Black Swan Insights: Fortifying Projects with Force Majeure Strategies

What is the definition of Force Majeure?

In our last article, we wrote about Black Swans, those unfortunate events that are nigh impossible to predict. Considering Black Swans will matter for any project because events can happen that will prohibit the project from achieving the defined objective in the Statement of Work or other scope documents. This brings us to force majeure.

Force majeure is a legal term that refers to unforeseeable circumstances that prevent someone from fulfilling a contract. These circumstances are typically considered beyond the control of the parties involved. They can include natural disasters, wars, strikes, acts of terrorism, and other events outside the affected party’s reasonable control. The term is derived from French and translates to “superior force.”

Contracts and Project Implications

The project scope and customer expectations are tangibly defined in the contract.  Accepting the project requires signing and accepting the customer’s expectations. The contract is often negotiated between the procurement professionals from the supplier, engineers, and management from both organizations. The project manager should be involved in these conversations to understand the project’s operating area.

A force majeure clause in a contract outlines the specific events or conditions that, if they occur, would excuse one or both parties from fulfilling their contractual obligations without being held in breach of contract. The purpose of including a force majeure clause is to address situations where performance becomes impossible or impracticable due to unexpected circumstances or unexpected events.

When a force majeure event occurs, the affected party is typically relieved of its contractual duties for the duration of the event, and there may be provisions for how the parties will handle the consequences of the disruption. These provisions often include notification requirements, efforts to mitigate the impact, and, in some cases, the possibility of contract termination or renegotiation if the force majeure event persists for an extended period.

Specific Language

These contract clauses are not always clearly defined but refer to events as an act of God.  It is important to note that the lack of specific language and scope of force majeure clauses can vary between contracts. Ambiguous language creates ambiguity about what constitutes an act of God. Therefore, the enforceability of such clauses may also depend on the governing law and the circumstances surrounding the specific event in question. Therefore, when drafting or interpreting force majeure clauses, seeking legal advice is advisable to ensure clarity and effectiveness.

Should there be a mention of force majeure in a project plan?

Yes, mentioning force majeure in a project plan is generally advisable. As mentioned above, force majeure refers to unforeseeable circumstances that could prevent the fulfillment of a contract or the completion of a project, and these circumstances are beyond the control of the parties involved. Examples include natural disasters, war, acts of terrorism, and other events that are beyond human control.

Including a force majeure clause in your project plan allows for acknowledging such unforeseen events and provides a mechanism for handling their impact on the project. It is essential to clearly define what events constitute force majeure in your project plan and outline the procedures that should be followed if such events occur.

A well-drafted force majeure clause can help protect both parties involved in the project by establishing a framework for addressing delays or disruptions caused by events beyond their control. It may also specify how parties will communicate, what steps they will take to mitigate the impact, and what happens regarding contractual obligations and timelines.

Remember that the specific language and details of a force majeure clause may vary based on the nature of the project, the parties involved, and applicable legal considerations. It’s often a good idea to consult with legal professionals or contract specialists when drafting or reviewing force majeure clauses to ensure they align with your project’s specific needs and circumstances.

Be careful when developing the list of events that the force majeure clause covers. Our experiences have been that Murphy’s Law kicks in when something is specifically left off the list, and it then becomes the event that occurs and impacts the project.

Murphy’s Law: Anything that can go wrong, will go wrong.

Elements of Force Majeure

A well-written force majeure clause should be clear, comprehensive, and tailored to the project’s specific circumstances. Here are some key elements to consider when drafting a force majeure clause:

1. Definition of Force Majeure Events: Clearly define what events or circumstances will be considered force majeure. This can include natural disasters (earthquakes, floods, hurricanes), acts of war, terrorism, government actions, strikes, and other events that are beyond the reasonable control of the parties.
2. Specificity and Exhaustiveness: Be as specific and exhaustive as possible when listing force majeure events. This helps avoid disputes about whether a particular event qualifies. However, it’s also common to include a catch-all phrase like “or any other events beyond the control of the parties.”
3. Notification Requirements: Specify the notification process that must be followed when a force majeure event occurs. This may include the timeframe within which the affected party must notify the other party, the information to be included in the notice, and the communication channels to be used.
4. Mitigation Efforts: Outline the steps that parties must take to mitigate the impact of the force majeure event. This may include making reasonable efforts to resume performance despite the occurrence of the force majeure event.
5. Duration of Relief: Clarify how long the force majeure event will excuse performance under the contract. Specify whether there are any conditions for termination or renegotiation of the contract if the force majeure event persists for an extended period.
6. Consequences: Define the consequences of a force majeure event, such as the suspension of performance, the extension of deadlines, or the right to terminate the contract without penalty.
7. Communication and Cooperation: Include provisions emphasizing the need for ongoing communication and cooperation between the parties during and after a force majeure event. This can help facilitate a smoother resolution and transition back to normal project activities.
8. Governing Law and Dispute Resolution: Clearly state the governing law that will apply to the force majeure clause and outline the dispute resolution process in case there is a disagreement regarding the application of the clause.
9. Review by Legal Professionals: It is advisable to have legal professionals review the force majeure clause to ensure that it complies with relevant laws and is appropriately tailored to the project’s specific circumstances.

Conclusion

As project managers (maybe most people in general) we are usually “Let’s Go,” “We can do this!” kinds of people. We don’t usually want to hear, “What if a disaster happens?” After all, we have our risk register and risk plan. But of course, some big things are out of our control. A Force Majeure clause and all contracts must be included in the Project Plan. No matter the project, any contractual obligations accepted by the company will have implications for the project, project manager, and project team.