Force Majeure in Construction Contracts - The Basics
What is 'force majeure'?
In construction contracts, a force majeure clause is one which can relieve a party of its obligations following a force majeure event. Commonly referred to as “acts of God”, force majeure events are unforeseeable, exceptional or out with the control of contracting parties. Examples include natural disaster, terrorism, industrial strike action, fire and pandemic/epidemic events such as Covid-19. The term force majeure has no recognised legal meaning in Scots Law so the term ought to be expressly defined in any construction contract which seeks to include a force majeure clause.
What is the effect of a force majeure clause?
Depending on the terms of a contract, a force majeure clause can have a variety of different effects. This can include relieving parties of required performance, entitlement to extensions of time or even the right for a party to terminate the contract.
Seeking to rely upon a force majeure clause?
If a party wishes to seek to enforce the terms of a force majeure clause within a construction contract, that party should ensure that it can :
- Demonstrate that the specific force majeure event is the direct cause of any failure to undertake its contractual obligations and that the event is entirely out with their control; and
- Demonstrate that they have taken reasonable steps in which to mitigate their losses as a result of the force majeure event.
What to do next?
Generally, a party wishing to rely upon a force majeure clause must notify the other party to the contract of their incapability to carry out their obligations under a construction contract. The terms of the contract may expressly state the notification procedure that should be followed to prevent any future issues concerning loss of entitlement arising. Many construction contracts will also contain time limit (or time bar) provisions in terms of notices which give deadlines that should be strictly followed in terms of notification. Failure to meet deadlines may also result in loss of entitlement to claim.
Preventing common pitfalls when claiming under a force majeure clause
1. Review the wording of the force majeure clause carefully. The clause may be drafted in an intentionally narrow manner to limit the scope of events that would qualify as “acts of God”. Often, the inclusion of certain events in such a clause is a very fact dependent exercise.
2. Keep detailed records of delays and events that could be considered force majeure. If in doubt, get it in writing!
- Ensure to undertake reasonable measures to mitigate any loss and reduce delay where possible. Actions in this regard may include actively seeking out alternative material suppliers.
3. Serve all required notices in accordance with the contract terms – the notices should be as detailed as required and delivered on time.
4. Remember that a simple increase in costs of labour and/or materials is not usually enough to justify a party’s non-performance under a construction contract.
5. If the construction contract does not contain a force majeure clause, all may not be lost. Consider consulting with a solicitor to discuss whether frustration under the common law may apply.
