IACCM Contract Management Forum

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2020-04-02 08:29:09

Starting a contract DURING a Force Majeure Event

If I am letting a new contract with a vendor and FM is currently in effect how can we guard against either party claiming FM and suspending performance at any time? Most agree that Coronavirus is a Force Majeure Event. In my contracts "Pandemic" is listed. I don't want to exclude pandemic as a cause because what if half of my healthy colleagues go sick, or my vendor who is today, due to the pandemic, working at 50% decides to work at 30% and I'm in the 20% of their capacity (these are just examples, not specific risks I have identified).
 •  World Commerce & Contracting  •   2020-04-02 13:14:00
Hello, we are being asked similar questions by a number of members. All FM clauses in new contracts should include a reference to the ongoing pandemic. As you point out there is a risk still that there will be continued fallout from this both on the buy and sell sides. We are advising members to be as prescriptive as possible in thinking about and addressing in their FM clause any future risks that could put the services or goods to be delivered at risk. Think beyond the usual FM remedies of suspension or termination. You may need alterntive remedies which could include a reduction in scope of what is being deliverd together with any associated pricing. You may also wish to consider a phased approach to ramping up obligations after a reduction period due to ongoing uncertainty. It is difficult to cater for all future uncertainties. Thus, we advise that you also build into the contract further agility to cater for complete unknowns that still might arise. IACCM has developed a framework called the VCU to help our members to map out uncertainty within their contracts and ensure that appropriate terms and conditions are used for each contractual relationship. Please contact us if your organisation is interested in participating one of our workshops around this.
 •  World Commerce & Contracting  •   2020-04-02 17:40:50
I think also important to make the point that when an event is known and on-going, in itself it cannot really be a Force Majeure event! So I'm not sure that either party could invoke coronavirus in a contract being agreed now.

What do you think, Paula?
 •  TRG Law Limited  •   2020-04-15 15:42:30
At least under English law, what qualifies as FM depends only upon the wording of the relevant contract clause. Just because a situation such as Covid is known at the time of contracting does not I believe, of itself, prevent a party relying on an appropriate clause providing you can bring yourself within the wording. Of course, if the relevant clause limits FM to matters 'not reasonably foreseeable' then that would be another matter but many clauses do not do so.
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