One of the prime areas of concern for contractors with respect to the successful performance of a signed contract is focused around completing the project in the time frame agreed upon or expected by the developer or owner.
While every contractor strives to hit all deadlines, delays caused by subcontractors are inevitable and can create liability and lost revenue. So how can a contractor limit liability when a subcontractor or product manufacturer creates delays? The answer is to use the “force” in all agreements. This is not the mystical “force” of Star Wars, but rather the force majeure clause.
USING THE FORCE
Force majeure is a French word that literally means “superior or greater force.” The force majeure clause serves to excuse a party from liability if some unforeseen event beyond the control of that party prevents it from performing its obligations under the contract. In other words, a force majeure clause provides a means by which the parties may anticipate a condition that will make performance impracticable. Such a clause conditions a party’s duty to perform upon the non-occurrence of some event beyond its control and serious enough to interfere materially with performance.
Typically, force majeure clauses cover natural disasters or other “Acts of God,” war or the failure of third parties, such as suppliers and subcontractors, to perform their obligations to the contracting party. It is important to remember that force majeure clauses are intended to excuse a party only if the failure to perform could not be avoided by the exercise of due care by that party.
For example, if the contractor has ordered custom cabinetry from a subcontractor that manufactures its products in another country and there is civil unrest, a terrorist threat or aggressive weather conditions, the product may be delayed for weeks. This delay will trickle down to the contractor and cause the entire job to be delayed. An owner might sue the contractor for liquidated damages despite the fact that the subcontractor was the cause of the delay.
When creating a force majeure clause, it is beneficial if the clause sets forth some specific examples of acts that will excuse performance under the clause, such as wars, natural disasters, inclement weather and other major events that are clearly outside a party’s control. Inclusion of examples will help clarify the parties’ intent that such clauses are not intended to apply to excuse failures to perform for reasons within the control of the parties.
Here’s a typical example of a force majeure clause:
“Neither party shall be liable in damages or have the right to terminate this Agreement for any reasonable delay or default in performing hereunder if such delay or default is caused by conditions beyond its control including, but not limited to Acts of God, Government restrictions (including the denial or cancellation of any export or other necessary license), wars, insurrections and/or any other cause beyond the reasonable control of the party whose performance is affected.”
Here’s another example:
“Delivery dates, when given, are approximate. Seller shall not be liable for any reasonable delaying performance or failure to perform which is attributable to any cause beyond its immediate control, including, but not limited to, Acts of God, fire or other catastrophes, strikes, pickets, civil or military authority, fabrications delays, inability to obtain materials, transportation delays or other causes beyond its control.”
In general, courts will enforce properly constructed force majeure clauses. When analyzing the enforceability of a force majeure clause, the courts will consider the contractual terms, the surrounding circumstances and the purpose of the contract. Notwithstanding the foregoing, the ultimate key to the enforceability of a force majeure clause is that the supervening event which prevents performance under the contract must be beyond the control of the seller.
Using a force majeure clause in contracts may help contractors limit liability when subcontractor delays hold up a project or extend a deadline. Large construction projects have a number of moving parts. The more subcontractors involved in a project, the more likely someone will experience delays. Contractors should use the “force” to limit as much liability as possible.