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2020-06-09 16:13:31

Force Majeure Clause - Safeguards and Consequences

I am new to IACCM and looking for some inputs from the experienced members on the following points related to Force Majeure from IT Service provider/ Supplier perspective:

1. What should be the reasonable timeline you have with regard to rights of customer to terminate post a Force Majeure event. Is 15-20 days can be called reasonable especially in COVID like situation?

2. What is your experience on the clause giving right to customer for obtaining Services from an alternate vendor?

3. Is it is standard practice for the prevailing (Customer) party to be seek recovery of costs from the Supplier Party?

Thanks in Advance for the replies.
 •  World Commerce & Contracting  •   2020-06-10 09:20:43
Hi Devendra
You will find extensive guidance on Force Majeure in the Resource Library on the IACCM website.

As you can imagine, this clause has been the subject of much writing in recent weeks and many organizations are reviewing their current approach. It is important to remember that a claim of Force majeure has to be accompanied by clear evidence that performance is impossible and it is also the duty of the party claiming Force Majeure to take all reasonable steps to mitigate its consequence. If it is the supplier claiming Force majeure, it is reasonable that the customer might terminate or seek alternate supply - and there is no particular reason why that action could not be immediate if they so wish.

Obviously there are many factors to take into account. For example, is the supplier simply suggesting there will be a delay in supply, or are they no longer able to supply at all? Will it be quicker and easier for the customer to find an alternate, or to accept the revised date? In general, any claim of Force majeure results in some level of negotiation. It cannot be used by either party just as a matter of convenience.
 •  GMR Energy LImited  •   2020-06-18 14:14:16
Answers to questions in same order as above:

1) Termination for prolonged FM - Generally its a negotiated term. Typically for a FM event neither party is liable for any compensation from the other side, specially if its a natural one and insurance covers are available.Termination right to trigger after indemnity period under insurance covers. If no such inusrance cover is available then it becomes a commercial decision for how long my budget under the contract can sustain such loss . That should decide the period of FM event beyond which termination right can be excercised under the contracts.
2) Alternate vendor - This provision is a must for eventuality . Experience - it is used only rare cases , as removing the existing vendor and putting a new vendor is generally comes with additional risks. So even if vendor is on the wrong side of the contract in terms of cost (not time) then we may compromise and move ahead as the alternate option is more expensive. In the instant that existing vendor is not at all able to perform because it has become financially bankrupt or some thing else the we do not have any choice but to terminate and deploy alternate vendor.

3) Yes its a standard practice to put such provisions under the contracts. However these practices are typically used in one time contracts , when we do not have any subsequent use of the vendor. But if we are depending on them for a long period and repeated orders etc. it becomes difficult and owners/customers tend to compromise.
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