Managing contracts in complex and uncertain environments, whether in construction, energy or the food industry, requires the ability to anticipate and a firm grip on risk. Among those risks sits the famous force majeure. An unforeseeable and irresistible event, it can seriously disrupt performance of a contract. Faced with that situation, the contract manager has a serious part to play in minimising its impact. In this article, we set out the essentials for handling force majeure events proactively and effectively.
What is a force majeure event
First, a brief reminder of what force majeure means under French law. Article 1218 of the French Civil Code defines force majeure as an event beyond the control of one of the parties, which could not reasonably have been foreseen when the contract was concluded and whose effects cannot be avoided by appropriate measures, and which prevents performance of the obligation. In other words, it is an event that, even with every possible precaution and measure, could be neither anticipated nor overcome.
Force majeure is defined by three legal tests: unforeseeability (the event could not be anticipated), irresistibility (its consequences could not be avoided), and externality (the event is beyond the control of the party invoking it).
That was notably the case when, in 2020, the Covid-19 pandemic led to lockdowns worldwide and many sectors invoked force majeure. Classifying the pandemic as force majeure allowed many companies to suspend their obligations temporarily without penalty. It is nonetheless more than necessary to provide upfront for the contract to be adapted in such cases.
Building force majeure into the contract
Article 1218 of the French Civil Code is not a mandatory rule of public policy. That means the parties to a contract may decide to frame force majeure themselves, in particular as regards which events count as force majeure events but also what effects they have (suspension of the contract, termination, fresh negotiations between the parties, and so on). It is therefore common to find a clause setting out force majeure contractually. Below are a few points to watch:
1.List of events
It is advisable to draw up a non-exhaustive list of events that may qualify as force majeure, including examples relevant to the industry concerned. Such events include natural disasters, health crises, armed conflict, and administrative decisions (border closures, restrictions).
An open-ended clause can also be considered. It leaves room for other events, not specifically listed, to qualify as force majeure.
2. Notification procedures
You need to check that the clause sets a specific period within which the affected party must inform the other that the event has occurred. That period is often a few days after the force majeure arises.
It is also essential to spell out the form of that notification and to include elements such as the nature of the event, its effects on the contractual obligations, and its estimated duration.
3. Suspension of obligations
Another important point is to determine the effects on the contractual obligations: which obligations are suspended? For how long? What happens if the event persists beyond a predefined period?
4. Termination for prolonged force majeure
In some cases, a force majeure event can make it impossible to continue the contract even after the event has ended (for example, the destruction of a site). It is advisable to provide for a right of termination for prolonged force majeure if the event exceeds a set number of days.
Particular attention should be paid to differences of interpretation between the laws of the countries involved in an international contract. An event may qualify as force majeure under French law and case law, but not necessarily in another state.
What reflexes should you adopt when a force majeure event occurs?
The first reaction of a company facing a force majeure event must be to assess the impacts on the current project quickly. Here are some actions the contract manager can drive:
1.Internal reflexes
- Setting up a crisis team: the starting point, for the contract manager working with the project manager in particular, is to identify the key stakeholders (project leads, buyers, lawyers, operations managers, contract managers and so on) who will define an immediate action plan.
- Assessing immediate risks: this means analysing the direct consequences for operations, human resources and the budget. Identify the immediate priorities, such as team safety, resource management, or communication with partners.
- Detailed analysis of the impacts on the project critical path: force majeure can affect a project’s critical path, causing delays to key tasks, which the contract manager must assess with the teams in order to rebuild a workable schedule. It also generates cost overruns linked to production stoppages, restarts and potential liquidated damages, which the contract manager must anticipate by checking the contract clauses on the suspension of liquidated damages and on who bears those extra costs. Proactive management therefore keeps the impact on the project and on the finances to a minimum.
2. With the counterparty
- Formal notification: it is critical to inform the counterparty within the periods set by the contract. That notification must be detailed and documented to head off any later challenge.
- Collaboration: constructive dialogue with the counterparty will be needed to find alternative solutions (rescheduling, changes to deliveries, and so on).
- Keeping records: archiving every exchange, letter and report is a step never to be neglected in the event of a dispute or a future renegotiation.
3. With the client
- Transparency: this means informing the client quickly, explaining in detail the impacts of the force majeure on the project
- Proposed alternatives: where possible, the client will be reassured to be shown schedule adjustments or temporary solutions to soften the impact of the force majeure.
- Regular communication: finally, regular communication is needed to keep the client informed throughout the period affected by the event.
Conclusion
For a contract manager, force majeure is not only a matter of legal compliance; it is also an operational challenge calling for anticipation, responsiveness and collaboration. By drafting suitable contract clauses, reacting quickly to unforeseeable events and analysing the impacts carefully, a contract manager can put in place the actions that soften the consequences of those events on the project and on the contractual relationships. That capacity for proactive management is a major asset for any organisation.