According
to the International Federation of Consulting Engineers- (FIDIC) Silver Book
that provides for conditions of contract for Engineering Procurement
Construction/ Turnkey Projects, Clause 19 mentions Force Majeure and other sub clauses
related to it. Force Majeure means an exceptional event or circumstance:
- Which is beyond a party’s control,
- Which parties to contract could not have
reasonably provided before entering into contract,
- Which the parties to the contract could not
have reasonably avoided or overcome,
- Which is not substantially attributable to
the other party to the contract.
The reason
behind having Force Majeure clauses is to limit the liabilities and the
obligations of the parties during circumstances wherein performance of the
contract seems extremely difficult or near to impossible. Where a certain event
is unforeseeable, the parties should definitely be excused of their obligations
and performance at least till a certain point of time.
Examples of such a situation would include, but not limited to:
- War, hostilities, invasion, act of foreign
enemies,
- Revolution, civil war or terrorism,
- Riot, strike out or lockout by other
persons indirectly related to the contract (e.g. employees of subcontractors),
- Natural calamities
What are some of the obligations that the parties ought to follow in case of occurrence of Force Majeure?
- The
party which will not be able to perform due to such an event, shall specify the
circumstances, obligations, and the performance prevented via a notice.
- The
notice shall be given within 14 days of being aware of the situation.
- When
the notice is given on time, the party shall be excused from performing till
the existence of Force Majeure.
- Force
majeure clauses do not excuse payment obligation.
- Even in
such a situation, parties should try to minimize pending performance to as
minimum as possible.
What shall happen if the Force Majeure continues for a longer-time?
- If due to Force Majeure the performance of
a contract is prevented for a continuous period of 84 days, of which notice is
given, then either party can give a notice for termination to the other party.
- If due to Force Majeure the performance of
a contract is prevented for multiple periods which total up to more than 140
days, of which notice is given, then either party can give a notice for
termination to the other party.
- The termination shall be affected after 7 days of giving the notice.
What obligations are to be followed post-termination due to Force Majeure?
- The Employer shall pay to the Contractor
the amount payable for works already done as per the contract.
- The Employer shall pay to the Contractor
the cost of Plant and Materials that were ordered for completion of work. (The
material shall then be disposed to Employer by the Contractor)
- The Employer shall pay to the Contractor
any other payments which was reasonably incurred by the Contractor.
- The Employer shall pay to the Contractor
the cost of removal of Temporary works and Contractor’s equipment from the
site.
- The Employer shall pay to the Contractor
the cost of sending back the Contractor’s staff and labourers which were
employed to complete the work under the contract.
- The clause shall include what events are included under Force Majeure.
- Make sure that the clause of Force Majeure includes informing of the parties via sending a notice.
- Time of informing should also be included in the clause.
- Mention the obligations that shall be excused, and which still will have to be performed.
- Mention specifically if the payment shall not be excused.
- The draft shall also include the reasonable actions that can be taken in case Force Majeure event extends to a longer period of time.
Also read- Difference in Interpretation of Breach of Contracts and Proof of Damages
Also read- Taxmann's GST on Works Contract & Other Construction/EPC Contracts (6th Edition 2020)
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