreciated until the unforeseen suddenly becomes reality. While it’s difficult to plan for things you don’t see coming, a well-worded contract will help to reduce uncertainty and stress during extraordinary times like we are experiencing now.
Meghan M. Lamping is an attorney at Carmody MacDonald in St. Louis. She focuses her practice on construction law, business litigation, and trusts and estates litigation. Contact Meghan at firstname.lastname@example.org or 314.854.8600.
This column is for informational purposes only. Nothing herein should be considered legal advice or as creating an attorney-client relationship. The choice of a lawyer is an important decision and should not be based solely on advertisements.