Pandemic Supply-Chain Problems Shine Spotlight on Force Majeure Clauses in Major Repair Contracts
Many Americans are by now familiar with the shortage of consumer goods resulting from the Covid-19 pandemic.Condominium and homeowners' associations have also been faced with supply disruptions affecting planned or on-going major repair projects.Many a community association is being asked by its contractors to accept both delays and price increases for the work.The phrase "force majeure" has suddenly become a crucial concept in dealing with requested delays and price changes in projects already under contract.
What is Force Majeure
Force majeure – a French phrase – literally means "superior force."Lawyers and clients, alike, typically think of force majeure as being a contract clause covering the consequences of uncontrollable events such as storms, labor strikes and the proverbial "acts of God."Such clauses can provide for extensions of time, increases in pricing, or even termination of the contract.Yet, every force majeure clause is different.Associations faced with a contractor's force majeure request mid-project need to carefully analyze the wording of that clause to determine what its obligations are.Associations preparing to negotiate or sign a contract should undertake careful drafting of a force majeure clause to shift as much risk of uncontrollable events onto the contractor.Though often contained in the contract's general conditions or buried at the end of the contract, force majeure clauses should never be casually overlooked as mere boilerplate.
Force Majeure Drafting and Interpretation
Contractors commonly advocate that any unplanned circumstance which makes a contractor's performance extremely difficult, expensive – or even impossible and profitless – relieves the contractor from completing the contract.This is not true.If the event's risks were reasonably foreseeable, Florida law places the burden on the parties to specifically address them in the contract.Or, as one court stated, a contractor can't simply get out of a contract made difficult by unplanned events "if the relevant business risk was foreseeable at the inception of the agreement and could have been the subject of an express contractual agreement."Home Design Center – Joint Venture v. County Appliances of Naples, Inc., 563 So. 2d 767, 769-770 (Fla. 2d DCA 1990).Therefore, during contract negotiations both sides are advised to pay strict attention to the kinds of events that will allow an adjustment in the contractor's obligations, and what kinds of adjustments will be allowed.Anything that was foreseeable, but not accounted for in the contract, will be at the contractor's risk.
Associations facing existing pandemic-related force majeure demands should scrutinize the terms of the existing force majeure clause in the contract.For example, one could argue that any reputable roofing contractor entering into a contract within the last six months should have reasonably foreseen potential materials shortages and price increases due to the pandemic.Therefore, does a fair reading of the force majeure clause in your contract include events such as "national emergencies" or "supplier failures."If it does, then pandemic-related supply disruptions would arguably be the basis for a force majeure adjustment.What adjustment, then?Again, look to the contract language.Is a time and price adjustment permitted?Or just a time adjustment?For example, consider the following clause which provides that:
the excused party shall use reasonable efforts to avoid and remove such causes of non-performance and shall proceed to perform with reasonable dispatch whenever such causes are removed or ceased.
Arguably this language allows the contractor a time adjustment, but on condition that the contractor explore other supplier options and begin performing once supplies are reasonably available.It does not, however, suggest the availability of a price increase.Therefore, the association faced with this force majeure clause should consent to reasonable extensions of the contract times while resisting a request to pay for increased materials costs.
To conclude, a community association is always advised to address force majeure provisions with great care during contract drafting.When confronted with a force majeure request mid-project, an association should carefully read and interpret the existing force majeure clause and seek legal counsel as to the obligations imposed by it.At the end of the day force majeure provisions are the primary risk adjustment tool in the face of events beyond the parties' control.
