Suppliers have faced unique challenges in keeping their products and services flowing into the marketplace during a pandemic.  In response to COVID-19, suppliers have revisited their default procedures and have developed solutions to these new challenges, including implementing social distancing and improved health practices, designing solutions to comply with various forms of government orders, repairing issues with their supply chain, and reformulating stocking levels.  An overhaul of contract provisions is yet another improvement suppliers can implement to shore up their defenses in case of emergency events.

Shift in Attitudes Towards Force Majeure Provisions

According to a recent survey, 47% of in-house counsel have identified contract complications resulting from the COVID-19 pandemic¹.  Accordingly, revisions to contract templates to reduce future complications have made it onto the in-house counsel to-do list.  Prior to the appearance of COVID-19, force majeure was one area of commercial contracting that was commonly glossed over during drafting projects and negotiations.  Now, force majeure provisions are a major focal point for revision by suppliers in their form contracts.

Overhauling Supplier Force Majeure Provisions

In evaluating existing force majeure language in form contracts, suppliers should pay particular attention to the following:

• Definition of a “Force Majeure Event.”Suppliers will usually be benefitted when the definition of a Force Majeure Event is drafted broadly.  This means that:
   
  • Scope of Control.The supplier should consider defining a force majeure event as one that occurs “beyond the control of the non-performing party,” rather than one that occurs “beyond thereasonable control of the non-performing party.”
     
  • Non-Exhaustive List. Any example list of force majeure events should clearly state that the list is not exhaustive by using “without limitation”-type language.Also, the supplier should consider ending any example list of force majeure events with catch-all language for other “foreseeable” or “unforeseeable” circumstances that cause delays or prevent performance.
     
  • Contents of List.A supplier should analyze whether additional events should be added to an example list of force majeure events.For instance, does the list take into account not only epidemics, pandemics, and viruses, but also COVID-19 specifically, quarantine restrictions, travel bans and government orders?Does the list need to address an inability to obtain necessary labor, materials or manufacturing facilities?Does the list need to cover delays in transportation, electrical power outages, or degradation in electronic communications systems?

     

  • Exclusions.Besides deciding what circumstances are considered “force majeure,” the supplier may also want to consider inserting language defining what circumstances are not considered “force majeure,” such as a customer’s inability to pay.
     
• Impact on Performance.Suppliers should pay close attention to what impact a force majeure event will have on performance.Ideally, the supplier will be excused from delays and non-performance under the agreement, will not be deemed to be in breach of the agreement, and will have no liability to the other party to the agreement whatsoever if the delay or non-performance results in whole or in part from a force majeure event.
   
• Additional Force Majeure Protections.Suppliers should ensure that the force majeure section of their form agreements addresses any unique needs they may have in responding to a force majeure event.A supplier may want to add that in case of a force majeure event, the date of delivery will be extended for a period equal to the time lost because of the delay.A supplier may also explicitly set forth that it has the right to determine internal use and external allocation of its products and services during a force majeure event.
   
• Elimination of Pro-Customer Provisions.As a final check to a supplier’s force majeure language, the supplier should eliminate any pro-customer provisions that may have inadvertently taken up residence in its existing form language.Common pro-customer provisions include stringent notice requirements that must be satisfied before force majeure can be claimed, or a right by the customer to terminate the agreement after a supplier claim of force majeure.

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¹ Uetz, Ann Marie et al., 2020 Global Supply Chain Disruption and Future Strategies Survey Report, https://www.foley.com/-/media/files/insights/publications/2020/09/foley-2020-supply-chain-survey-report-1.pdf (last visited October 6, 2020).