Gone are the days of handshake deals. Construction contracts have sprawled into complex documents, but when boiled down, there are two key factors at the heart of the contract:
- determining who’s responsible for what, and
- allocating risk.
This post will focus on the second part: risk.
No matter how much you try to plan ahead, many projects are ultimately at the mercy of an act of God — weather events, natural disasters, and so on. So what happens when disaster strikes? That’s what force majeure clauses are for in construction contracts.
What is a Force Majeure Clause?
A force majeure clause relieves one party from performing a contractual obligation under certain circumstances that would make performance impractical, impossible, or even illegal. The term translates to “superior force” – and that’s a good indicator for when these clauses come into play: when superior external forces such as a storm or a natural disaster affect a project participant’s ability to successfully complete their responsibilities in full or in a timely manner on a construction project.
Imagine work has begun on a project in Florida. Two weeks into the build, a category 5 hurricane makes landfall in your area. Without a force majeure clause in the construction contract, a contractor could potentially be sued for not completing his work on time!
When do they come into play?
At the end of the day, these clauses provide an excuse for why work could not be performed. Typically, when you fail to perform part of your contract, you could find yourself in breach of the agreement. But when a force majeure clause is in play, the nonperformance could be excused.
What Types of Events can Trigger a Force Majeure Clause?
Force majeure clauses are intended to cover events that neither party can control. But determining exactly which types of events will trigger the clause is crucial! Natural disasters are just one type of triggering event. These clauses can also cover a range of other events from labor strikes and material shortages, to acts of terrorism and war.
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Other Key Elements
Determining what triggers a force majeure clause isn’t the only important aspect. It’s also important to determine how long nonperformance will be excused. For example, a days worth of lost work will not excuse nonperformance of the whole contract.
Other useful things to include are notification procedures and post-event obligations. A solid force majeure clause should provide the answers to questions such as:
- How will the parties be notified when a triggering event occurs?
- What are a contractor’s obligations after the event?
- Is the contract excused or merely delayed?
When Force Majeure Fails
Using force majeure as a defense for not performing to the requirements spelled out in your contract can be tough. Foreseeability has become a tricky topic. Many defenses have failed because, given the circumstances, the judge determined that the event was reasonably foreseeable and appropriate measures should have been taken. Basically, the foreseeable argument is that the failure to protect yourself means that you are acknowledging that you “own” the risk should something happen.
Along the same lines, alternative means of performance are also considered. When using a force majeure defense, you must prove that the non-performance could not have been avoided or overcome. In other words, you have to show performance was practically impossible. That’s why you should always have a Plan B. Having contingencies in place can ensure that you’re protected.
Keep in mind: The mere presence of a force majeure clause is not a substitute for creating a backup plan.
Lastly, as always, communication (by giving notice) is key. Notice requirements are important to include in any force majeure clause. Typically, notice must be made “within a reasonable time” or “without delay.” Giving notice provides a reasonable opportunity to mitigate the consequences and take steps to overcome whatever obstacle has come into play.
Getting the most out of your force majeure protection is crucial when dealing with unforeseen events. Careful drafting and proper precautions can ensure you aren’t liable for things out of your control. You should always expect the unexpected because when it comes to construction, anything is possible!
Further Reading on Construction Contracts
- Construction Contracts – Beware of Certain Clauses
- Can You File a Lien Without a Written Contract?
- Download a free construction contract template