Force Majeure in the Construction Industry
One of the reasons why people struggle with contracts so much is that US law is built using a collection of terms from British and French law. Force majeure is taken from the French language and refers to any force that is insurmountable. In the construction industry, force majeure is a term used to describe insurmountable problems that can affect the completion of your project and the terms of the contract.
Another way you may have heard of this is “Acts of God” or “Natural Disasters” when it comes to different types of insurance. The past two years have been filled with force majeure events that are affecting the construction industry. In this article, a Charlotte contractor lawyer discusses force majeure in the construction industry.
Qualifications for Force Majeure
To qualify as a force majeure event that will be covered in a clause in the contract, an event must have such a profound impact on the construction company and the project that there is no way to avoid the problems that caused. Essentially, it is an event that forces a change in the conditions of the project that the construction company cannot control and cannot avoid. Unfortunately, these events happen more often than most people realize. In fact, they are so common and their impact is so important to the outcome of our project that construction companies routinely add force majeure clauses in the contract to try to protect themselves from events that are out of control.
Examples of Force Majeure Events
There are many different types of force majeure events that can happen. For construction projects in 2020, the COVID-19 pandemic caused shutdowns across entire parts of the country, effectively stopping work on projects for two or more weeks at a time. This is a perfect example of a project being interrupted in ways that slow down or stop work and increase the amount of time it takes to complete the project. This is a relatively uncommon form of force majeure as it takes a major event and interference by the government to stop work on a project entirely extended period.
Natural disasters, such as volcano eruptions and hurricanes, can cost setbacks on projects by causing temporary work stoppages, disabling local resources (electricity, water, transportation services, and can damage worksites and completed work. When these events happen, the damage to the construction site becomes the cause of the delay, and some of the work may need to be redone. This can raise costs significantly for acquiring new materials and lost time.
Related: Understanding a Force Majeure
Force Majeure’s Impact on Construction Companies
Force majeure events can have a massive impact on construction companies as they can significantly reduce costs making it impossible to project without going over budget. Construction projects are budgeted and bid based on estimates of how much it will cost the project. Essentially, force majeure events force those estimates to become inaccurate, and the construction company has to try to compensate to complete the project.
The overall impact on force majeure event and construction project is a longer time frame to finish the project due to delays and increased costs due to added work time and the potential loss of materials. On top of that, the contracts that construction companies use often have clauses that outline fines and punishments for going over the estimated work time.
Opening a facility late can cost an owner a lot of money, which is why they put in clauses to ensure that contractors finish projects on time. When a force majeure event happens, a construction company can be delayed, making it subject to these fines although it has no control over the situation. That is why force majeure clauses are used in contracts to try to protect construction companies from these types of problems.
Force Majeure Clauses
A force majeure clause is added to a contract to try to offer protection for the construction company in case some unexpected problems happen. Normally, the company will be subject to fines for delays in exceeding the project. Force majeure clauses introduced exceptions for specific types of events.
For example, a construction project in California could experience an earthquake in the middle of construction. If that earthquake disables the electrical network in the area and damages the frame building that is being built, the construction company will need extra time to wait for the electrical network to be repaired and to assess and repair any damage to the structure.
The construction company has no control over whether or not earthquakes happen or if an earthquake damages the building. Under a force majeure clause, the time taken to bring the project back to the state that it was in before the earthquake should be added to the end of the project timeline so that there is enough time for the construction company to continue working as if the earthquake did not happen.
Force Majeure Clauses By Another Name
In construction contracts, there may not be an explicit force majeure clause. Many contracts of late avoid using the phrase force majeure or Acts of God altogether because they can be vague in their interpretation. While there may not be a force majeure clause section in the contract, that does not mean that the protections are not included elsewhere.
Most contracts have a clause that deals with delays and extensions, which often cover the same types of events that force majeure clauses would. These clauses may not be in a particular section either. They may just be used when discussing the project timeline or how to resolve disputes. Regardless of how they are stylized, it’s important for construction companies to make sure that the appropriate clauses are present in the contract. Otherwise, they may face serious penalties that can make a project unprofitable.
Dealing with interruptions to work that are out of the company's control can be a difficult task without legal guidance. Fortunately, there are legal experts specializing in construction law that can help you avoid major problems by negotiating better contracts. If you have questions and concerns about force majeure clauses in contracts, contact a Charlotte contractor lawyer from Cotney Attorneys & Consultants.
If you would like to speak with a Charlotte contractor attorney, please contact us today.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.