“Subcontractor is not liable for failure to perform its obligations if such failure is a result of anything outside of its control (including, but not limited to, Acts of God, extreme weather conditions, war, medical pandemic or outbreak, protests, labor dispute, strike, lockout, broken or malfunctioning equipment, insufficient transportation, unforeseen market conditions or interruption or failure of electricity or telephone service). Subcontractor may make a force majeure claim at any time during the project. Both parties are entitled to terminate this Agreement in such circumstances, must fully compensate the other party for all costs related to the event and provide a reciprocal time extension to each other for each day the event(s) impacted the schedule.”
The first thing to consider is that the force majeure event releases the subcontractor from any contractual liability. Thus, it is reasonable to specify what is understood by a force majeure event. The agreement should cover all probable circumstances beyond the control of the other party and provide an exhaustive list of such circumstances. The list of force majeure events should be composed with the utmost precision. By giving a clear-cut list of the circumstances exempting from liability, both the general contractor and the subcontractor know where they stand in any event.
In determining the range of these circumstances, the natural environment of the area, the social and political climate of the country, or region where the parties operate, the nature and duration of the contract, as well as other aspects should be taken into account. If, however, the list of force majeure events includes circumstances whose adverse effects are usually preventable for the subcontractor (for example, unavailability of resources), the contract would be unfair towards the general contractor and would create a loophole for exemption from liability even for the irresponsible subcontractor.
Declaration of war, protests, labor dispute, strike, lockout, broken or malfunctioning equipment, insufficient transportation, unforeseen market conditions, or interruption or failure of electricity are legitimate reasons for exemption from liability. However, “abnormal weather conditions” are removed from the list since conditions that lead to natural disasters, such as floods and hurricanes, are already included under the Acts of God. Furthermore, “abnormal” can be interpreted differently: from several degrees above or below average to extreme weather conditions. Thus, “abnormal” is replaced with “extreme.”
The word “hostility” is removed from the list since it is too ambiguous. It does not specify whether those hostilities are in direct proximity to the premises and how disruptive they are for regular work. “Increased fuel or overhead costs” are deleted since the subcontractor should have accounted for them before signing the contract.
Naturally, there should be a waiver of the contract in response to unexpected economic circumstances, such as “unforeseen market conditions.” “Unavailability of materials” is removed as the subcontractor should bear the risk of the unavailability by insuring against it. Though “unstable business environment” is a legitimate reason for exemption, unstable business relationships, especially with other subcontractors, should not void obligations under the contract.
It would only be fair to make special provisions for any possible future “medical pandemics or outbreaks” in the light of the current coronavirus emergency. The pandemic, being an extraordinary, unpredictable and unavoidable event, meets all criteria of force majeure The measures taken by the authorities to prevent and combat the pandemic have led to economic hardship and inability to fulfil contractual obligations.
Force majeure claims cannot be accepted after the project since the very fact that the project has been finished sufficiently shows that force majeure events have not derailed it. On the contrary, such claims should be made as soon as force majeure events occur to allow the general contractor time to look for other subcontractors.
Freedom of contract means the freedom of both parties to terminate contractual relations based solely on their own interests with the obligation to reimburse the incurred losses to the other party. Thus, when if it would be more advantageous for the party to refuse to perform the obligation under the contract, the party should have a right to waiver the contract but compensate the other contractual party for the incurred costs.