What Is Force Majeure: Everything You Need to Know

force majeure

It’s no secret that the COVID-19 pandemic has had a devastating impact on businesses around the world. Due to the unfamiliar circumstances, most if not all struggled to maintain their operations while remaining financially viable. As a result, thousands of businesses were forced to shut down and file for bankruptcy.

If there’s one thing the pandemic has taught businesses is that it’s extremely important to be agile, especially in cases of unforeseen events. Companies that have contingency plans and force majeure clauses in their contracts can pivot and make immediate changes to cope with any unforeseen adversities and circumstances.

The Importance of Force Majeure in Contracts

At its core, contracts are designed to protect the rights and interests of all the parties involved. Providers are ensured that they will be paid, while the customers or clients are guaranteed to receive the service or product they seek. However, in the real world, it’s not as straightforward as that. There are multiple factors and key elements that come into play when enforcing agreements.

Most contracts only cover the basic circumstances, mostly business-centered. Many make the mistake of not including force majeure clauses, and that oftentimes puts contracting parties in tight spots during unprecedented situations.

Force majeure clauses can provide a mechanism for parties to suspend or terminate the contract when uncontrollable circumstances happen that make it impossible or even dangerous to pursue the legal obligations.

The inclusion of a force majeure clause prevents the parties from being held liable for breaching the contract. It also helps prevent you from incurring additional costs and liabilities. And aside from that, it also brings more peace of mind knowing you are legally protected.

How to Add Force Majeure Clauses in Contracts

On the contrary, adding force majeure clauses is not as complicated as a lot of people make it out to be. However, you do need to spend an extra amount of time and careful consideration to ensure everything’s in accordance with the governing law.

Adding a force majeure clause to a contract can be done by following these steps:

1. Determine the scope

Start by defining the scope of the clause. Determine the events that would qualify as force majeure. As mentioned earlier, it could be natural disasters, wars, pandemics, or other government actions. During this part, it’s important to be as precise as possible. Ambiguity has no room here.

2. Define the impact

Once the scope has been defined, you can proceed to specify the impact of a force majeure event. There are a few ways you can go about it. The most common is to terminate the contract or suspend it. In some cases, the contracting parties also extend the validity of the agreement. Choose the one that’s most favorable to both parties.

3. Set the notice requirements

One very important aspect of a force majeure clause is the notice requirements. These should be clearly defined in the contract to ensure that both parties understand what is required to invoke force majeure. This can include the method of notice, the time frame, and the information demonstrating that the event qualifies as force majeure.

4. Allocate risk

When writing a force majeure clause, you need to specify clearly the allocation of risk. What this means is you need to define in detail how each party will bear the risk and costs associated with the event. This can include the allocation of costs and expenses related to the force majeure event.

5. Consult with your legal team

Once you’ve drafted the clause, make sure that you run it through your lawyer or legal team. They can check and ensure that everything is valid and enforceable under the governing law. Moreover, they can also review the contract to avoid any ambiguity and that the agreement accurately reflects the intentions of both parties.

Top 5 Tips For Managing Force Majeure Risks

One of the keys to running a successful business is to be prepared for any potential circumstances and risks. In the case of force majeure events, here’s how you can manage and ensure agility in your business:

Identify potential force majeure events

Again, it always pays to identify the events that could potentially trigger the force majeure clause in the contract. Keeping a checklist as a reminder helps you prepare for any events. It’s always better to expect the worst than to be caught completely off guard.

Review and update contracts

Schedule a periodic review and update of contracts to ensure they include clear and enforceable force majeure clauses. Spare a day or two just to go through all your agreements. It’s important to be thorough so you can identify any gaps or ambiguities in the language of the clause.

Have a contingency plan

As mentioned, it’s critical that your business has a clear set of contingency plans for any of the force majeure events. Make sure that you have a list of alternative suppliers, an established remote work arrangement and protocols, and most importantly, an insurance coverage. Planning ahead helps you take immediate actions when circumstances suddenly change.

Communicate with stakeholders

Communication is always key to successfully mitigating force majeure risks. Don’t be afraid to talk to your stakeholders, including customers, suppliers, and employees, about the potential impact of a force majeure event. This includes discussing any potential disruptions in the supply chain, providing updates on business operations, and establishing clear lines of communication.

Monitor and adapt

Finally, businesses should continuously monitor the situation and adapt their plans as necessary. Update your contingency plans every now and again. Review your contract and work on improving your workflow to make it less susceptible to any disruptions. By staying vigilant and taking a proactive approach, your business can be more agile.

Protect Your Business: Add Force Majeure Clauses with Fill

Given today’s unpredictable and ever-changing business landscape, it always pays to be prepared. Force majeure events like the present pandemic, typhoons, earthquakes, and political unrest can happen any time and usually without warning.

This is where Fill comes in handy. With Fill, you can add force majeure clauses to your contracts with ease and confidence. Our simple and intuitive platform packs a comprehensive list of features and functionality that can make any contract management a breeze.

Fill also offers a rich library of templates that can be tailored to your specific needs. There’s no need to spend endless hours drafting force majeure clauses. With Fill, you can keep your business safe and protected in just minutes. Contract management has never been this easy.

Speaking of safety, our platform uses military-grade encryption to safeguard your most sensitive information. Not only that, but we comply with federal and international regulations, including HIPAA and GLBA.

Don’t leave the fate of your business to chance. Protect your operations with Fill. Sign up today.

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