A Few More Thoughts About Improving Our Force Majeure Provisions
The Coronavirus pandemic has brought the force majeure provision into the spotlight. A quick Google search brings up countless articles published in the past few weeks by lawyers worldwide about how to use force majeure provisions offensively and defensively in these uncertain times. Hopefully, we will take the lessons we learn in these next few months to draft more effective force majeure language customized for our clients and their businesses. The goal of this article is to give you a few more things to think about as you update and improve your force majeure language.
Like all provisions in an agreement, force majeure language varies widely. However, many begin with a phrase similar to “Except with respect to payment obligations…” Having spent a large part of my legal career on the buy-side, I have a strong aversion to that language and always strike it. Having payments approved and timely made is a complicated process at most companies in the best of times. Payments are now processed through various accounting systems requiring layers of approvals from individuals in multiple offices. In the event of a natural disaster where communications or power services are impaired, you may not be able to process a payment in the time required by the applicable agreement and a delay may be inevitable. In addition, I have seen a recent push by vendors to include language that any payment breach is a material breach of the agreement. I suggest purchasers delete both types of language to avoid any dispute with or breach claim by a vendor over a delayed payment because of a force majeure event.
Many force majeure provisions include “strikes, lockouts and other labor problems” in the long list of force majeure events. Are these situations always unforeseen or beyond a party’s control? Arguably, companies have some control over their own labor issues. What a company definitely cannot control are the labor issues of a third party. If you are a telecommunications provider, should you be relieved from your contractual obligations because you have labor strike? I think you will find strong opinions on both sides of that debate. However, I think everyone would agree that if a party’s telecommunications provider has a strike that party will have delays and performance issues from which it should have some relief. Consider inserting “third party” before labor-related force majeure language so a vendor is not able to claim its own labor problems as a force majeure event.
Both natural disasters and labor concerns raise an additional issue that I try to address in force majeure language. Many agreements, especially in the information technology and outsourcing industries, include extensive business continuity and disaster recovery requirements. A call center services provider may have locations worldwide and in regions where natural disasters are more frequent. Depending on the global footprint of the provider, it may be reasonable to expect the provider to be able to continue providing services even when a natural disaster hits one call center. Frequently, the parties will have spent a significant amount of time negotiating business continuity and disaster recovery language to cover that situation. Force majeure language should not undermine those obligations. Consider adding to your force majeure provision language that the provision does not in anyway diminish a vendor’s obligation to comply with the business continuity and disaster recovery requirements in the agreement.
My last point may seem obvious, but I find that it is not always addressed. When can you terminate if the force majeure event continues for too long? Force majeure language generally lists the types of events that constitute force majeure and allows the affected party a period of delay while the party works diligently toward removing the event causing the delay. However, termination if the delay goes on too long is not always addressed. Using the call center services provider example from above, your client may be able to roll calls to an internal call center or another call center services provider for a few weeks, but beyond that period of time, your client will need to decide how to move forward with its call center operations. The answer of when is “too long” will vary widely depending on the vendor and their services. For a call center services provider, it may be a week or two, and for a less critical vendor, it may be thirty days.
I have heard many people say that we will all live differently when the Coronavirus pandemic subsides. I agree, and I also predict that, as lawyers, we definitely will spend more time and energy drafting and negotiating force majeure provisions.