Force Majeure Clauses: As Important Today As Ever
By Phil Beyer
A historically active 2017 hurricane season has wreaked havoc in the southeast. Out west, record-setting wildfires have ravaged Northern California’s wine country. For contractors in both regions, these calamitous events may be accompanied by costly lessons in construction contracting if (1) they are unable to timely perform their contractual obligations, and (2) their contracts do not include protective force majeure provisions.
But even when a contract includes a relief-granting force majeure provision, the occurrence of a force majeure event, by itself, is not sufficient to invoke force majeure protection. A causal connection must exist between the event and the non-performance. This causal connection requirement creates a gray area for what may be the most glaring challenge facing contractors in the aftermath of the recent disasters – the ability to adequately staff projects.
The recent severe hurricanes and fires are exposing and amplifying what had already become a systemic labor shortage throughout the construction industry. Many in the industry are wondering where the manpower to rebuild destroyed property and infrastructure will come from. With an already tight labor supply being siphoned to disaster zones, contractors throughout the regions may very well find themselves unable to meet contractual obligations and deadlines for ongoing projects and future backlogs.
What is Force Majeure?
Contractual force majeure provisions protect contractors that, due to extraordinary events or “superior forces,” are unable to fulfil their contractual obligations. By definition, force majeure clauses are not intended to protect against events that can be anticipated or controlled. Rather, as the Supreme Court grandiosely stated over a hundred years ago, a force majeure clause protects against “the effect of a power which cannot be resisted.”
Typical force majeure triggering events include both acts of nature and acts of people, and range from fires and floods to labor strikes, riots, and war. Borne from “act of God” provisions, force majeure clauses have, to some extent, evolved along with changing risks. For example, in recent years, contracts have increasingly included acts of terrorism as force majeure events. While these examples help shed light on what may constitute a force majeure event, what actually qualifies for force majeure protection for a given project primarily depends on the contents of the particular contract.
Regardless of whether the specific phrase “force majeure” is used, most construction contracts include some form of force majeure language. More often than not, force majeure clauses are not entitled as such. For instance, neither the AIA nor ConsensusDocs form contract documents use the term. In each, force majeure language appears in sections entitled “Delays and Extensions of Time.” Section 8.3.1 of 2017 AIA form A201, General Conditions of the Contract for Construction, provides:
If the Contractor is delayed . . . by labor disputes, fire, unusual delay in deliveries, unavoidable casualties, adverse weather conditions . . ., or other causes beyond the Contractor’s control; . . . the Contract Time shall be extended by Change Order for such reasonable time as the Architect may determine.
At their core, force majeure provisions are risk-allocation devices, and often shift risk from where it would fall absent contractual agreement. To effectuate this risk-allocation, force majeure clauses consist of multiple elements, and often cross-reference multiple sections of a contract. First, force majeure clauses typically include a list or, otherwise, an inclusive definition of triggering events. Second, force majeure clauses usually include the specific relief granted – often limited to time extensions, rather than additional compensation or rescission rights. Finally, force majeure clauses generally include procedural obligations the contractor must follow (e.g., providing notice) to receive relief.
Force Majeure: Buried in the Boilerplate
In some jurisdictions, the doctrine of force majeure is codified by statute. Louisiana law, for example, provides that a party “is not liable for his failure to perform when it is caused by a fortuitous event that makes performance impossible.” Statutory force majeure, however, is the exception, not the rule. In most jurisdictions, the “doctrine” of force majeure is not codified, and force majeure disputes and claims are analyzed exclusively as creations of contract and decided using normal principles of contractual interpretation.
As such, courts will almost always give effect to a contractual force majeure provision. Even in rare jurisdictions with statutory force majeure law, contractual provisions supersede statutory provisions. While the most straightforward example of force majeure clauses are those protecting contractors from the inability to timely complete time-sensitive projects, a “no force majeure” clause can just as easily expressly deny contractors any and all relief from occurrences outside their control. Courts will readily uphold either.
Therein lies the problem. All too often, force majeure clauses are buried deep in contractual boilerplate – skimmed over and accepted with little or no pause or negotiation. But “boilerplate” does not mean inconsequential or harmless. A contractual provision denying a contractor a time extension and/or monetary compensation for force majeure related delays can impose harsh consequences. Conversely, an overly broad force majeure provision can leave owners saddled with excessive delays and/or overruns.
Yet, even when parties actively negotiate the terms of a contract, and even if they are keenly aware of less-than-favorable force majeure language, because force majeure events are, by nature, low-probability, parties may not be willing to expend limited bargaining capital to garner more favorable force majeure clauses. But while the occurrence of a force majeure event affecting a given project is unlikely, when such an event does occur, it can be completely debilitating, often occur on short notice, and can have extended impacts. Because the ramifications of contractual non-performance can be so high, it is critically important for contractors and owners alike to review and understand what events trigger a force majeure provision and what relief the provision affords. For the risk averse, it may be worth expending limited bargaining power on a more advantageous force majeure clause.
Systemic Labor Shortages: the Causal Connection Question
Widespread labor shortages were well documented long before the recent hurricanes and fires. According to a survey by the Associated General Contractors of America conducted at the end of 2015, 70% of construction firms reported having difficulty finding qualified candidates to fill positions. In April 2017, Forbes reported that labor shortages were affecting homebuilders – both in their ability to find laborers and in their ability to subcontract work – such that three quarters of builders “had to pay higher wages and bids,” and nearly two in three homebuilders had delayed projects and raised home prices.
The root of the labor shortage is multi-faceted. Large numbers of skilled and unskilled construction labor exited the industry when jobs dried up following the housing collapse nearly a decade ago. Apprenticeship programs became stagnant, draining the labor pipeline. Tightened immigration policies are sapping the construction labor force. While construction lagged, the lowered labor supply was tolerable, but has become problematic with accelerating industry demand.
Hurricanes and fires fit well within the “acts of God” events most commonly associated with force majeure. But what about labor shortages? Of course, a contract may expressly include (or exclude) labor shortages as a triggering event. But absent express language, the answer is not as clear. Labor shortages themselves may be insufficient to invoke force majeure, but a labor shortage, occurring because of separate force majeure events is an entirely different question.
As mentioned above, the occurrence of a calamitous event, by itself, is not sufficient to trigger a force majeure clause. For the force majeure provision to afford such protection, a causal connection must exist between the event and a party’s inability to perform its contractual obligations. In other words, for force majeure to take effect, the contractor must show that “but for” the event, it could have performed.
Especially with respect to labor shortages, this is far from a bright line. In an environment where many contractors were already struggling to adequately staff their workloads, it is difficult to say whether non-performance due to labor shortages are caused by the disasters. Ultimately, this is a multi-faceted, factual question. Evidence of a mutual assumption of a sufficient labor pool, the foreseeability and severity of the labor shortage – both before and after the calamitous event, and the crisis’s impact on both the individual contractor and the industry as a whole are all relevant to determining whether the labor shortage, caused by an otherwise qualifying force majeure event, entitles a contractor to relief.
Further, it important to note the difference between performance being rendered impossible (as required for force majeure protection) and performance being rendered more expensive or difficult. Notwithstanding force majeure clauses, contractors are obligated to mitigate the impact of force majeure events, including incurring additional costs to perform its contractual obligations. Impossibility is a high standard, and one that is, in the abstract, difficult to envision with respect to attracting sufficient labor. Additional labor is almost always available, so long as an employer is willing to pay well-above market wages. In addition, overtime and additional subcontracting can do wonders toward completing a project.
Assuming your contract has a force majeure provision and assuming a triggering event has occurred, you are in the clear, right? Not quite. Once a triggering event occurs, a force majeure’s operative clause dictates a contractor’s force majeure obligations. The most common obligation is specific and timely notice. In conjunction with notice, contractors may be required to provide an estimate of expected delays or cost impacts, documentation of the triggering event, or even a detailed mitigation plan. For instance, 2017 AIA A201 requires:
If the Contractor wishes to make a Claim for an increase in the Contract Time, notice as provided in Section 15.1.3 shall be given. The Contractor’s Claim shall include an estimate of cost and of probable effect of delay on progress of the Work. (§126.96.36.199)
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If adverse weather conditions are the basis for a Claim for additional time, such Claim shall be documented by data substantiating that weather conditions were abnormal for the period of time, could not have been reasonably anticipated, and had an adverse effect on the scheduled construction. (§188.8.131.52)
Understandably, giving contractually compliant notice may not be high on the list of things that a contractor thinks about following a catastrophic event. However, if a notice deadline lapses without action, a contractor may be precluded from the relief it would otherwise be afforded. This is all the more reason that contractors should pay close attention to force majeure provisions at the time of contracting, and develop a plan to implement if and when disaster strikes.
An ounce of prevention is worth a pound of cure. Depending on the region, the nature of its business and trade, and the nature of a given individual project, contractors may want to consider including force majeure provisions as a point of emphasis in contractual negotiations. Risk is inherent in every construction contract. However, force majeure provisions protect against what many would consider the worst kind of risk – the one outside of your own control.
 Force Majeure, Black’s Law Dictionary (9th ed. 2009).
 Viterbo v. Friedlander, 120 U.S. 707, 728 (1887).
 La. Civ. Code art. 1873 (2016).
 Emily Peiffer, 70% of Construction Firms to Boost Headcount in 2016 – But Labor Shortage Could ‘Undermine’ Recovery, ConstructionDive, Jan. 6, 2016, https://www.constructiondive.com/news/71-of-construction-firms-to-boost-headcount-in-2016-but-labor-shortage-c/411644/.
 Scott Beyer, America’s Housing Construction Labor Shortage Continues, Forbes, April 29, 2017, https://www.forbes.com/sites/scottbeyer/2017/04/29/americas-housing-construction-labor-shortage-continues/#6b9975c1706c.