Force Majeure in Construction Contracts: Workers & Contractors Rights
It’s vital to create comprehensive contracts for construction work. Doing so ensures all the criteria for performance of contract is clearly set out, as well as other key terms and conditions. This includes clauses for circumstances that may delay or completely prevent completion of the work. One key example is force majeure clauses.
Delays and hindrances are not uncommon in the construction industry, some of which may be beyond your reasonable control. This is especially true in the current work climate in Britain, particularly in light of Brexit and COVID-19. It’s therefore essential to set out precise terms for force majeure events, as they can give you some relief if work has to be delayed or even terminated. Without them, you may find yourself in breach of contract and without a leg to stand on.
This guide will help you understand how to integrate force majeure clauses in your contracts, as well as their capabilities and limitations. Force majeure is not a get-out-of-jail-free card but, when well-considered, it can prevent lengthy contract disputes that would otherwise cost everyone time and money.
The guide covers the following:
- What is force majeure in construction?
- What circumstances are considered force majeure?
- What circumstances are not considered force majeure?
- How to use force majeure clauses in construction contracts
- What should force majeure clauses cover?
- COVID-19 and force majeure
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What is Force Majeure in Construction?
Force majeure refers to unpredictable events beyond anyone’s reasonable control, which hinder one or more of the parties involved from fulfilling the agreed terms in the contract. They usually lead to delays and postponement, and in some cases even termination of the contract.
“In the case of Nugent v Smith (1876)1 CPD 423, force majeure was defined as ‘natural causes directly and exclusively without human intervention and that could not have been prevented by any amount of foresight and [plans] and care reasonably to have been expected’. In the practice of the European Court of Justice, force majeure has been defined to be “an event unusual, unforeseeable and beyond the trader’s control, the consequences of which could not have been avoided even if all due care had been exercised”.
SCL (the Society for Computers and Law)
For example, if unprecedented weather conditions completely gridlocked an area, preventing you from accessing a construction site or from receiving the necessary supplies, this would fall under a force majeure event.
Having a force majeure clause in your contract ensures you can legally delay or even terminate the work in exceptional circumstances, without causing a breach of contract.
However, if you want to achieve the full benefits, it’s crucial to set out force majeure clauses clearly and explicitly. There is no firm definition of force majeure in English law, so whether or not they hold up in a dispute is down to the precise wording in the contract.
It is also dependent on whether you take all due care to mitigate the effects, as the definition above states. You must ensure that contingency plans are in place and must prove that taking all the reasonable steps was not enough to avoid the consequences of a force majeure event.
What Circumstances Are Considered Force Majeure?
Although English law doesn’t explicitly define the conditions that qualify as force majeure, there are some widely used ones that you can set out in your contracts.
The following circumstances commonly fall under force majeure events:
- “Acts of God”. This is the most important one to reference. It refers to natural incidents that are completely beyond human involvement and could not have been prevented with any foresight, planning, or care. For example, unexpectedly harsh or dangerous weather conditions and natural catastrophes like floods, hurricanes, earthquakes, and fires. It may also include epidemics and pandemics.
- Government actions, such as unforeseen or uncontrollable changes to law and legislation. A recent example of this would be when all businesses, including construction sites, were instructed by the government to close at the start of the COVID-19 pandemic.
- Social, economic, political, or other individual or group actions, such as riots, rebellions, wars, invasions, industrial disputes, terrorism, and strikes.
These are also generally accompanied in contracts by a catch-all phrase, as there will inevitably be other unforeseen circumstances that don’t necessarily fall into these categories and are unrealistic to list in full.
For example: an explosion at a nearby chemical storage warehouse that was more severe than you could have realistically planned for, making your construction site inaccessible.
We’ll look at what to include in clauses later, including a catch-all statement.
What Circumstances Aren’t Considered Force Majeure?
Generally speaking, any disruptive circumstances that could have been realistically prevented with sufficient foresight and planning will not count as a force majeure event.
For example, during the current COVID-19 pandemic, you may face the risk of staff needing to self-isolate at home. Although the virus was initially not expected to reach the UK, it is now a well-known risk in the country. It is therefore realistic for you to expect disruptions from it and to have suitable contingency plans in place, such as alternate staffing when workers need to self-isolate.
Some incidents may even appear to fall under the commonly accepted force majeure incidents, but actually are foreseeable and/or controllable. For example: a forecasted storm that you knew was coming and could sufficiently prepare for, and which was not harsher than expected.
Force majeure also doesn’t cover unfavourable economic or financial conditions, such as if the contract becomes unprofitable to fulfil.
Some financial situations like this may be beyond your control, such as changes in the costs of certain materials. But the work becoming unprofitable or financially difficult does not impede work or a service from being carried out in the way other force majeure events do, and alternative arrangements can be made if necessary (e.g. using another supplier or purchasing with credit). Additionally, economic fluctuations are not uncommon and could even change in a favourable way.
Anything involving finances would therefore need to be addressed elsewhere in the contract, not under the force majeure clauses.
How to Use Force Majeure Clauses in Construction Contracts
The specific wording and placement of your force majeure clauses is down to your discretion, but it’s important to write it with unambiguous wording and with consideration of the specific business activities involved. This ensures there is no room for misinterpretation.
It’s advisable that you seek legal guidance on this if you’re uncertain, to ensure you sufficiently cover the necessary areas and that the clauses you’ve written are legally sound.
You must also ensure that all parties involved are aware of the clauses at the date of the contract. It cannot be added retroactively.
What Should Force Majeure Clauses Cover?
As mentioned, the exact details and phrasing of your clauses will be up to you to determine. Generally speaking though, it should cover some key areas, to ensure you fully define what you mean by force majeure events and what all parties will do if one happens.
Below is a list of what force majeure clauses may cover:
- Definition of force majeure. This should explain that it refers to exceptional circumstances beyond all parties’ control, that could not be sufficiently mitigated even with due diligence, and that are the fault of no parties involved.
- What is considered force majeure. You should list the widely accepted circumstances that could invoke a force majeure, such as acts of God, government actions, riots, strikes, etc. Be as thorough as possible, listing all common examples under these definitions. Consider also including a final catch-all phrase, which states that force majeure also includes any other unforeseeable and uncontrollable circumstances.
- Actions that will be taken. For example, you should state that you’ll follow all reasonable contingency plans and due diligence to try prevent the suspension of work in a force majeure event. You must also explain that you will notify all the affected parties within a specific time frame, as soon as the force majeure circumstance affects the contract.
- Consequences to performance of the contract. This section should explain that, if all contingency plans are insufficient, the force majeure event will disrupt the service and it will be postponed for a certain period of time. This must not exceed the predetermined, acceptable length of time for delays as set out elsewhere in the contract. It should also explain any terms for termination of the contract.
With these clauses in place, you will have contractual rights to receive the necessary and reasonable extensions to work or even close the contract if a force majeure situation calls for it, without any delay penalties or being in breach of contract.
COVID-19 and Force Majeure
COVID-19 has affected virtually every business in the country, with construction contractors being no exception. From constant u-turning guidance to frequently changing recommendations, it’s not been easy to keep work active while also adapting to the changes.
The good news is that pandemics do fall under the definition of force majeure, as do government actions. At the start of the outbreak, force majeure clauses that were already in place will have been sorely-needed fallbacks for many affected construction workers.
However, it’s important to note that COVID-19 has now been around for a number of months. Many of the risks and disruptions it may cause now fall within the realm of predictability, such as staff self-isolating or disruptions to deliveries. Claiming force majeure under COVID-19 will not be as easy as it was earlier on.
The situation is still unpredictable though, particularly in terms of government guidance and laws. For example, if government guidance changed overnight to urge an immediate closure of all construction sites, that is entirely beyond your control and qualifies for a force majeure event, meaning you could delay or suspend the contract as necessary.
It’s therefore crucial to ensure you’ve fully set out what constitutes force majeure events in your contract, and to think about how they may affect your business. Make sure your contingency plans are thorough, so that if a force majeure situation does occur in relation to COVID-19, you can prove you did all you could to mitigate it. As a result, contract disputes and claims should be minimal.
Disclaimer: This article is written for guidance and awareness purposes only. We do not offer legal advice, particularly in the creation of contracts, and cannot be held responsible for how you may produce yours and its effectiveness, as it depends entirely on the business agreement in question and parties involved.
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