Coronavirus: Wash Your Hands, Then Check Your Force Majeure Provisions
As the threat of Coronavirus (COVID-19) intensifies, so does the likelihood that the virus will affect the solar and storage industries. If you have not yet begun to think about the Coronavirus’s potential impact, now is the time to start planning. The first place to look is your contract’s Force Majeure provision. Force Majeure, or its Latin counterpart, Vis Major, is the provision that defines occurrences that are outside and beyond the control of the parties (acts of God, war, famine, and plague), and allows relief for non-performance in the event that such an occurrence is triggered. The possibility of the virus triggering a Force Majeure event increases as the Coronavirus continues to spread. Depending on the status of the transaction, parties should be aware of the following to ensure that they are comfortable with the terms of their contracts should Coronavirus trigger a Force Majeure event.
If you are in the midst of negotiating a contract, all parties will want to safeguard their exposure to schedule delays and cost increases. In the event that Force Majeure is triggered, a party may want to include a cap for cost overruns or limit relief to scheduling changes. If parties agree to limit relief to a scheduling change, they may need to take into account other deliverables that could have a “waterfall effect” to make certain that all agreements are acting cohesively. Additionally, if you are not the party responsible for procuring materials or constructing the project, you will want to ensure the other party is required to exercise reasonable diligence to avoid, prevent, or minimize the impacts to Force Majeure.
If a contract has been executed, parties should review the Force Majeure language to see if and when an event could be triggered. In terms of public health emergencies, some contracts may allow for Force Majeure to trigger when the project is merely impacted, while others may require a formal declaration from a governmental body. It is important for parties to understand the circumstances under which they can declare a Force Majeure event, so they can negotiate the best terms possible going forward. Additionally, parties should review notification processes and deadlines to ensure that they are not missing important milestones that could preclude their ability to claim Force Majeure. Exercising reasonable diligence and being proactive during these events can help minimize the impact on your project.
While it is easy to gloss over Force Majeure as merely “boilerplate” provisions for extremely rare occurrences, Coronavirus is a reminder that such Force Majeure events do happen, and are one more factor to consider while negotiating contracts. In the commercial contract setting, this can be contained with proactive, thoughtful actions, and by thoroughly understanding your agreements.