What is “Force Majeure,” and what do Procurement professionals need to know about it right now?

I can’t count the number of times I’ve heard colleagues talk about contracts in terms of the “business parts” and the “legal parts,” debating which paragraphs are which. They want to know what stuff they can hand off to the lawyers, and what stuff they can try to keep away from the lawyers (Not me, of course. I personally respect and value any and all input from the talented and dedicated lawyers who support us).

I’ve always felt it important for Procurement professionals to understand ALL the parts.  The commercial terms - pricing and deliverables and such - only tell part of the story.   The “Legal parts,” the often confusing jargon so many of us would rather ignore, are primarily concerned with risk, and risk has a strong influence on the commercial terms. Which brings us to one of those "legal" parts, one that is especially critical at the moment. 

“Force Majeure” language is in almost every contract we touch. It is French (not Latin, like most legal terminology), literally translating to "greater force," and is often equated with “Acts of God.” It addresses the stuff that is out of our control, such as hurricanes, including certain human actions, such as war.  In my career, events of 9/11 and Hurricane Sandy (among others), resulted in Force Majeur clauses kicking in, with considerable financial consequences. It would generally also include – you guessed it – PANDEMICS.  

But it isn't that simple; invoking FM requires passing three-tiered test.  First, it has to meet any specific criteria and definitions negotiated into your contract.. Second, the events need to be unpredictable and unable to be prepared for (a very high standard to meet), and third, you have to show it is impossible to meet your commitments as a result of the FM event; "impractical," or "commercially unreasonable" or "really difficult" are insufficient. Of course, as always, consult with an actual lawyer.

Do you know what your contracts say about your commitments, and your supplier commitments, under a Force Majeur event?   It would be nice if everyone just cooperated in these difficult times to work things out, but that’s not always going to be the case. Famously, billions of dollars were at risk when insurance companies and property owners debated if the World Trade Center attacks were a single force majeur event, or if each tower collapse constituted an individual event.  Now is the time to read and evaluate what your Force Majeur contract language means for you, your suppliers, and your stakeholders.