Force Majeure—Just Another Term or Essential Clause?

The “greater force” terms in a contract may seem like clauses that are easy to skip over. But with the unknown always right around the corner, it’s best to plan ahead. What should an organization do when this clause appears—either in their own contract or one that’s being presented to them?

Force majeure is a French term that literally translates as superior force. In legal terms, it refers to an unavoidable circumstance, or a “greater force” that neither side of a contract can be held accountable for, such as a hurricane or earthquake. Force majeure is something that if ignored, can be costly for both sides, but if terms are too broad, can potentially be unfair to one party. It’s important to not only be aware of what should go into a force majeure clause then, but also what it should include for each industry or purchase type.

First, look at how the clause is structured. Force majeure is in place to relieve one party from any situation that is outside of their power. This includes both natural forces and events such as wars. Yet force majeure clauses are often stretched to include occurrences that a party does have control over, such as labor or supply issues. For force majeure to be fair to both parties, it should only include acts that are truly outside of a party’s jurisdiction. Often force majeure protects vendors more than clients, so checking to ensure that it doesn’t simply excuse aspects of the business that a vendor does have the power to change makes the agreement fair for both sides.

The second thing that force majeure should not account for is disaster recovery excuse. While the disaster itself is something that cannot be controlled, a business does have the ability to direct what happens afterward. Companies should have a post-disaster plan in place that is included as part of the clause. The force majeure clause should not excuse the vendor from all contractual obligations in the case of an emergency, but rather, acknowledge the emergency and outline the plan of services delivery post-event. In this case, the force majeure clause really functions more as a suspension of the contract rather than its elimination.

For force majeure clauses, there are two key features that make it much simpler for all teams to ensure the terms and conditions are correct and the contract is ready to be finalized. Legal teams need to have complete visibility and be able to easily approve. The first step in this process is a template library. This allows the legal team to draft consistent terms that can stay the same for every contract sent out, and are in the company’s voice.

Since these terms are common in certain contracts, to ensure that approvals are completed on every document, it’s easiest to have a set approval workflow that can be attached on every contract. Even if teams are starting with a template, having this approval workflow allows Legal to have visibility into any changes another party makes to the document.
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While the unknown can be scary, a contract lifecycle management platform can serve as a consistent way to ensure businesses are protected against any uncertainties. To find out more about Concord’s features and how they can protect your organization, fill out the request form below to see a demo.