Generally, construction contracts require the contractor to perform work until completion, or face damages and possible termination. In the wake of events such as Superstorm Sandy, Hurricane Katrina, and September 11th, however, contractors are becoming aware that events beyond their control can have serious implications on their ability to perform. Contractors are not clairvoyant and sometimes “stuff happens.” Hurricanes, tornados, droughts, wildfires, and floods seem to be more common and more intense. These events may cause damage to the worksite and require demobilization, as well as affect the prices of materials and the time required to complete the project. This post explores the legal doctrine of force majeure, which is one of a handful of legal doctrines that deal with the effects of these unforeseeable and uncontrollable events on a contractor’s ability to perform its contract.[i]
The French term “force majeure” means “greater force” and describes an event or condition that can be neither anticipated, nor controlled. Although the concept originates in Napoleonic law, it was quickly adopted by English, German, and American courts. Traditionally, when there was an “Act of God or the King’s Enemies,” performance could not be completed and the promisor was excused. The doctrine of force majeure shares historical ties with other legal concepts such as “physical impossibility” and “frustration of purpose,” which excuse performance obligations (breach of contract) where external events cause the performance to be impossible or undermine the purpose of the agreement.
By far, the most common force majeure event is a natural disaster, including earthquakes, hurricanes, wildfire, tornados, floods, and droughts. But, force majeure events also include “man-made” events such as strikes, terrorism, scarcity, and government regulations. These types of events typically cannot be anticipated by the parties while drafting their contracts, but can have significant effects on the outcome of a construction project. A force majeure event may prevent performance, in whole or in part, for a short time or permanently. For example, a hurricane may require complete demobilization of the project, or a flood may only limit access to the site for a short term.
Not all unexpected events or conditions, however, are situations that will excuse performance of a contractual obligation. To obtain relief under the force majeure clause the contractor must generally clear three hurdles: First, something unexpected must occur. Second, the risk of the unexpected occurrence must not have been allocated to either party by the agreement. Finally, the unexpected occurrence must render performance commercially impracticable. If a contractor fails to protect itself from a foreseeable contingency, it has assumed that risk. Furthermore, a contractor is expected to take measures to prevent the harmful effects of uncontrollable events whenever reasonable – known as “mitigation.” Reasonable weather protection measures should be employed even if the contractor has no notice of a “freak” storm brewing.
When there is no force majeure clause in the contract, the risk of loss for any unexpected or unforeseen event generally falls on the contractor. Since force majeure events are generally acts of nature (or God), it is said “because the same rain falls on the owner’s head as on the contractor’s” both parties share the risk; therefore, the contractor is entitled to a time extension, but not compensation. Therefore, if the event causes a delay in performance, a contractor could be allowed to raise the doctrine of force majeure to obtain an extension of time without penalty and as a defense against assessment of liquidated damages. Nevertheless, the contractor will not normally be permitted to recover losses or damages resulting from that delay. Moreover, contractors typically bear the costs to demobilize and remobilize, or repair work caused by an “Act of God” event.
It is not uncommon, therefore, for parties to include a force majeure clause in their contracts to limit the risk that a future event will prevent them from performing and subject them to liability. Force majeure provisions serve two purposes: allocating risk and providing notice to the parties of events that may suspend or excuse performance. If an event that triggers a force majeure clause occurs, theoretically, the burden will be borne by the party that assumed the risk.
Parties seeking to limit their exposure to a force majeure event should be careful, however, to use specific and detailed language in defining the scope and effect of a force majeure clause. The traditional boilerplate language contained in most force majeure clauses is too general and vague for modern circumstances because courts tend to narrowly interpret such language and limit its application to the events specifically listed. These provisions should address important questions, such as: What events or conditions are considered force majeure? Who is allowed to invoke the clause? What is the appropriate remedy where the clause is invoked? Which contractual obligations are covered by the clause? How should the parties determine whether the event creates an inability to perform? A strong force majeure clause will address these questions and more to protect the contractor from exposure to unexpected liability.
Comment: Where the contractor is able to show a force majeure event produced an excusable delay (one for which the contractor is entitled to a time extension), simply obtaining a contract extension of time is a hollow victory because acts of nature are generally deemed to be “non-compensable” by traditional allocation of contract risk doctrines. Thus, the contractor is entitled to an extension of time to complete the construction and protected from liquidated damages, but is not entitled to money damages for any of the additional costs attributable to the force majeure event. There are, however, a number of legal theories under which “Acts of God,” such as adverse weather, may form a basis of a contractor’s claim for compensable damages:
- Prior owner caused delays causes the contractor to encounter adverse weather: The Owner’s change orders push the contractor into later performance when the force majeure event occurs, and but-for the owner’s upfront delay, the contractor would not have encountered adverse weather.
- Excusable weather delays caused accelerated performance to stay on schedule: If the owner, after the force majeure event occurs, directs the contractor to maintain the original construction schedule, despite the contractor being entitled to an extension of time, the contractor may be entitled to compensation for the consequent acceleration.
- Acts of God/weather interacting with physical site conditions causing differing site conditions: This type of event turning weather related delays into compensable claims occurs quite frequently in the Pacific Northwest, which is known for its moisture sensitive soils. Soils that are acceptable backfill materials for utilities and embankment in good weather, when wet, turn into unusable materials requiring the import of pit run. Again, turning a weather event into a compensable event.
- Raccoons – a force majeure event: By far the most amusing example of a force majeure event came to my attention through Tom Cole, the lead estimator at Lydig Construction. Tom sent me an article about raccoons that were found atop a Ballard tower crane that was being used to build a 304 unit apartment complex. Apparently, the two raccoons climbed 150 feet up into the crane and made a home around the crane’s cab. The contractor (Rafn & Company) had to call in animal control, who attempted to catch the critters employing humane traps.[ii] In this instance, the prime mover’s, the tower crane, immobilization caused delay to the project. Unless the force majeure clause of the contract provided compensation to the contractor for force majeure events, the contractor’s delay, caused by these two curious nocturnal bandits, entitled the contractor to a time extension, however, not to any compensation for the extended overhead, etc., caused by the delay.
- GC/CM Contracts: Alternative procurement contracts, such as the commonplace GC/CM (general contractor/construction manager) contracts in which the owner and contractor “partner” to build a project are commonplace in public and private construction. Contingencies are reduced or shared and markups are cut to the bone, and thus often include provisions in which the force majeure events are indeed compensable. The AIA contract A102 (the GMP Contract (2007)), without modification, places the cost risk of a force majeure event squarely on the contractor for costs that exceed the GMP. Thus, contractors performing GMP work should consider revisions to the force majeure clause, particularly when the fees are significantly cut because a force majeure event can have a drastic effect on a contractor’s profitability if the contractor obtains no extended overhead compensation for the delay associated with the force majeure event.
[i] Source: Bruner & O’Connor Construction Law § 7:229 (2013).
[ii] Daily Journal of Commerce, February 8, 2013 “Raccoons Found Atop Ballard Crane.”