Using the IACCM Contracting Principles on your force majeure clauses

The world is currently facing the Corona virus and its fatal consequences. Companies are facing delays, termination of contracts and claims for damages. At the moment one of the most important and discussed clauses in the contract is the Force Majeure clause. Many companies have not drafted their contract clauses adequately and therefore face difficult negotiations on e.g. termination, claims for damages etc.

 

The International Association for Contract and Commercial Management last year issued their Contracting Principles, and one of the principles is about Force Majeure.

 

According to the IACCM, the principles among others “…are intended to serve as a cross-industry set of guidelines to support the drafting of applicable contract clauses and/or the negotiation of applicable terms and conditions between a customer and a supplier. These Principles are intended to reduce or eliminate the need for negotiation and shorten cycle time to signature. Participants who accept these IACCM Contracting Principles are free to use them in their entirety or on a case by case basis and as they deem appropriate; however, it is expected that the benefits of their use will be maximized when both parties to a transaction agree to rely on them and draft the relevant clauses accordingly (…).”

 

The principle on Force Majeure contains an important list of topics the parties should take into consideration when drafting their Force Majeure clauses. This includes a non-exhaustive list as well as a catch-all definition of Force Majeure, and importantly “epidemics” are listed among the common examples of events that excuses a party from its obligations under the contract. This is often not the case in many clauses.

 

At the Nordic School of Contract and Commercial Management we allocate considerable time and effort to teach the participants to use the IACCM contracting principles, e.g. at our IACCM Contract and Commercial management (CCM) Practitioner certification, where we also teach “best practices” drafting techniques. This includes e.g. if and how a supplier should be allowed a “suspension period” in case of a Force Majeure event, the proof of an event etc. We also teach techniques that maximizes the possibilities of successful outcome of the negotiations on these difficult questions.

 

The IACCM list of topics on the Force Majeure clause looks like this:

 

1.1 If a list of Force Majeure events is provided, the list should be clearly described as illustrative and non-exhaustive, as well as supplemented by a catch-all definition of Force Majeure, referring to any other circumstances beyond the affected party’s reasonable control

 

1.2 The following are common examples of events entitling a supplier or a customer to be temporarily excused from their respective obligations:

a) Acts of God, natural disasters, earthquakes, fire, explosions, floods, hurricanes, storms or other severe or extraordinary weather conditions, natural disasters

b) Sabotage, contamination, nuclear incidents, epidemics

c) War (civil or other and whether declared or not), military or other hostilities, terrorist acts or similar, riot, rebellion, insurrection, revolution, civil disturbance, or usurped authority

d) Strikes or other industrial disputes that affect an essential portion of the supplies or works, except with respect to workers under the control of the party asking for relief due to this event.

 

1.3 The list of Force Majeure events should be more elaborated when the contract is performed in relation to business and operative environments that are unstable, and may also include, if relevant:

a) Non-availability or loss of export permit or license for the products/solutions to be delivered, or of visas/permits for supplier’s personnel

b) Requisition or compulsory acquisition by any governmental or competent authority, embargo, or other sanctions

c) Currency restrictions, shortage of transport means, general shortage of materials, restrictions on the use of or unavailability or shortage of power or other utilities

 

1.4 The list of Force Majeure events should be reasonably detailed so that it is clear which risks are borne by each of the supplier and the customer

 

1.5 When the affected party has committed to maintain an appropriate level of contingency plans in order to ensure continuity of meeting obligations under the contract, circumstances should be considered beyond the affected party’s reasonable control if and when they cannot be prevented or overcome through specific and defined measures provided for in such contingency plans.

 

If a party wishes to be excused from performing its obligations on account of an event of Force Majeure, it should give notice of the event to the other party as soon as practically possible after its occurrence.

 

© IACCM Contracting Principles

You can read more about NSCCMs forthcoming course, CCM Practitioner English edition

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