A well know part is force majeure clause in procurement contracts, especially in light of the global pandemic and other unforeseen events that can disrupt supply chains. These clauses are designed to provide protection to both the buyer and the supplier in the event of unforeseen circumstances that make it impossible or impractical to fulfill contractual obligations. In this blog post, we will discuss the purpose and applicability of force majeure clause in procurement contracts.

Purpose of Force majeure clause

The purpose of Force majeure clause in procurement contracts are to protect both parties from the impact of unforeseen events that could make it impossible or impractical to fulfill contractual obligations. These events are typically beyond the control of either party, such as natural disasters, pandemics, strikes, and government actions. The inclusion of a force majeure clause in a procurement contract can provide clarity and certainty for both parties, outlining the circumstances under which the contract may be terminated or renegotiated.

Applicability of Force majeure clause

The applicability of force majeure clause will depend on the specific wording of the clause itself and the circumstances of the event in question. In general, for a force majeure clause to be applicable, the event in question must meet the following criteria:

• Unforeseeable: The event in question must be unforeseeable at the time the contract was signed. For example, if a supplier signs a contract with a buyer and then a hurricane strikes the supplier’s factory, this would likely be considered unforeseeable.
• Beyond control: The event in question must be beyond the control of both parties. For example, a supplier may not be able to fulfill their contractual obligations due to a government action, such as a ban on exports.
• Impact on contract: The event in question must have a direct impact on the ability of one or both parties to fulfill their contractual obligations. For example, if a supplier is unable to obtain necessary raw materials due to a pandemic, this could impact their ability to fulfill the contract.

It is important to note that the applicability of a force majeure clause will depend on the specific wording of the clause itself. Some clauses may be more specific about the types of events that are covered, while others may be more general.

Force majeure and Covid-19

The COVID-19 pandemic has brought unprecedented disruption to global supply chains, resulting in many businesses struggling to fulfill contractual obligations. As a result, force majeure clauses have become a focus of attention for procurement professionals seeking to protect themselves from the impact of unforeseen events.

In response to the pandemic, many businesses have reviewed and revised their force majeure clauses to provide more specific protection for pandemic-related events. For example, some businesses have added specific references to pandemics, epidemics, or government lockdowns in their clauses. This helps to provide greater clarity and certainty for both parties in the event of pandemic-related disruptions.

In addition to specific references to pandemics, some businesses have also included provisions that allow for a temporary suspension of contractual obligations during the pandemic. This can provide greater flexibility for both parties and help to mitigate the impact of the pandemic on supply chains.

Another change that has been seen in force majeure clauses due to the pandemic is an increased emphasis on the need for communication between the parties. Many businesses have added provisions that require the parties to communicate regularly and in good faith regarding the impact of the pandemic on the contract. This can help to minimize misunderstandings and provide greater transparency between the parties.

Finally, some businesses have sought to add provisions that address the impact of the pandemic on pricing and payment terms. For example, some clauses have included provisions that allow for renegotiation of pricing or payment terms in the event of pandemic-related disruptions.

Force majeure in different law systems

The applicability of force majeure clauses in procurement contracts can vary widely depending on the legal system in which the contract is governed. Different legal systems may have different definitions of force majeure events and different requirements for the applicability of force majeure clauses.

In common law jurisdictions such as the United States and the United Kingdom, force majeure clauses are typically interpreted narrowly, and the burden of proof is on the party seeking to rely on the clause. The event in question must typically be unforeseeable, unavoidable, and external to the parties’ control. Additionally, the event must directly impact the performance of the contract, and the party seeking to rely on the clause must have taken reasonable steps to mitigate the impact of the event.

In civil law jurisdictions such as France and Germany, force majeure clauses may be interpreted more broadly. The concept of force majeure may be defined more broadly, and the burden of proof may be lower. In some cases, force majeure clauses may be interpreted as providing relief for events that are not specifically listed in the clause, provided that the event was unforeseeable and beyond the control of the parties.

In some jurisdictions, such as China and Japan, force majeure clauses may be interpreted more broadly for events that are specifically listed in the clause, but narrowly for events that are not listed. This can create uncertainty for parties seeking to rely on force majeure clauses in those jurisdictions.

It is important for procurement professionals to understand the differences in force majeure applicability in different legal systems when drafting and negotiating contracts with suppliers from different jurisdictions. It may be necessary to seek the advice of local counsel to ensure that force majeure clauses provide adequate protection in the specific jurisdiction in question.

Conclusion Force majeure clause

In conclusion, force majeure clauses are an important feature of procurement contracts that provide protection to both parties in the event of unforeseen circumstances. These clauses are designed to provide clarity and certainty in situations where contractual obligations may be impossible or impractical to fulfill due to events beyond the control of either party. It is important for procurement professionals to carefully consider the wording of force majeure clauses in their contracts and ensure that they are applicable to the types of events that may impact their supply chains.

The COVID-19 pandemic has led to changes in force majeure clauses in procurement contracts, with many businesses seeking to provide more specific protection for pandemic-related events, greater flexibility, and better communication between the parties.

And the applicability of force majeure clauses in procurement contracts can vary significantly depending on the legal system in which the contract is governed.

Learn more about international law in Jon Kihlman’s course International Sales Law for Procurement Professionals.

Note: Illustration to “Force majeure clause in procurement contracts” is created by Chat GPT on March 10, 2023.

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