Builders and Contractors Exchange
Weekly Bulletin: 16 Feb 2006
Are You Protected Against Force Majeure Events?
By: David Lannetti
As all contractors know, construction projects involve significant risks, some of which are not foreseeable and are beyond any party’s control. These events often are referred to as “Acts of God” (e.g., tornados, earthquakes, floods, other unusual weather occurrences) or, more broadly, “Force Majeure” events (including strikes, riots, government acts, war, and terrorism). Many construction contracts address such events and allocate the associated risk and impact of impossible or impracticable contract performance. Due to the potentially devastating impact of force majeure events on a construction project, parties often spend considerable time during contract negotiations addressing both the type of events that will be recognized as force majeure and the cost/schedule impacts resulting from such events. In many cases, the parties agree that if some force majeure event delays performance, the contractor is entitled to a time extension but is not entitled to recover any of the additional costs associated with that delay, sometimes called “excusable delay.”
The standard form construction contracts vary in their treatment of force majeure events. Under the AIA A201, if the commencement or progress of work is delayed by causes beyond the contractor’s control (arguably even if the contractor is “at fault” for the cause of delay), the architect must propose a change order extending the contract time period; additionally, the A201 does not explicitly make unforeseeability or unpredictability a necessary element of excused delay. Not surprisingly, the AGC standard form force majeure clause favors the contractor; it entitles the contractor to an extension of time and an equitable adjustment of the contract price if causes beyond the contractor’s control delay commencement or progress of the work, essentially shifting the financial risk to the owner. In federal government contracts, the standard FAR fixed-price construction project “default” clause contains an extensive force majeure clause that protects the contractor from termination or damages claims by the government if delaying construction results from a force majeure event. Unlike the AIA or AGC documents, the federal clause specifically requires that the cause of the delay not be foreseeable, controllable, or attributable to the fault or negligence of the contractor. Although the standard form agreements discussed apply to the owner/contractor relationship, contractors should consider “flowing down” force majeure provisions to their subcontracts. To significantly reduce risk, contractors need to fully understand their rights and obligations regarding force majeure events and take sufficient steps to address the risks of such events through both contracts and insurance coverage, including consulting an attorney when appropriate.
Questions?
If you have any questions about this article or any other related matters, please contact:
This article is meant to bring awareness to this topic and is not intended to be used as legal advice.