Making use of force majeure

By Tiffany Cloynes | 30 April 2020

Any local authority whose contracts have been affected by the coronavirus pandemic will need to consider what rights their contracts give them to address the impact of the crisis. They might also find that contractors who are experiencing difficulties in providing services under their contracts with local authorities are seeking to exercise contractual rights. Force majeure clauses can be important tools but their effectiveness depends on clear drafting and interpretation.

A force majeure clause in a contract will identify some circumstances as being outside the control of the contracting parties and make provision for the parties to be released from their obligations under the contract or to suspend those obligations if the specified circumstances occur.

A contract needs to have a clear definition of ‘force majeure’ and clear details of what rights the parties will have if such an event occurs. Force majeure needs to be defined sufficiently precisely to allow the parties to identify when it has occurred but the definition needs to be sufficiently broad to cover the full range of matters outside the control of the parties which might affect performance of a contract.

Any local authority which thinks it might need to rely on force majeure to address the impact of the coronavirus on its ability to meet obligations under a contract or is faced by a contractor seeking to do so will first need to check whether the contract contains provision for force majeure.

If it does, the authority will need to assess whether the definition of force majeure would include the circumstances of the current crisis. If a contract has been in place for several years, it is unlikely that it will refer to the coronavirus but it might refer to a pandemic. Even if it does not refer to anything as specific as that, it is likely to be sufficient as long as it clearly includes an event which is unforeseeable by and outside the control of the parties.

If the authority establishes that the current situation would be a force majeure event for the purposes of the contract, it will need to consider what rights under the contract it might wish to exercise and what rights its contractor might seek to use in order to avoid being subject to obligations under the contract.

Although the availability of force majeure provisions in a contract can be helpful in a time of crisis, they might not always be the most attractive option to a local authority which is relying on external contractors to deliver public services. If a contractor is providing important services to a local authority or to the community that it serves, the authority is unlikely to want the contractor to use contractual rights which will allow it to stop performing those services. The authority would need to make arrangements to ensure continuity of service and might need to go through a new procurement process.

If a contractor is experiencing difficulties because of the coronavirus, which could prevent it from delivering on its obligations under a contract or even cause it to go out of business, the local authority with whom it has a contract could see if there are any flexibilities in the contract which could help ease the situation. This might include introducing new payment arrangements, allowing the contractor more time to meet its obligations or adapting the milestones that the contractor is required to meet.

The Government has published Procurement Policy Note 02/20: Supplier Relief due to COVID-19 to provide public bodies with information on guidance on what they can do to work with their suppliers to ensure continuity of service during the current crisis. It encourages public bodies to identify those of their suppliers who are at risk and consider what actions they could lawfully take to address the difficulties of those suppliers.

Taking such action could help local authorities to ensure continuity of important services.

Tiffany Cloynes is a partner at Geldards LLP

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