Many contracts have force majeure escape clauses. Include them appropriately. But instead of preparing to escape, take a partnership approach to anticipating force majeure, managing the manageable, getting help for the mission-crippling and implementing alternate approaches in the face of the insurmountable. This partnership approach improves the risk-weighted value of both short-term performance and long-term relationships.

Definitions (from Merriam-Webster):

Contract: A binding agreement between two or more persons or parties.

Force Majeure: An event or effect that cannot be reasonably anticipated or controlled. A superior or irresistible force.

Act of God: An extraordinary interruption by a natural cause (such as a flood or earthquake) of the usual course of events that experience, prescience, or care cannot reasonably foresee or prevent.

 

(All acts of God are incidences of force majeure, but not all force majeure are acts of God.)

Sample contract clause (From Law Insider):

“Force Majeure. The Company’s obligation under this Agreement shall be excused when and to the extent its performance of that obligation is prevented due to Force Majeure. The Company shall promptly notify the Trustee that it is prevented from performing its obligations by reason of Force Majeure and shall exercise due diligence to end its inability to perform as promptly as practicable.”

Levels of impact: 

Different instances of force majeure may have different levels of impact.

Manageable impacts are disruptive, but don’t prevent fulfilling obligations – like snow making your workers late. (Shift your work hours.)

Mission crippling impacts prevent fulfilling obligations until they are fixed – like trees falling and blocking all access to your plant. (Get help to remove the trees.)

Insurmountable impacts cannot be managed or circumvented in any way – like new legislation that outlaws your operations. (Go do something else.)

Mitigating: 

The general prescription is to have contingency and crisis management plans in place to manage manageable events, get help dealing with mission crippling events and move quickly to alternate approaches if the effect is insurmountable.

In any case a partnership approach works better than working on your own as both parties working together can:

  • Foresee more events or effects and understand them better.
  • Manage the manageable better.
  • Help each other and access more resources to deal with mission-crippling events.
  • Generate more alternatives to insurmountable obstacles.

Foreseeable versus unforeseeable events or effects

One of the generally unanticipated outcomes of a partnership approach to force majeure is that more of the “unforeseeable” events or effects will be foreseen – and dealt with. This will happen as parties partner to warn each other. And it will happen as parties change their focus from how to escape from agreements when events or effects hit to how to work together to realize as much of the intended value over the short-term and strengthen relationships over the long-term as possible.

Example:

Consider a factory closed by a hurricane and its customer waiting for delivery.

If the factory invokes its act of God force majeure clause, it gets out of its contract and risks its relationship with the customer over time.

If the customer insists that the factory pay the upcharge to ship competitors’ products, it gets its delivery and risks its relationship with its supplier. (Good relationships are two-way.)

If the factory and customer work as partners they may have anticipated the effect of the hurricane, pre-shipped and stored part of the order, pre-shipped some work-in-progress so they could finish the work in the customer’s site post-hurricane and done other things to mitigate risk. They will have sustained incremental stress and cost on both sides, done what they could and strengthened their relationship.

Mindset:

The difference between a contract and a partnership is primarily mindset.

Those with transactional mindsets do the minimum required by each contract and no more. Like used car salesmen, they live from discrete transaction to discrete transaction.

Those with partnership mindsets happily go well beyond contract minimums, thinking win-win every chance they get to build long-term relationships.

Sometimes contractual relationships are all you need. When facing force majeure situations, partners can make all the difference.