Force Majeure

Table of Contents:

• Definitions

• Right to Terminate

• Allocation of Supply

Force Majeure

Unexpected disruptive events such as the recent COVID-19 pandemic, the armed conflict in Ukraine, terrorist attacks on commercial shipping in the Red Sea, and other global dislocations have given force majeure clauses renewed importance and elevated attention. Because the main purpose of force majeure clauses is to excuse non-performance, the parties should review the scope and application of such clauses with care.

Definitions

A force majeure clause should have a clear definition of what constitutes a force majeure event, often by citing a litany of examples:

Exemplar C34-1

A “Force Majeure Event” is a condition or event that is beyond the reasonable control of Seller, whether foreseeable or unforeseeable, foreseen or unforeseen, including, without limitation, severe weather, storm, flooding, hurricane, tornado, earthquakes, seismic disturbances, acts of God, acts or omissions of Customer, a breach, negligence, criminal misconduct or other act or omission of any third-party, climate change, natural disasters or other acts of God, fire or other insured or uninsured casualty, quarantines, epidemics, pandemics, disease, viruses, condemnation, strikes, slowdowns or other labor disputes, transportation interruptions, fires, explosions or other casualties, thefts, vandalism, riots or war, acts of terrorism, electrical power outages, labor shortage (including, without limitation, due to infection or fear of infection of a communicable disease), interruptions or degradations in telecommunications, computer, or electronic communications systems, changes in laws, acts of government agencies, government-mandated allocation requirements, issuances of executive orders or other government orders, government-mandated shutdowns or shelter-in-place orders, or unavailability of parts, materials or supplies at a commercially reasonable price.

By contrast, the following exemplar enumerates several events that do not constitute a force majeure event:

Exemplar C34-2

“Force Majeure” shall mean an act or event that (i) delays or renders impossible the affected Party’s performance of its obligations under an Statement of Work or other sub-agreement; (ii) is beyond the reasonable control of the affected Party, not due to its fault or negligence and was not reasonably foreseeable; and (iii) could not have been prevented or avoided by the affected Party through the exercise of due diligence. To the extent that (i) through (iii) above are satisfied, Force Majeure shall include catastrophic storms or floods, tornadoes, hurricanes, typhoons, cyclones, tsunamis, earthquakes and other acts of God, wars, civil disturbances, terrorist attacks, revolts, insurrections, sabotage, national or industry-wide strikes, commercial embargoes, epidemics, fires, explosions, and actions of a government instrumentality that were not requested, promoted, or caused by the affected Party; general internet outages, failure of Company’s infrastructure or connectivity (including without limitation, direct connectivity and virtual private network (VPN) connectivity to the Cloud Service), computer and telecommunications failures and delays not within Contractor’s control, and network intrusions or denial-of-service or other criminal attacks. Force Majeure shall not include any of the following: (a) economic hardship; (b) changes in market conditions; (c) late delivery or failure of equipment Contractor uses for performance of the Services; (d) labor availability or strikes (except national or industry-wide strikes); (e) shortage of materials, consumable, equipment or utilities; (f) climatic conditions (including rain, snow, wind, temperature and other weather conditions), tides, and seasons, regardless of the magnitude, severity, duration or frequency of such climatic conditions (other than catastrophic storms or floods, tornadoes, hurricanes, typhoons, cyclones, tsunamis or earthquakes); or (g) nonperformance or delay by Contractor or its subcontractors; unless such event is otherwise caused by Force Majeure.

The following exemplar includes a proviso that disqualifies an event as a force majeure event if it could have been reasonably avoided:

Exemplar C34-3

No party shall be responsible for delays or failure of performance resulting from acts of God, riots, acts of war, epidemics, power failures, acts of terrorism, earthquakes or other disasters, provided that such delay or failure of performance could not have been prevented by reasonable precautions and cannot reasonably be circumvented by such party through use of alternative sources, workaround plans or other means.

The following exemplar exempts the obligation to pay for services rendered from the universe of excusable non-performance:

Exemplar C34-4

Any failure by a Party to perform an obligation, other than a failure to make payment for Services rendered prior to the Force Majeure Event, under the Agreement that is the result of a Force Majeure Event is not a breach of the Agreement.

Right to Terminate

The condition of non-performance that is permitted by a force majeure clause is not sustainable if it is prolonged or becomes permanent. Accordingly, as illustrated in the following exemplars, the parties may desire the right to change that unsustainable status quo by terminating the agreement if the non-performance cannot be cured or after a reasonable period of non-performance elapses:

Exemplar C34-5

A Party claiming non-performance from a Force Majeure Event must promptly provide the other Party notice of the relevant details, and the obligations of the notifying Party are suspended to the extent caused by the Force Majeure Event. The time for performance of the affected obligation will be extended by the delay caused by the Force Majeure Event. If the affected Party is prevented by the Force Majeure Event from performing its obligation(s) with respect to a Service for 30 days either Party may in its sole discretion immediately terminate such Service with notice to the other Party; provided that in the case of termination by Customer, Customer first provides Contractor a reasonable opportunity to replace the affected Service with comparable Service(s). The Parties will otherwise bear their own costs and Contractor will be under no further liability or obligation to perform the Service affected by the Force Majeure Event.

Exemplar C34-6

If either party is affected by any circumstances beyond the reasonable control of that party (including but without limitation any act of God, flood, earthquake or other natural disaster, terrorist attack, civil war, riot, war, threat of or preparation for war, nuclear, chemical or biological contamination, strike, lockout or other form of industrial action and disruption to the Internet) (“Force Majeure Event”) it shall forthwith notify the other party of the nature and extent (including the likely duration) of the Force Majeure Event. Neither party shall be liable to the other for delay in performance, or non-performance of any of its obligations under this Agreement when due to any Force Majeure Event of which it has notified the other party and the time for performance of that obligation shall be extended accordingly. If the Force Majeure Event hinders, or prevents one, or both, party’s performance of its obligations under this Agreement for a continuous period of two months or more, either party may terminate this Agreement by giving not less than thirty (30) days’ notice to the other.

Exemplar C34-7

Seller shall be excused from, and shall not have any liability for, any delay in delivery, non-delivery, or other failure to perform any of its obligations under the Agreement where Seller's delay, non-delivery, or failure to perform is caused, in whole or in part, by a Force Majeure Event. Without limiting the generality of the foregoing, if Seller is delayed in performing under the Agreement due to a Force Majeure Event, Seller will be entitled to extend the relevant delivery date by the amount of time that Seller was delayed as a result of the Force Majeure Event, plus such additional time as may be reasonably necessary to overcome the effect of the delay. Should a Force Majeure Event continue for more than thirty (30) calendar days, Seller may, upon prior written notice to Buyer, cancel the affected purchase orders.

Exemplar C34-8

Neither party shall be liable for any delay or failure to comply with this Agreement that is caused by circumstances beyond its reasonable control. Non-exhaustive illustrations of such circumstances include acts of God, earthquake, tsunami, abnormal weather condition, fire, flood, or similar natural calamity, war, riot, act of terrorism, explosion, nation-wide or regional strike or lockout, Government action or regulation, or nation-wide or regional power failure (“Event of Force Majeure”).  Should either party be prevented or delayed, or become aware that it is likely to be prevented or delayed, from carrying out its obligations hereunder due to an Event of Force Majeure, it shall forthwith employ reasonable efforts to give the other party written notice setting out the details of such claimed Event of Force Majeure. Upon cessation of such Event of Force Majeure, the parties shall discuss in good faith to resume performance under this Agreement. In the event that an Event of Force Majeure continues to affect the performance of either party for more than a consecutive six (6) month period, the party not experiencing the Event of Force Majeure shall have the right to terminate this Agreement by providing the other party thirty (30) days’ prior written notice.

Exemplar C34-9

Neither Party shall be deemed to be in default under, or to have breached any provision of, this Agreement and neither Party shall be liable for failure to perform or delay in performance if and to the extent such Party’s failure to perform its obligations results from any of the following events or circumstances: (a) compliance with any law, rule, order, regulation, requirement or instruction of any federal, state or municipal government or any department or agency thereof or court of competent jurisdiction; (b) acts of God, such as fire, flood, earthquake or other natural catastrophes beyond the non-performing Party’s reasonable control; or (c) terrorist events, wars, embargoes, riots, general strikes, fires, complete interruptions in transportation, worldwide Product parts shortages, complete interruptions in telecommunications or network provider services (each such event, a “Force Majeure Event”). Any delay resulting from any Force Majeure Event shall extend performance accordingly or excuse performance, in whole or in part, as may be reasonable; provided, however, that in the event such Force Majeure Event exists for a period in excess of thirty (30) continuous days, then the other Party may terminate this Agreement immediately upon written notice to the non-performing Party.

In the following exemplar, as an alternative to termination, a party can agree to accept a modification of its contractual rights or obligations to address the effects of the force majeure event:

Exemplar C34-10

COMPANY may terminate the CONTRACT or reduce SCOPE if any FORCE MAJEURE EVENT results in a delay that exceeds 90 consecutive or 180 cumulative days, except where COMPANY agrees to a VARIATION ORDER.

Allocation of Supply

The effect of a force majeure event may not always be to prohibit performance. Instead, as the following exemplar demonstrates, such an event could make ordered supplies more expensive and/or scarce. In such a situation, a purchasing party may wish to require reasonable/fair allocation of such suppliers among competing customers or as may be required by law (e.g., preferential treatment of national defense procurement programs):

Exemplar C34-11

Notwithstanding anything to the contrary contained in the Agreement, to the extent Seller's costs of performance are increased, directly or indirectly, by one Force Majeure Event or by a series of Force Majeure Events, Seller will be entitled to adjust the prices or to apply a surcharge, in each case to recoup those costs plus Seller's customary profit, by providing written notice to Buyer. If the Force Majeure Event limits Seller's available supply of Equipment, Seller will allocate its available supply in any manner that Seller determines, in good faith, or as may be required by law.