The last time you negotiated a construction contract, how much time did you spend on the “Force Majeure” clause? Do your contracts even have such a clause?
The global impacts of the coronavirus/COVID-19 (“the coronavirus”) outbreak might now put these contract provisions at the center of attention.
Generally, a Force Majeure event is an extraordinary circumstance beyond the control of the contracting parties, which could include a war, strike, riot or “act of God” (hurricane, flood, earthquake, etc.).
It is well known that the supply chain of foreign products and building components has already been impacted by the coronavirus. The Chinese government has implemented lock downs, quarantines, and other measures to contain the disease. As a result, the Chinese government, through the China Council for the Promotion of Internal Trade, has issued thousands of Force Majeure “certificates” to businesses, legally excusing them from contract performance within China. But these government-issued certificates apply only to transactions within Chinese borders.
We do not have such government protections domestically. Instead, contractors or material suppliers who are impacted by Force Majeure events must look to their contracts to assess whether an excusable Force Majeure event includes the inability to furnish materials or equipment due to foreign government restrictions or global health conditions.
If the Force Majeure clause does not provide protection against the inability to provide specified equipment or materials, then the contractor or supplier must rely on the legal doctrine of “impossibility” of performance. However, this excuse cannot be used if alternate materials or equipment are obtainable elsewhere, albeit at a higher cost. Contractors and material suppliers must also review their insurance policies to assess whether they provide business interruption coverage for this unique event that is impacting our global economy.