Will COVID-19 trigger 'act of God' contract provisions?

Now is the time for subcontractors to review the obscure contract provision better known as the "force majeure" clause.

The COVID-19 pandemic is still with us, and with it some renewed interest in the oft-considered obscure contract provision better known as the “force majeure” clause.

Force majeure clauses are found in a number of agreements from leases, vendor contracts, licensing agreements and of course subcontracts to include those found in government subcontracts.

According to Black’s Law Dictionary (yes there is a dictionary just for lawyers), the term force majeure comes from the French phrase meaning “superior or irresistible force.” Many have referred to this type of clause as an “Act of God” clause. And, of course, Black’s defines that as well: “An act occasioned exclusively by violence of nature without the interference of any human agency.”

In plain English, a force majeure in a contractual sense is where an extraordinary or unforeseeable event beyond the control of one party prevents it from performing the contract. Put another way, if that event occurs, it may alter the contractual parties’ obligations. Although there can be dozens of circumstances or events that may constitute a force majeure event, typical examples include war, riots, earthquakes, weather events, labor strikes, and of course epidemics.

Depending on its specific language, force majeure language may allow for delay in performance or excused performance, either partially or completely. Or it may provide a party the ability to outright terminate the contract. The latter remedy is less common. Usually the force majeure clause will buy some time – that is, allow for a delay of performance or a slip in a delivery schedule. It typically is not (but can be) a “get out of jail free” card in terms of overall performance obligations. 

I’ve seen many a lawyer and contract manager just skip these clauses as not worthy of review because, well, what are the chances that the Almighty will reign down with a seismic disaster, a devastating tsunami or a global pandemic? But in the world of COVID, which apparently is not going away anytime soon, we are now paying more attention to this language.

So, tying this in to the GovCon world, you won’t see a classic force majeure clause in a government prime contract. (And if you do let me know and I’ll retire after 35 years on the job not seeing one). These clauses are normally found in subcontracts and other commercial agreements such as vendor agreements, leases and some consulting and professional services agreements, among others. 

For something at least conceptually similar in Government prime contracts look for the standard (and mandatory) FAR 52.249-14 clause, also known as the Excusable Delays Clause or EDC. The EDC, which is used for cost reimbursement, time-and-materials and labor-hour type contracts, provides that contract performance delays may be excusable if they are “beyond the control and without the fault or negligence of the contractor.” The clause uses the following examples: “(1) acts of God or of the public enemy, (2) acts of the Government in either its sovereign or contractual capacity, (3) fires, (4) floods, (5) epidemics, (6) quarantine restrictions, (7) strikes, (8) freight embargoes, and (9) unusually severe weather.”

Is the COVID-19 pandemic an event that would trigger this clause? I doubt this has been an issue fully tested in the courts but consider this: an epidemic (covered by the EDC) is defined as a “widespread occurrence of an infectious disease in a community at a particular time.” A pandemic is that same infectious disease “prevalent over a whole country or the world.” So, a pandemic is an epidemic on steroids. You bet it triggers the EDC, or at least it should.

But whether COVID-19 is a qualifying event under a commercial force majeure clause and if so how it affects future contract performance depends on the particular language of that clause, and how that clause squares with other clauses included in the subcontract or other agreement. The best tip here is to carefully review your subcontract agreements to assure that (as a prime) your subcontractor is not able to completely escape its performance obligations under a broad force majeure clause and that (as a sub) your rights are spelled out in the event that performance may be delayed or subject to outright termination under such a clause. The bottom line is that, especially with COVID, conflicting provisions in any agreement are a recipe for litigation.

A few other things to consider about the EDC and its comparison with the commercially drafted force majeure clause:

First, the EDC provides that the contractor (or subcontractor) will not be in default where a failure of timely performance is caused by any of the above-stated (or perhaps similar) events. Thus, it allows a delay in performance; it does not excuse performance itself. It can, however, be the basis of a later claim against the government for delay-related costs incurred. Also, a prime contractor cannot invoke this clause if it or its subcontractor has defaulted for other reasons.

Second, considering the limited reach of the EDC, it may be ill-advised for a Government prime contractor to allow for a subcontract force majeure provision that may be interpreted to excuse performance or allow termination of the subcontract due to a force majeure event, like COVID-19, while the prime can only delay performance under the EDC. A subcontract may (and I’ve seen more than a few that do) contain a broad force majeure clause while at the same time incorporating the EDC, causing the subcontract to contain conflicting and potentially ambiguous language, especially if the subcontract contains no order of precedent provision that elevates incorporated FAR clauses over conflicting subcontract language. 

Third, in any proposed agreement containing a force majeure clause, it is prudent to review it carefully to determine whether it serves your particular business interests. There may (and I underscore may) be a situation where a subcontractor should seek a robust force majeure clause that provides more protection than the EDC, such as one that may provide for a contract revision or termination. This may be especially warranted where a particular extraordinary event like COVID or any similar event will completely prevent performance or delivery by the subcontractor, or where the non-occurrence of such an event is a basic assumption upon which the agreement was made. That will depend on the circumstances of the subcontract and its deliverables. But in the end consider the fairness of that when the prime is stuck with the more limited EDC and may be on the hook if the subcontractor fails completely to perform.

Finally, there are some common-law (i.e., the ones made by the courts) remedies that may be available even absent a force majeure clause, such as frustration, impracticality or impossibility of performance. These issues are way beyond the scope of this commentary but suffice it to say that they are not a simple as they sound and their application can be limited.

With COVID-19, force majeure clauses are now getting their just due. Just as your business is nuanced, there are a number of different force majeure clause variations. In fact, there are more variations of these clauses than opinions on wearing PPE to prevent COVID.

Stay safe.

X
This website uses cookies to enhance user experience and to analyze performance and traffic on our website. We also share information about your use of our site with our social media, advertising and analytics partners. Learn More / Do Not Sell My Personal Information
Accept Cookies
X
Cookie Preferences Cookie List

Do Not Sell My Personal Information

When you visit our website, we store cookies on your browser to collect information. The information collected might relate to you, your preferences or your device, and is mostly used to make the site work as you expect it to and to provide a more personalized web experience. However, you can choose not to allow certain types of cookies, which may impact your experience of the site and the services we are able to offer. Click on the different category headings to find out more and change our default settings according to your preference. You cannot opt-out of our First Party Strictly Necessary Cookies as they are deployed in order to ensure the proper functioning of our website (such as prompting the cookie banner and remembering your settings, to log into your account, to redirect you when you log out, etc.). For more information about the First and Third Party Cookies used please follow this link.

Allow All Cookies

Manage Consent Preferences

Strictly Necessary Cookies - Always Active

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data, Targeting & Social Media Cookies

Under the California Consumer Privacy Act, you have the right to opt-out of the sale of your personal information to third parties. These cookies collect information for analytics and to personalize your experience with targeted ads. You may exercise your right to opt out of the sale of personal information by using this toggle switch. If you opt out we will not be able to offer you personalised ads and will not hand over your personal information to any third parties. Additionally, you may contact our legal department for further clarification about your rights as a California consumer by using this Exercise My Rights link

If you have enabled privacy controls on your browser (such as a plugin), we have to take that as a valid request to opt-out. Therefore we would not be able to track your activity through the web. This may affect our ability to personalize ads according to your preferences.

Targeting cookies may be set through our site by our advertising partners. They may be used by those companies to build a profile of your interests and show you relevant adverts on other sites. They do not store directly personal information, but are based on uniquely identifying your browser and internet device. If you do not allow these cookies, you will experience less targeted advertising.

Social media cookies are set by a range of social media services that we have added to the site to enable you to share our content with your friends and networks. They are capable of tracking your browser across other sites and building up a profile of your interests. This may impact the content and messages you see on other websites you visit. If you do not allow these cookies you may not be able to use or see these sharing tools.

If you want to opt out of all of our lead reports and lists, please submit a privacy request at our Do Not Sell page.

Save Settings
Cookie Preferences Cookie List

Cookie List

A cookie is a small piece of data (text file) that a website – when visited by a user – asks your browser to store on your device in order to remember information about you, such as your language preference or login information. Those cookies are set by us and called first-party cookies. We also use third-party cookies – which are cookies from a domain different than the domain of the website you are visiting – for our advertising and marketing efforts. More specifically, we use cookies and other tracking technologies for the following purposes:

Strictly Necessary Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Functional Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Performance Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Social Media Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Targeting Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.