With the COVID-19 pandemic, supply chain issues, labor shortages, and now the war in Ukraine, force majeure clauses are no longer the often overlooked boilerplate provisions they once were. It is critical when drafting or negotiating a contract to consider the big picture of the commercial arrangement and what the impact of a force majeure event might be.

At a high level, some things to consider are (1) the type of commercial transaction or relationship; (2) the obligations under the contract that will most likely be impacted by a force majeure event; and (3) which party will benefit most from having a force majeure clause.

Components of a Force Majeure Clause

There are four main components to a force majeure clause, although not every force majeure clause will have all four.

1. Excuse from Performance

A key component of every force majeure clause is the excuse from performance. It provides that if a force majeure event occurs, one or both parties are excused from performing under the contract. The non-performing party will not be liable to the other party, or deemed to have defaulted under or breached the contract, if it cannot perform because of a force majeure event. The party with payment obligations under the contract will also want to ensure that it is excused from making payments if a force majeure event causes the other party to be excused from performance.

2. List of Force Majeure Events

Generally there are two types of lists of force majeure events – restricted and unrestricted. A restricted list limits the definition of force majeure events to only those specifically listed. An unrestricted list keeps the definition of a force majeure event open, to cover unexpected events outside the impacted party’s control. An unrestricted list will use catch-all language, such as “including without limitation,” “other similar events,” “events beyond the [obligor’s] reasonable control,” or “act of God.”

Some standard force majeure events to consider including are:

• Flood, fire, earthquake, explosion, or other potential disasters
• War, invasion, hostilities, terrorist threats or acts, riot or other civil unrest
• Government order, law, or actions
• Embargoes or blockades
• National or regional emergencies
• Strikes, labor stoppages or slowdowns, or other industrial disturbances
• Telecommunication breakdowns, power outages or shortages, lack of warehouse or storage space, inadequate transportation services, or inability or delay in obtaining supplies of adequate or suitable materials
• Epidemics and pandemics

If the force majeure clause does not specifically list a certain event, a court might consider it to have been intentionally excluded if it was foreseeable that such an event might occur. For example, two years into the COVID-19 pandemic, epidemics and pandemics need be specifically included in the list of force majeure events—the parties cannot rely on a court to interpret those events as included, as they are certainly foreseeable in today’s world.

When drafting or reviewing a list of force majeure events, it is important to tailor the list to include events that are more likely to occur in the location of performance, and to consider current events. The parties may also decide to specifically exclude certain events from the definition of a force majeure event. Some common exclusions include a change in economic circumstances (e.g. performance becomes more expensive than anticipated), subcontractor defaults, equipment failure, or banking system failure.

3. Impacted Party’s Obligations

The parties may want to include certain requirements of the impacted party (the party that is unable to perform due to the force majeure event). Examples include requiring the impacted party to give notice of the force majeure event; requiring the impacted party to mitigate the effects of the force majeure event and use best efforts to end the failure or delay; and requiring the impacted party to resume performance as soon as reasonably practicable.

4. Other Party’s Remedies

The parties may also want to include remedies for the other party, such as the right to terminate the contract after a certain period of time. Buyers in sales of goods agreement may also want to consider negotiating for the right to purchase from third parties, a requirement that the seller maintain adequate supply or inventory, or allocation requirements.

Key Drafting Tips

When negotiating a force majeure clause, it is critical to understand which party is more likely to benefit from excused performance. The following chart summarizes general rules of thumb for negotiating the clause depending on which party is more or less likely to benefit from excused performance:

Other Considerations

Other important considerations when drafting or negotiating a force majeure clause include:

• Battle of the Forms: If there are multiple governing documents (e.g. a master agreement, statement(s) of work, and purchase orders), make sure it is clear which document’s force majeure clause governs.
• Service Agreements: Change order amendments may be necessary if there is a force majeure event, so draft or negotiate change order provisions with force majeure events in mind.
• Choice of Law: Consider choice of governing law, as it will impact how a court interprets the list of force majeure events.
• UCC Article 2: If there is no force majeure clause, the provisions of Article 2 of the Uniform Commercial Code may apply.
• Insurance: Consider whether business interruption or supply chain insurance is needed.
• Ramifications Outside of the Agreement: Consider whether any other agreements, such as credit agreements, require notice of anticipated loss due to occurrence of a force majeure event.