What is Force Majeure?
In the United States especially, the concept of force majeure provides relief from certain contract clauses in extreme events or circumstances that constitute a doctrine of frustration such as the Covid 19 pandemic. An event such as the Corona virus pandemic may prevent certain parties from performing or at the least dramatically impact their ability to perform various obligation that contracts include.
Many have asked us about Force Majeure, the provision that defines occurrences that are outside and beyond the control of the parties (acts of God, war, famine, and plague), and allows relief for non-performance in the event that such an occurrence is triggered. Without a clause that includes pandemic or quarantine restrictions, there is a chance that a contract may be at risk. This can affect many companies, who provide services and/or products.
For service contracts, the effects can happen on both sides. On one hand, for a service provider, you want to know if you are unable to fulfill the obligations by an expected deadline will it constitute a breach. On the other hand, as a buyer of service, if that service can no longer be provided at that time, does it terminate that contractual obligation by the breach.
For vendors and buyers of products, the problem can look different. In this climate you want to know if the duties of the contract are not fulfilled, how this could affect the business going forward. As a supplier of goods, this could be the inability to supply goods on time which could terminate the contract with a Force Majeure clause or offer a different option.
Legal Implications of Covid 19
Using AI for Force Majeure clauses does in seconds what takes a team of lawyer’s weeks, providing better results than a standard contract analysis tool.
The Coronavirus, which has tragically spread quickly throughout the globe, is creating a new normal during this unusual time. Our economy is being tested with the cancellation of large events, travel restrictions, and some businesses having to temporarily shut their doors.
Why Having a Force Majeure Search Capability is Essential for Contract Management
Given the spread of the Coronavirus, keeping track of which of your contracts contain Force Majeure clauses will permit your organization to proactively respond to business risks as the situation develops.
AI allows you to quickly locate contractual provisions or key legal terms that constitute a force majeure (or equivalent) or an inability for a party to adhere to or perform obligations under the contract due to natural disasters etc.
Contract management platforms that use artificial intelligence to track and identify all of the Force Majeure clauses in a contract repository enable you to quickly find which of your existing contracts contain these clauses and, along with text search capabilities, can search for Force Majeure clauses that contain specific terms such as “disease” or “pandemic.” Relatedly, this type of capability is able to show legal teams where they are exposed – that is, which of your contracts do or do not contain Force Majeure clauses.
For all practical purposes, this lets organizations jump straight into mitigating the harms of this pandemic instead of spending time manually determining what the damage to business has been or can become. In other words, this capability is relevant for businesses seeking to invoke Force Majeure clauses to terminate their contractual obligations and, to determine which of their contracts do not allow either themselves or their counterparties to terminate their obligations using a Force Majeure clause.
AI Mitigating the Impact of Coronavirus for Your Business
Each day as Coronavirus progresses, it will have a growing impact on any organization. Using AI for Force Majeure clauses can do in seconds what would take a team of lawyers weeks, and it can provide more and better results than a standard contract analysis tool.
What can you do?
As a company, you can decide whether you want to focus on contracts that contain Force Majeure, or on contracts that do not contain the clause. Solid AI is equally capable of scanning a document for the absence of a clause as it is for the presence of one. It can look for specific words or phrases within a clause, allowing a company to focus on those easy-to-win battles where the clause already contains a reference to epidemics or pandemics. If preferred, a company could initiate a concurrent or second search for contracts with Force Majeure clauses that have broader phrasing, like a reference to acts of God, or acts of the government.
There are other capabilities to consider. For example, deep search and filters, if a company is worried about its suppliers defaulting on their obligations more than doing so itself, it can search for Force Majeure only within vendor contracts. Or, if the organization is worried about being paid for nearly-completed work, a simple filter option can reveal contracts with Force Majeure provisions only in contracts that are going to terminate within the next year.
Is Force Majeure a standard clause?
Force Majeure clauses are not standard, boiler-plate provisions with similar wording in every document for every industry. They vary from contract to contract, and those variations can have drastic consequences, especially with regards to notification periods and available remedies. On the other hand, Force Majeure clauses are also break-glass-in-case-of-emergency provisions, often involving little negotiation and pushed to the back of everyone’s minds. Even as recently as early March, most companies were not concerned with the Force Majeure provisions in their contracts.
But that is the advantage of AI-enabled contract management platforms, like Evisort. Even for such a small provision, they are powerful enough and flexible enough to not only have a tool specifically designed for Force Majeure but one that can be configured in numberless ways. Even in the middle of a crisis, AI-enabled contract management systems can provide huge cost savings by using a computer to do the entirety of what otherwise would be a labor-intensive job. In a time crunch, it can be counted on to provide accurate, complete, and comprehensive details about a company’s entire body of contracts. It is efficient, robust, and cheaper than outside counsel. Like Force Majeure itself, it can be the best break-glass-in-case-of-emergency solution, even for a pandemic on the scale of Coronavirus.
A contract management system that allows businesses to recall a list of force majeure events for an affected party instantaneously is a powerful tool. In the event of force majeure real time notifications will give your business a head start in managing the situation. Contact Evisort to organize a demo.