REUTERS | Mike Blake

Swine flu: contracts and force majeure

This post continues from my thoughts last week. (For more general legal information on pandemic influenza, click here.)

Contracts and clauses

When I first started in the law, force majeure clauses were not discussed at any length in most contract negotiations. However, in recent years (and especially after the foot and mouth crisis of 2001) people have started looking at them in much more detail. In a sense, a force majeure clause in a construction contract is a sort of contingency plan.

Given the current concerns about swine flu, it would be sensible to look at your contracts to see how they would deal with a pandemic that led to mass staff absences.

The first contractual topic that springs to mind is time:

  • Will you get an extension of time where there is a fixed completion date?
  • Will you have to comply with fixed response times in maintenance contracts?
  • Even if the answer is yes, what else do you need to do to protect your position?

Some standard forms

FIDIC White Book

In relation to all contracts, pay close attention to (for example) giving notices and the duty to mitigate.

Clause 8.4 (d) of the FIDIC White Book is directly on the point:

“Unforeseeable shortages in the availability of personnel … caused by epidemic.”

Let’s not debate the difference between an epidemic and a pandemic.  (I think you could fairly argue that for these purposes a pandemic is a group of epidemics).  But the word “unforeseeable” could be a bit difficult, as an article on the BBC website states that even if “the current round of activity [has] peaked … there is a high possibility that this virus will come back, especially in colder periods”.

If you are a consultant negotiating on that form, it might be a good idea to cross out the word “unforeseeable”.

ICE Design and Construct Contract

Clause 44(1)(e) of the ICE Design and Construct Contract refers to “other special circumstances of any kind whatsoever which may occur”.

That is helpful to contractors, but what is it about the circumstances that makes them “special”?

NEC3

Clause 60.1(19) of the NEC3 ECC talks about an event which “stops the Contractor completing the works by the date shown on the Accepted Programme” and which:

  • neither Party could prevent; and
  • an experienced contractor would have judged at the Contract Date to have such a small chance of occurring that it would have been unreasonable for him to have allowed for it.

Again, helpful to contractors, but the last words may prove troublesome in an application for an extension of time in a contract signed now, given the BBC report referred to above (and other news stories).  So how do you “allow for” the possibility of a flu pandemic predicted for the autumn?  If you put an extra month into your programme, what if there is no pandemic?

JCT 2005 Design and Build

The JCT 2005 Design and Build Contract has a list of relevant events for extension of time:

  • Clause 2.26.12 refers to “the exercise after the Base Date by the UK government of any statutory power which directly affects the execution of the Works”. (I am not sure what “direct” will be taken to mean, but I recommend a quick (albeit eye-opening) read of Part Two of the Civil Contingencies Act 2004 in particular Section 22 (3).  Some of that seems pretty direct to me.)
  • Clause 2.26.13 refers to force majeure.

Other standard forms

Each different standard form treats force majeure differently: for some more examples, click here.

Force majeure clauses

A force majeure clause with a list of examples is obviously “better” than one without – providing the clause you want to rely on is in the list! Many purchasers now insist on exhaustive lists.

I remember spending a long time negotiating and eventually agreeing a comprehensive list on behalf of a contractor, which referred both epidemics and pandemics, but also included “maritime disasters”.

I got a phone call a few months later saying that some plant had been sent to the site by sea. The ship had gone through a storm and the plant had shifted position and had been damaged. Was this a disaster? In fact, it was an insured event and was dealt with through that route, but the purchaser was adamant that there could only have been a disaster if the ship had sunk. Rolling about to the extent that the plant was damaged was not enough.

No list will ever cover every situation (some are not meant to), so some people prefer to use “force majeure” undefined and then argue the point when the problem arises.

The difficulty is that “force majeure” is not a term of art and is open to interpretation. The person who wishes to rely on the clause will have to convince the adjudicator or the court that their circumstances fall within force majeure.

There is quite a good summary of the law (to the extent that it can be summarised) in Chitty, but it will not get you much further than knowing that there is no definite answer.  One point which is worth mentioning is that, conceptually, force majeure will always be seen as beyond the control of the affected party. This is not the same as unforeseeable. However you will need to show that – even if you had done all that was to be reasonably expected of someone in your position – you would still have been affected.

In an individual case, the parties, court or arbitrator will look at whether something is or is not force majeure on the facts before them. It will always be worth looking to see if any other clause in the contract can assist you.

Anti-force majeure clauses and the “blue light” arena

Most purchasers are willing to concede that the contractor will not perform in a “genuine” force majeure situation. What they are mainly worried about is a force majeure clause being used in a situation that is purely commercial in nature, or could have been avoided by reasonable precautions.

However there are some situations where even “genuine” force majeure is not going to be regarded as sufficient cause for failure to perform. This is the case in the area of essential services. Included in this category are the “blue light” services, their facilities and suppliers, healthcare and caring professions, but I also have in mind industries such as water and sewage treatment, power supply and waste collection. There are others, such as telecommunications (to say nothing of certain parts of Government and the military).

In fact, the list is quite long and a look at the UK Resilience homepage is quite enlightening. With many supermarkets running a “just in time” stocking service, it seems that there are quite a large number of people who need to ramp up their service levels during force majeure rather than reducing them. In the words of the old song “when the going gets tough, the tough get going“.

I have been involved in drafting contracts where certain services fall into this category and the force majeure clauses look very different. They tend to focus on the parties getting together to decide what can be done, rather than arguing about what can’t be done, and being able to suspend certain procedures if (for example) the post, internet and phone lines go down.

What to do

Actually, the emergency “blue light” contracts’ approach is not a bad place to start if you do find that your project is affected by a crisis, whether a pandemic or a different type (even if you are not operating in the “blue light” arena or providing another vital service).

As I have said on many occasions, the three most important things in construction projects are management, management and management.

So, dust off those contingency plans (even if you aren’t affected) to see how they would have coped if the worst happened…

…and, if you are affected, it is well worth spending time discussing with your suppliers and clients what can be done (rather than what can’t) with a view to getting an agreed way forward, rather than a dispute.

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