By: Thomas S. Tripodianos Published: April 2020

"Force Majeure" is not the only way

 “Force majeure” is a contractual term in which the parties seek to allocate the risk if performance becomes impossible, impracticable due to the occurrence of certain negotiated specified events or, more generally, due to events outside the parties’ control. A force majeure provision typically affords the contractor/subcontractor additional time to perform its work, but not additional money. The lack of such a “force majeure” clause in a contract does not necessarily mean that all is lost (as common law remedies, such as impossibility of performance or commercial impracticability may exist in certain situations), but a different kind of analysis is required.

New York courts narrowly construe force majeure clauses because they are negotiated, and the parties are in the best position to assess and allocate risk. 

Courts are also likely to inquire into foreseeability when parties rely on broad catch-all language to capture events not listed in the force majeure clause. For example, a party relying on such language to excuse its performance based upon an increase in the price for steel, making performance too expensive, was denied relief because the party could have reasonably anticipated the rise in the price of steel. 

Outside of a “force majeure” clause, parties have a limited basis for relief under the common law defense of impossibility of performance. Impossibility excuses a party’s performance only when performance become objectively impossible because of either the destruction of:

  • The subject matter of the contract.
  • The means of performance.

However, the impossibility must be the result of an unpredicted event that a party could not have foreseen. New York courts have applied this defense narrowly and have only excused performance in extreme circumstances. They expect the parties to allocate the risks in their contracts.

There is not much law dealing with contract performance and pandemics.  However, I was able to find one case.  It’s old, but then again how often do we have a pandemic?  The Court of Appeals held “Moreover, in case of strikes, epidemics, delays of carriers, or other causes beyond the control of the defendant company, the time of such delays was, by virtue of the contract, added to the time provided for her completion.”  Vandegrift v Cowles Eng'g Co., 161 NY 435, 442 [1900]

For existing projects, each contract should be carefully reviewed for any potential clauses that could provide relief for delays, unforeseeable conditions, or other time and/or cost impacts. Some of the other potential provisions that should be carefully examined include the following:

Time Extensions/Delays – Are there provisions (other than the force majeure clause) that afford relief for delays or other time or cost impacts?  Such provisions, if they apply, may permit recovery for both time and money (which may be limited if there is a “no damage for delay” provision). Also, consider whether the source of the delay is caused by COVID-19 or if it was caused by the owner or upstream contractor. Meaning, is the owner or upstream contractor putting greater restrictions on work activities in reaction to COVID-19, like limiting the number of people on a site or shutting down a project even though there is no official government mandate to do so?

Changes – Are there provisions that provide relief for changes or permit the contractor/subcontractor to assert claims for cost or time impacts? An independent act of the owner/contractor, such as project specific limitations due to COVID-19 may give rise to a claim.

Price Escalation – Does your contract allow for recovery due to increased costs for labor or materials? These clauses may come into play later on too (after the return to work).

Suspension of Work – Some contracts give the owner the right to suspend a project for a certain period. Such clauses often provide the contractor with not only a time extension but also additional compensation for idle time and/or demobilization and remobilization once the project restarts. Such clauses may also permit the contractor to terminate the contract if the suspension lasts longer than the specified period.

Termination for Convenience – Many contracts provide the owner with the option to terminate for convenience. In such instances, the contract typically permits the contractor to recover for the work performed to date, but may provide for additional recovery.

Regardless of what theory you are proceeding under, here are the key takeaways:

(1) Track your impacts. In order to claim an excusable delay, contractors will need to show when the impacts occurred, how long they lasted, and who was affected.

(2) Establish a causal connection. In addition to showing that your labor or your suppliers were impacted by the coronavirus, you will need to be able to show how your performance was impacted. If the government imposes quarantine restrictions or issues a stop-work order, showing this impact will be easy. But if the delay is due to supplier disruptions, contractors will need to show how those disruptions delayed or prevented performance.

(3) Document your mitigation efforts. You have an obligation to mitigate the impacts. Consider alternative sources and methods of performance. If using alternate methods makes your performance more expensive (but still commercially reasonable), it may be less risky to proceed with the alternative and seek an adjustment under the contract, than to simply not perform and risk a potential default. Also, be sure to contemporaneously inform the party with whom you have contracted of the impacts and additional costs being incurred to continue performance.

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