Force Majeure and Construction Contracts
Force majeure is a common clause in contracts. This provision allows both parties to break the contract because of unforeseen circumstances that make completing the contract impractical or impossible. To decide if you will be able to invoke force majeure, look at the language of the specific contract. Furthermore, if your contract does contain a force majeure provision, the next step is to research applicable state laws regarding force majeure.
Force majeure events normally listed in contracts include:
- acts of God, such as severe acts of nature or weather events including floods, fires, earthquakes, hurricanes, or explosions;
- war, acts of terrorism, and epidemics;
- acts of governmental authorities such as expropriation, condemnation, and changes in laws and regulations;
- strikes and labor disputes; and
- certain accidents.
Economic hardship experienced from an event or occurrence not mentioned in the above list can almost never invoke a force majeure provision on there own. Many construction industry force majeure claims may result from non-payment for work performed, defaults and terminations, performance and payment of bond claims, liquidated damages, and other breaches of contract that are specific to a company or job. Finally, you may have entered into a contract after Covid-19 had become a widespread pandemic. In this case, you will not be able to use Covid-19 as a reason to invoke force majeure.
Specific State Laws
District of Columbia and Maryland
The District of Columbia and Maryland courts have almost the same stance on force majeure. For construction contracts originating in DC and Maryland, there are a few specific rulings that offer guidance on force majeure.
First, a 2004 court ruling is instrumental in understanding force majeure. This ruling states that when a force majeure clause is in a contract and an event occurs that affects the contract, the contract can be broke without legal penalties. This ruling is important as it establishes the DC and Maryland court’s view to uphold force majeure. However, a 1977 court ruling also states that a contracting party can break from its obligations. However, this applies to contracts where performance is impossible from events occurring after the formation of the contract. Finally, the party could not anticipate this or contribute to the issues. From these two rulings, it is likely that if you are in a construction contract and had to stop working because of Covid-19, lost productivity due to the virus, or have undergone substantial economic hardships, you can legally break your contract.
The Covid-19 pandemic has had negative effects on almost every sector of the American economy. Many companies in the construction industry are experiencing the brunt of these effects. As such, a surge in force majeure related lawsuits is likely. Because of the variety of instances where force majeure will be used, the Virginia courts will almost certainly have to update and restate their stance on the topic. Virginia courts will be tested. However, this 1919 Virginia Supreme Court ruling sheds some light on how the state courts view force majeure.
“[If] a party charge himself with an obligation possible to be performed, he must abide by it unless performance is rendered impossible by the act of God, the law, or the other party. Unforeseen difficulties will not excuse performance. Where the parties have made no provision for a dispensation, the terms of the contract must prevail.”
From this ruling, Virginia judges and arbitrators dealing with construction-related force majeure cases will first attempt to interpret the terms of the contract. From these terms, they will decide if force majeure was an appropriate apparatus to resolve the case. As such, it is likely that Virginia courts will only acknowledge force majeure if it was in the original contract.
Options For When You Cannot Invoke Force Majeure
As previously mentioned, your contract and state laws will govern if you can invoke force majeure. However, if force majeure is not an option for your business, you can claim impossibility, impracticability, and frustration of purpose to legally break your contract.
Impossibility and Impracticability
The first way to remove your company from a contract is to use the claim of impossibility and impracticability. The Uniform Commercial Code (UCC) has guidelines that allow a construction company to remove itself from executing a contract. However, this provision can only be for contracts that completing the agreed-upon performance has been made impracticable by an unforeseen event. The event must create a situation where it is either impossible or impractical to complete the contract. Furthermore, this inability to complete must stem from extreme and unreasonable difficulty, expense, injury, or loss.
As the United States has imposed lockdowns throughout the country, this clause may be of great help to construction companies. One can use this clause to nullify a contract because it would be impossible or impracticable to complete the agreement.
Frustration of Purpose
When you are not able to invoke either of the previous clauses, frustration of purpose is another option available. Frustration of purpose is applicable to companies where an event or change occurs that makes one party’s contractual performance worthless to the other party.
For example, when reviewing future construction projects, your company may be so behind on current projects that you would be unable to complete the future project by a given date because of delays on your current project. In this situation, it would make sense for the party that needs the work done to claim frustration of purpose. After a frustration of purpose, the company can hire another construction company to do the work. This is also applicable for material orders. For example, a company has an order for materials for a project that is no longer going to occur. Furthermore, the construction company could claim frustration of purpose as the materials would now be worthless. A frustration of purpose claim is similar to the force majeure clause in another way. Simple economic hardship such as an increase in labor or product costs is not enough to necessitate this clause.
Final Thoughts on Force Majeure
Whether you are a construction company owner, contractor, subcontractor, or material supplier reviewing each of your contracts before issues occur will help you prevent subsequent litigation. One uses force majeure and the impossibility, impracticability, and frustration of purpose claim for similar reasons. However, understanding which options are available to you will help you save money, time, and frustration. This is especially true if you or the entity you are in a contract with broke the contract. Finally, if you are unsure if your construction contract has a force majeure provision or not, contact Antonoplos & Associates Attorneys At Law and one of our experienced construction attorneys will be happy to assist you.
Contact our Law firm for More Information
Our experienced group of attorneys have been helping the construction industry with legal issues for over 20 years. Furthermore, our attorneys have licenses in and service clients in DC, Maryland, and Virginia. For more information regarding construction litigation or force majeure in construction contracts, contact Antonoplos & Associates at 202-803-5676. You can also directly schedule a consultation with one of our attorneys. For general information on construction litigation or force majeure, check out our blog.