Part of the contract drafting process entails a bit of forward thinking: trying to identify and minimize ahead of time those things that could go wrong. If you’re new to the business world, or you’ve just entered into a new sector or started a new business, it can often be difficult to predict the downfalls your business may face– or the downfalls the other contracting party may face.
There are some risks that every business must face which are more predictable than others. For example, every business at some point can expect to have an invoice dispute with a supplier, customer or independent contractor. On the other hand, there are those risks which are completely unpredictable and therefore less controllable.
In the world of contracts, these risks are often called “force majeure events,” and well-drafted contracts usually contain a Force Majeure provision dealing with how such events will affect the parties’ respective obligations during the course of the contract.
Force Majeure refers to acts of God and other events which are wholly outside of the control or influence of the party. Typical force majeure events include things like floods, fires, tornadoes, hurricanes, tsunamis, earthquakes, riots, etc.
While these events are pretty intuitive and it is hard to contest their occurrence being completely outside the control of the contracting party, there are some events, such as supplier bankruptcy and currency and market fluctuations which are less clear and which are often heavily negotiated.
Force majeure provisions list the events which will constitute force majeure and set forth the parties’ respective obligations or release from obligations if the force majeure event occurs. For example, a force majeure provision may excuse a supplier from complying with a deadline or delivery date.
As a startup company or entrepreneur, be cautious when you see a provision dealing with force majeure and, if you’re drafting an agreement, ask yourself how your contractual relationship may benefit from including a provision to help manage uncertainties.
If you are interested in learning how to protect against risk, including force majeure risk, please contact an attorney or have an attorney review your agreement before you sign it.