Understanding the Force Majeure Clause and Its Role in Contracts with Special Districts During the Pandemic

by Seth Behn, Janice Rustin and Wayne Flowers

The Covid-19 (novel coronavirus) pandemic and its various governmental responses have created widespread disruptions throughout the economy and society in general. These disruptions will continue to be felt long into the future, no matter how soon the situation resolves itself.  Special districts and other local governments may have felt the impacts of the pandemic on their contracting and procurement functions as projects became delayed as a result of stay-at-home orders, supply chain demands and other unforeseen circumstances.  This article describes tips to help districts and other local government agencies navigate contract disputes that arise out of contractor claims for delay or failure to perform as a result of the pandemic.

What is a force majeure clause?

A force majeure clause in a contract provides parties with a defense that allows either of them to suspend performance of their contractual obligations or to terminate their performance altogether, provided certain circumstances are met.  A contractor may seek to rely on a force majeure clause when the work has become impossible for reasons that were both unpredictable and outside of either parties control.

Florida courts have described a force majeure event as an event that is “so extraordinary and unprecedented that human foresight could not anticipate or guard against it, and the effect of which could not be prevented or avoided by the exercise of reasonable prudence, diligence, and care.”[1] This language raises a few important points in light of the pandemic. Most would agree that quarantine and stay-at-home orders issued during these past few months have been “extraordinary and unprecedented” events.  However, whether the effects of these events “could not be prevented” depends on the specific facts of the situation and the nature of the work to be performed.

Since special districts for the most part engage in work that is considered “an essential service” under many of the state and local government stay-at-home orders, it is unlikely that the stay-at-home orders on their own prevented the contractor from performing his obligations.   Of course, merely being “allowed” to continue work does not mean that the contractor was able to obtain the necessary resources and workers to complete the job. But the point to remember is that the pandemic is not a get-out-jail-free card. Florida courts have recognized this, stating that, “there must be no admixture of negligence or want of diligence, judgment, or skill on the part of the promisor.”[2] This is to say that a mere “Act of God” alone is not a sufficient defense to non-performance.  There must be nothing that the contractor could have done in light of this event to meet his contractual obligations.

Analyze the facts of the claim

Districts in receipt of a contractor’s claim for delay or non-performance as a result of the pandemic (or events related to it) should ask the following questions before acting on the claim:

  • When was performance supposed to be completed? If the project should have been completed or the goods or services were scheduled to be delivered before the “extraordinary event” occurred, the contractor cannot rely on the doctrine of force majeure to excuse his performance.
  • What was the nature of the performance? If the job could have been performed while meeting all social distancing guidelines, or if the contractor continued to work on other jobs, it is questionable as to whether his performance was in fact affected by the pandemic.
  • Is time of the essence? If the contract has a specific date of performance that can be adjusted without harm to the district or agency, the parties may agree to amend the contract to allow the work to be completed at a later date, even if it causes some level of hardship to the contractor.   A contract is not void under force majeure merely because it has become difficult or burdensome to perform.

The pandemic may also shield a district for delays in certain construction projects.   Many construction contracts have a “stand-by” fee for situations where construction is delayed due to some failure of a condition precedent. However, the shutdown may have prevented an agency from timely completing certain actions, such as inspections, plan review, procurement of equipment or materials, or from making timely payments. Accordingly, an agency may be in a position to avoid those “stand-by” payments if it can show that it too faced an unavoidable, unforeseeable delay. Again, close review of the terms of the contract will be critical.

Work toward resolution

Districts that encounter issues with outstanding contracts are encouraged to make good-faith efforts to amicably resolve disputes in performance by giving the contractor what it needs to move the job toward completion. This may be achieved by increasing the contract time to complete the project or increasing the contract price if economic factors are preventing the contractor from going forward.  For any agreements made between the parties, make sure the changes are documented in writing so that there is no ambiguity as to what is expected from the parties going forward.  Also, any amendments to the contract terms must conform to the contract requirements for amendments in order to be enforceable.

Review your standard force majeure clause

Now is a good time to review your agency’s standard contract documents to determine how risks related to unforeseen events like the pandemic are allocated.  If the contract has a force majeure clause, make sure that “pandemic” and “quarantine” are expressly included in the definition of force majeure to avoid any ambiguity as to whether the clause applies to any pandemic-related delays.  You may also want to include “act of governmental authority” to cover quarantine, stay-at-home and other executive orders.  If governmental actions are considered force majeure events under the contract’s terms, there should be some limiting language to prevent contractor from applying the force majeure clause to excuse any delays in obtaining permit and licensing approvals that are the result of the contractor’s own conduct.

Another useful addition to a force majeure clause is a requirement that the non-performing party provide written notice describing the particulars of the force majeure event and the expected delay, with a promise to provide timely written reports of its progress.  Also, the clause should expressly state that any performance that was to be completed before the onset of the force majeure event will not be excused as a result of the event.

If the contract does not contain an express force majeure clause, this does not mean that the contract does not protect the parties from unforeseen events.  Some standard form construction contracts use provisions related to “excusable delay” which do not expressly define force majeure.  These clauses are usually more focused on which kind of delays are compensable and which are not, and the types of damages that will be compensated.  An excusable delay provision may be useful to protect districts from future claims of delay related to the pandemic. One could argue that a second wave of stay-at-home orders is reasonably foreseeable and therefore not covered under the force majeure clause.  For that reason, parties entering new contracts should discuss how the risks of a second wave with respect to delay and increased costs will be allocated between the parties and add provisions to the contract that address these issues.

Another reason why a contract may not have an express force majeure provision is that the contract may be part of a larger set of bid documents.  Contracts that are included with standard bid documents may be short one- or two-page contracts that address only the basic terms of the project like the scope of work and payment.  These short “cover” contracts typically incorporate all of the terms and conditions of the bid package, which may include up to 40 pages of general and special conditions.  Most bid documents expressly state that if a contractor is selected, his response to the bid will be deemed an agreement to all the terms and conditions contained therein.

Conclusion

The Covid-19 (novel coronavirus) pandemic created unforeseeable disruptions to every faction of our nation, and special districts were not spared. However the role of providing critical services to your constituents remains as important, if not more so, than ever. Ensuring that existing and future contracts are honored and diligently performed can be furthered through an understanding of what a force majeure clause is, and how to use it to your agency’s advantage.

[1]  Florida Power Corporation v. City of Tallahassee, 18 So.2d 671, 675 (Fla. 1944).

[2] Id.