How Project Managers Can Execute Force Majeure Clauses
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by Cameron McGaughy,
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Date
The revolutions and demonstrations last year in the Middle East and North Africa, dubbed the Arab Spring of 2011, was a trying time for project managers in the region. As we near the first year anniversary of these historic events, we face more uncertainty.
We have witnessed the evacuation of expatriate staff, the relocation of operations, and an unmotivated local workforce. Project managers still see strikes, riots, civil disobedience and tension.
Some projects have been derailed, failed to meet their objectives or are late. Customers have faced contractors, suppliers and developers absolving themselves of their contractual responsibilities by pleading "force majeure."
"Force majeure" is a common contractual clause that frees parties, bound by a contract, from liability or obligation if an "act of god" happens. Unless these acts are clearly defined, they are assumed to be extraordinary events with an extremely low likelihood of occurring.
If used, force majeure clauses shift risk allocation from project contractors to their customers or other contractual stakeholders.
Organizations with projects in regions where force majeure events have taken place should prepare for ongoing conditions. To reduce the potential for conflict and ambiguity, organizations should add more contractual detail and definition to force majeure provisions in existing and new contracts. It eases tension and increases the prospect of sharing the responsibilities of cost and impact from these events.
Project managers can follow these good practices to add detail and definition to force majeure clauses in the following way:
Define what circumstances and events constitute a force majeure. What constitutes force majeure in my region seems to be open to interpretation. My advice to project professionals is to provide as much clarity to this clause as feasibly possible by listing examples and inclusions.
Depending on the project's nature and location, the list might highlight political unrest, riot, war, invasion, terrorism, civil war, rebellion, revolution or insurrection. Other events could be radiation leaks, nuclear accidents, toxic explosions and natural disasters.
Define what constitutes the end of a force majeure.A demonstration or strike would have a start and end time, for example. However, this event may have ongoing implications that could disrupt project work. This may include changed work conditions, reduced resource and productivity, or loss of utilities, materials and equipment.
The force majeure clause should detail whether these impacts are the reasons for non-performance and non-liability for damages.
Agree on a formal process in the event of a force majeure.There should be additions to the clause on:
- Formal notice time
- Method of notification of a force majeure event
- Process for executing mitigation responses
- Agreement on a neutral country where arbitration can be held
Identify risk planning and mitigation responsibilities.Project managers should identify risks and responses associated with continuing the project work such as:
- Renegotiation of contracts reflecting any changes or cost increases in the market
- Force majeure insurances, associated guarantees and contingency funds
- Clarity on when to reasonably employ mitigation responsibilities, the costs and time period of mitigation efforts, and whether these efforts should be shared or incurred and for how long
- Revision of schedules or extensions for projects with fixed completion dates
- Recovery of agreed costs
- Eventual termination of the contract
What advice can you give project managers in force majeure situations?
Read more posts from Saira.
Posted
by
Saira Karim
on: March 01, 2012 11:17 AM |
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