Tag: FIDIC

Force Majeure

Force Majeure is a common clause in contracts that essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties, such as a war, strike, riot, crime, or an event legally termed “Act of God” (Volcano eruption, Flood, Earthquake, Hurricane etc) prevents one or both parties from fulfilling their obligations under the contract.

In practice, most Force Majeure clauses do not excuse a party’s non-performance entirely, but only suspend it for the duration of the force majeure.

The objective of a Force Majeure clause is cover occurrences beyond the reasonable control of a party, and therefore would not cover such things as the following:

  • Any result of the negligence or malfeasance of a party, which has a materially adverse effect on the ability of that party to perform its obligations
  • Any result of the usual and natural consequences of external force

An outdoor event that is called off for ordinary predictable rain requiring it to be called off will probably not be Force Majeure as the rain was foreseeable based on empirical data, such as weather patterns and the fact the event is outdoors. However in the alternative if there was a flash flood that causes damage to the venue and does not allow the event to be safely run, thereby breaching the organiser’s statutory duty of care, this would be Force Majeure.

Purpose of a Force Majeure clause

Where a contract is time-critical and / or has other sensitive contracts included they may be drafted to limit the shield of a Force Majeure clause where a party does not take reasonable steps (or specific precautions) to prevent or limit the effects of the outside interference, either when they become likely or when they actually occur. This type of event may work to excuse all or part of the obligations of one or both parties. For example, a strike might prevent timely delivery of goods, but not timely payment for the portion delivered.

A force majeure may also be the overpowering force itself, which prevents the fulfilment of a contract.

The length in time element of the clause cannot be overstated as it relieves a party from an obligation under the contract (or suspends that obligation) during the Force Majeure event. Further what is and isn’t a Force Majeure event or circumstance can be the source of much controversy in the negotiation of a contract. A party should resist any attempt by the other party to include something that should, fundamentally, be at the risk of that other party. In effect the party that is obligated to perform should be held responsible for the event and not have risk transferred. But like most negotiations the outcome depends on the relative bargaining power of the parties and there will be cases where Force Majeure clauses can be used by a party effectively to escape liability for bad performance.

As different legal systems have different interpretations of Force Majeure it is common for contracts to include specific definitions of force majeure, particularly at the international level. Some systems limit Force Majeure to an Act of God, but exclude human or technical failures (such as terrorist activities, war, communication and / or electricity interruption, industrial disputes etc). It is therefore critical in ensuring that the distinction is made in drafting of contracts to make these distinctions.

Application of common law

English common law does not automatically apply Force Majeure principles into contracts and parties who wish to have Force Majeure clauses and relief must details the terms in the contract. Frustration of purpose is however recognized although this is a narrower concept that applies when the actual performance of the contract is radically different than what the parties intended.

English courts have however interpreted a broadly meaning than just “Act of God” as a Force majeure event and judges have agreed that strikes and breakdowns of machinery may be included in Force Majeure. However negligent lack of maintenance may negate claims of Force Majeure as maintenance or the lack of regular cyclical maintenance is within the control of the assets owner.

It has also been established that Force Majeure cannot be extended to cover bad weather, such as sports matches or funerals. In the case of Matsoukis v. Priestman & Co (1915) it was held that “these are the usual incidents interrupting work, and the defendants, in making their contract, no doubt took them into account”.

Force Majeure in construction contracts

As in often the case in construction constructs particularly in relation to delay events, there is always a duty to mitigate the delay as far as reasonably possible. In the event of a Force Majeure event taking place this would still be required, but of course to a different starting point as the event was unforeseen in the general operation of the contract. In particular the parties need to pay close attention to specific notice requirements and the duty to mitigate the impact of the Force Majeure event. This is as a failure to comply with these requirements could mean you are unable to benefit from Force Majeure provisions in some circumstances.

The various forms have slightly different requirements and terminology. If we take a Force Majeure event being a shortage of labour for whatever reason, the standard forms would expect the following:

 NEC3

The relevant clause refers to an event which “stops the Contractor completing the works by the date shown on the Accepted Programme” and which:

  • Neither party could prevent;
  • An experienced contractor would have judged to have such a small chance of occurring at the time the contract was entered into that it would have been unreasonable for him to have allowed for it.

While at face value also a clause and terms that are useful to Contractors and / or Sub-Contractors, the final words could prove troublesome in an application for an Extension of Time (EoT) in a contract signed now, particularly when pandemics etc occur with some regularity that it would be difficult to discount them as having “such a small chance” of occurring.

As the Accepted Programme is crucial under the NEC form how do you “allow for” the possibility of a pandemic predicted for a date in the future that has a material bearing on the contract? If for example you allow a month into your programme, what happens if there is no pandemic?

ICE Design and Construct Contract

 The relevant clause refers to “other special circumstances of any kind whatsoever which may occur”. At face value this is a helpful cause to Contractors and / or Sub Contractor’s although what “special circumstances” could entail would be the test to be passed. Again parameters of what could be regarded as “special” would be detailed in the narrative of an amended clause.

JCT 2009 Design and Build

The JCT lists relevant events for EoT claims as well as having a Force Majeure clause. In this instance the relevant clause would be where the contract refers to “the exercise… by the UK government of any statutory power which directly affects the execution of the Works.”

FIDIC White Book

The relevant clause refers to “unforeseeable shortages in the availability of personnel… caused by epidemic”. The word “unforeseeable” could be a bit difficult here as even where, for example a virus outbreak has peaked there is a high possibility that it will return. It would be sensible to delete “unforeseeable” to avoid this potential anomaly.

As can be seen, the typical standard forms treat Force Majeure differently and in an effort to replicate the type of contracting environment that they are most appropriate to. This does make the proportionate element of the clause proportional, but of course never all encompassing.

Force Majeure clauses in bespoke contracts

A Force Majeure clause that lists examples is better than an undefined clause, but at the same time it would be impossible to detail a list that covered every potential eventuality.

Therefore a sensible solution would be to define Force Majeure acts along the lines of acts and events beyond the control of the parties rather than listing specific examples. The parties then will debate if an event that is unforeseen takes place is a Force Majeure event when the event takes place. The difficulty could be where Force Majeure is not a legal term and is open to interpretation. The party who wishes to rely on the clause will have to convince the adjudicator or court that their circumstances fall within force majeure.

Despite the observation made in relation to wording a definition in a bespoke form above, it was always be remembered that Force Majeure will always be seen as beyond the control of the affected party. It is important to remember that this is not the same as unforeseeable as under some of the standard forms also considered above. The test to satisfy will be that even if you had done all that was to be reasonably expected 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 based on the facts as presented to them and where this is being used to enforce a right under the contract such as termination, it will always be worth evaluating other clause in the contract to affect the same remedy.

Anti-Force Majeure clauses

It would generally be expected that most Employers accept that the Contractor will be unable to perform its obligations in a “genuine” Force Majeure situation, such as an earthquake. Their concern is more around Force Majeure clauses being used in a situation that are commercial in nature or that could have been avoided by taking reasonable precautions.

While this is outside of the type of examples that we have considered as part of this post, there are situations where “genuine” Force Majeure will not be regarded as sufficient cause for failure to perform.

This is in relation to essential services such as emergency services, their facilities and suppliers (healthcare and caring professions) and essential industries such as water and sewage treatment, power supply, waste collection, telecommunications, parts of Government and the military. Where services fall into this category, the Force Majeure clauses tend to look very different and rather than looking to end a matter is based around the parties meeting promptly to rectify the issues where possible, as opposed to arguing about what can’ be done. This would also give opportunity to suspend certain procedures while they are rectified, such as when electricity lines are blown down or where the internet and telephone lines go down.

Is there a lesson here?

Can this significantly different approach to Force Majeure that has to be implemented by effective necessity by the emergency services be a good approach across the board?

In reality it’s a good place to start where a project is affected by a crisis that has been unforeseen. Rather than heading into a potential dispute situation it would be better for the parties to come together and see what can be done to resolve the issues, the timescales and even costs (even if Order of Magnitude)  rather than what cannot be done.

A typical Force Majeure clause

How would a Force Majeure clause be worded? In reality it would be to suit the type of contract being entered into. This is an example is of how force majeure might be described:.

  1. FORCE MAJEURE

A party is not liable for failure to perform its obligations if such failure is as a result of Acts of God (including fire, flood, earthquake, storm, hurricane or other natural disaster), war, invasion, act of foreign enemies, hostilities (regardless of whether war is declared), civil war, rebellion, revolution, insurrection, military or usurped power or confiscation, terrorist activities, nationalisation, government sanction, blockage, embargo, labour dispute, strike, lockout or interruption or failure of electricity or telephone service. No party is entitled to terminate this Agreement under Clause 38 (Termination) in such circumstances.

If a party asserts Force Majeure for the failure to perform the party’s obligation, then the non-performing party must prove that the party took reasonable steps to minimize delay or damages caused by the foreseeable events, that the party substantially fulfilled all non-excused obligations, and that the other party was timely notified of the likelihood or actual occurrence of an event described in Clause 40 (Force Majeure).

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Extension of Time

There are a number of claims that will be made under a contract, yet perhaps the one that is most often needed is an Extension of Time (EoT) to complete the works that have been contracted.

Amazingly despite these types of claims often being relatively straight forward they often fail because the party making the claim fails to adequately demonstrate their entitlement in the submission.

When drafting an EoT there are 8 key elements that need to be included, these being:

• The claim event

• Liability for the claim event

• Contractual compliance

• Contractual entitlement

• Statement of claim

• Substantiation

• Cause & Effect

• Delay analysis

We will now examine each of these main headings in a little detail

The claim event

This is exactly what the title says it is, state the event that has lead to the claim e.g. weather event and then provide the circumstances that lead to the event. This element should be short and concise and acts as an effective Executive Summary of what is to follow, where you detail the claim in greater detail.

Liability for the claim event

In outlining “The claim event” you are setting out what has caused the claim to be formulated and submitted. In this section you need to demonstrate liability lies with another or the other party to the contract and you want to determine liability for the event.

If the claim is by a Sub Contractor to a Main Contractor the possibility exists that the Main Contractor will have a similar right under the Main Contract with the Employer, particularly around weather events or force majeure. These types of events will usually entitle the party bringing the claim to an EoT, but this will obviously be dependent on the specific form of contract and its provisions.

In the Joint Contract Tribunal (JCT) Minor Works Contract grounds for an EoT are dealt with at Clause 2.7. In other forms such as the New Engineering Contract (NEC) often the claim will be dealt with as a Compensation Event.

Contractual compliance

Generally the Contractor or Sub Contractor will be required under the terms of the contract to submit notice(s) with detailed particulars, particularly in relation to an EoT. Where the time frame is silent in the contract then it will be within a reasonable time period.

Of course what is reasonable?

This is why it is better to define periods during the contract negotiation for the protection of all parties.

By way of an example in the International Federation of Consulting Engineers (FIDIC) form of contract at Clause 44.2 states:

44.2  Provided the engineer is not bound to make any determination unless the contractor has

(a) Within 28 days after such an event has arisen, notified the engineer with a copy to the  employer and 

(b) Within 28 days, or such reasonable time as may be agreed by the engineer after such notification submitted to the engineer detailed particulars of any extension of time to which he may consider himself entitled in order that such submission may be investigated at the time.

It may be the case that the submission of these notices is expressed as Condition Precedent and in the event the Contractor or Sub Contractor fails to comply with condition may result in the wavering of any entitlement.

It is therefore essential for the parties to understand their obligations and expressed provisions of the contract and as a consequence to comply with the provisions. A contract is an even handed document (or at least should be) and all parties should endeavour to comply with all provisions therein, particularly if they want to rely on provisions to establish entitlement.

Contractual entitlement

As a general rule the contract (particularly where a standard form) will contain specific provisions which may entitle the Contractor or Sub Contractor to an EoT for one or a series of events.

By way of an example under FIDIC, there are a number of different conditions:

Clause 6.4 – Late Drawings
Clause 12.2 – Adverse physical obstructions or conditions
Clause 27.1 – Discovery of fossils or antiquities
Clause 36.5 – Additional tests not provided for
Clause 40.2 – Suspension of the works
Clause 42.2 – Failure to give possession of site
Clause 44.1 (a) – Additional or extra work
Clause 44.1 (c) – Exceptionally adverse climatic conditions
Clause 44.1 (d) – any delay, impediment or prevention by the Employer
Clause 44.1 (e) – any special circumstances, other than through default by the Contractor
Clause 69.4 – Contractor’s suspension of the works

Statement of claim

As the claim is effectively in two parts, first you demonstrate entitlement (as demonstrated in “Liability for the claim event”, “Contractual compliance” and “Contractual entitlement”) and then the details of what has transpired to lead to the claim. Therefore it makes sense to again make a clear and succinct statement on what the Contractor or Sub Contractor is claiming.

Substantiation

This is where the claim will succeed or fail effectively as its one thing to prove a contractual entitlement it’s another to prove that you have that entitlement based on what has occurred.

This section needs to be robust and will have all the evidences that the Contractor or Sub Contractor seeks to rely upon as the documentary evidence. This documentary evidence will be made up of a number of different contract and non contract documents, which all drawn together in a single document support the assertions made in the overall claim document. These can include, but be limited to the following:

• Letters
• Site Instructions
• E-mail’s
• Method Statements
• Risk Assessments
• Progress Reports
• Record Photographs
• Minutes of Meetings
• Programme’s (Baseline and updated)
• Schedules
• Trackers
• Statements of Fact
• Expert Witness Statements

Cause & Effect

Being read and drafted together with the “Substantiation” will be the “Cause & Effect” which as the title suggests is where you demonstrate a cause; e.g. adverse weather for a prolonged period outside of the normal for that period; with the effect; which would in all likelihood be delay to works on site at the minimum and may result in works that are damaged and require to be re-done.

In order to be successful in a claim merely listing the events in chronological order should not be sufficient to demonstrate a full entitlement. The real art in putting together the claim is for the narrative to tell the person assessing the claim a story describing how the event has affected the works.

This should commence with what the planned works were and how they were affected, in particular making reference to planned sequences, durations and mythologies (Note how the list in the previous section becomes important here, the status of the works to the planned at the time of the claim event and detailing the changes that took place as a direct result of the claim event.

Delay analysis

Undertake a delay analysis which demonstrates the effect to the programme.

There are a number of internationally recognised delay analysis methods and the most appropriate method will effectively be determined by circumstances surrounding the claim event. This can include but not be limited to the following:

• Level and detail of records available
• The robustness of the Baseline Programme and effects of any periodic updates
• Available time (Particularly around contracts that time bar events after the passing of a period of time)

• Degree of accuracy

• Level of proof required under the contract.

We will review Delay Analysis Methods in greater detail later.
Of course every claim will be different and some may need very basic details under the defined headings detailed above, but likewise others can be extremely complex and may be to demonstrate more than one entitlement. Like any document it should be clear and concise to enable the person that has to make a Determination being able to do so based on the submission. If the claim submission is haphazard and difficult to follow, it could lead to the claim being rejected even though there was an entitlement.