The Importance of Force Majeure Provisions in Construction Contracts
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Until recently, force majeure provisions may have been viewed as perhaps unimportant “lawyer language” buried in contracts with no real expectation that the clause would come into play. Of course, the last couple of years have caused a big change in that perspective as the construction industry has gone through the COVID-19 pandemic and related governmental lockdowns, supply chain disruptions, and skyrocketing material escalation costs. When force majeure events strike, a well-drafted force majeure clause in the underlying contract can be a powerful tool in mitigating and surviving the impact of the disruption.
What is a Force Majeure Event?
A force majeure event is generally defined as an unforeseeable event beyond the control of the parties which prevents or delays performance under a contract and may excuse nonperformance.1 Although force majeure events are typically thought of as Acts of God, such as natural disasters like hurricanes, tornadoes, or earthquakes, they can also be events such as war, riots, or even labor disputes or strikes. Also, as seen recently, force majeure events can also be epidemiological disasters like the COVID-19 pandemic, or government actions taken in response, like the government shutdowns that occurred in response to the pandemic. Typically, however, economic hardship is not sufficient on its own to constitute a force majeure event.2
What is a Force Majeure Contract Clause?
A force majeure clause is a provision within a contract that limits the liability of the parties or provides parties with additional rights, such as extra time for performance, when a force majeure The Importance of Force Majeure Provisions in Construction Contracts event prevents one of the parties from performing their obligations under the contract. Force majeure clauses are based upon the principle that parties to a contract can be relieved from their contractual duties when their performance is prevented by an unforeseeable event which is beyond their control.3
The question as to what specifically qualifies as a force majeure event is generally controlled by the terms of the underlying contract between the parties. Although there are various nuances in the way courts address force majeure across different state jurisdictions, generally courts look to the language that the parties specifically bargained for and agreed upon in their contract to determine the parties’ intent regarding whether a given event qualifies as a force majeure event and triggers the force majeure clause.4 Because courts rely upon the contractual language to determine whether a force majeure event has occurred, and what rights and remedies are available as a result, it is critical that force majeure provisions be included in the contract and drafted carefully and with specific consideration of the types of events that qualify as force majeure events and the remedies available in the case of a force majeure event.
The Specific Terms of the Force Majeure Clause are Critical
The actual language used in the force majeure provision is also vitally important. Typically, the more specific examples of the types of force majeure events that could arise that are specifically identified in the provision, the more likely that the force majeure provision will be found to apply. For example, all contracts should now include things like “pandemic”, “quarantine”, and “governmental orders” as specifically listed types of force majeure events to avoid the risk that a court could find that the clause does not apply. Similarly, in the current environment, contractors would be wise to try to include reference to things like “unavailability of materials”, “delays in deliveries” and “material price increases” as enumerated force majeure events to try to alleviate liability for the effects of supply chain disruptions not the fault of the contractor.
The force majeure provision should also include a broad catchall clause, such as “any other cause not reasonably within the control” of either party to the contract. Such a catchall provision may help bring a cause not specifically included within the force majeure provision. For example, in Devco Development Corp. v. Hooker Homes, Inc., the court held that under the contract, “excessive rain, by the terms of the contract, would constitute ‘any other condition’ beyond Devco’s control which would excuse a delay in performance.” 518 So. 2d 922, 923 (Fla. 2d DCA 1987).
However, it should be noted that courts in some jurisdictions follow the doctrine of ejusdem generis in interpreting force majeure clauses. Under this legal doctrine, a catchall provision is narrowly construed to include only listed events and events or things of the same general nature or class as those specifically listed. Therefore, in those jurisdictions, the more specifically listed types of events in the force majeure clause, the more likely that an event will be found to constitute a force majeure event under the contract.
It is also important for the force majeure provision to address the nature of the relief afforded to the party affected by the force majeure event. Contractors should certainly include in the force majeure clause that their performance is excused and they will not be responsible for delays caused by the force majeure event. They should also attempt to include the right to be compensated for delay costs during the force majeure event, including demobilization costs as well as remobilization costs for once the force majeure event has ended. Depending on the length of the force majeure event, contractors may also want to include the right to terminate the contract if the force majeure event goes on for a certain set period of time to avoid being stuck in limbo if a force majeure event extends for multiple months.
Force majeure clauses have the potential to have a tremendous impact on a business’ operations in the aftermath of an unforeseeable natural disaster or other qualifying event. Those in the construction industry need to be vigilant in negotiating to include force majeure clauses in their contracts that are comprehensive and provide protection in the event of a force majeure event. Although there may be legal remedies outside the contract, they will generally pale in comparison and are no substitute for clear contractual language in a force majeure clause addressing these potential issues head on and before they occur.