Negotiating Delay Clauses In Contracts – When Force Majeure Is Not Enough
Most business people are probably familiar with, and expect to see, force majeure clauses in their contracts. This is an important contract clause for a party required to perform obligations—and whose performance might be delayed or limited by unforeseeable events or events outside of their control such as civil or labor riots, wars, fires, terrorism, explosions, weather disasters, and acts of G-d. The typical force majeure contract clause will excuse such a delay in performance or provide the party with additional time to perform if the delay is the result of a force majeure event.
But what about unforeseeable economic disasters—especially on a national or even global scale? Would the 2008/2009 global financial crisis qualify as a force majeure event under standard contract terms? When there are millions or even billions of dollars at risk in the contract, why risk it and leave that question open for interpretation? For significant transactions where the party required to perform has substantial bargaining power, and potential hefty economic penalties for delays or failing to meet deadline(s), you should consider requiring an “economic unavoidable delay” clause in the contract.
For example, in a lease and development project:
“Economic Unavoidable Delay” shall mean economic or political conditions or events that result in a significant decline in economic activity spread across the economy and materially impair access to debt or equity markets by developers for development of projects in the United States similar to any phase of the project or allow a committed debt or equity participant to terminate its debt or equity commitment, such as a temporary or long term liquidity crisis or major recession. The performing party shall be entitled to an extension of time because of its inability to meet a time frame or deadline specific in this agreement due to Economic Unavoidable Delay equal to the duration of the Economic Unavoidable Delay, except that the outside deadline for the project shall not be extended by more than [X] years due to Economic Unavoidable Delay.
Most parties will not have the bargaining power to demand extensions of time and performance for an “economic unavoidable delay” when negotiating their contracts, and this example is certainly not a one size fits all. However, in appropriate transitions, negotiating and securing a specific contract clause for economic unavoidable delays could potentially save the impacted party millions or even billions of dollars in delay claims or damages. Contact our business and transactional attorneys for advice on reducing risk when drafting and negotiating contracts.