DAWOOD SHAIKH

REG NO: 63068

MBA SPRING 2020
WEEKEND, CITY

Case Study - Coronavirus is it a force majeure

Coronavirus: is it a force majeure? And how procuring agency can efficiently deal with it to make
sure uninterrupted supply and operations?

Coronavirus: is it a force majeure?

Contracts signed before the outbreak of Coronavirus don’t have provision of such pandemic. The
FIDIC mentions only of regional spread of disease and asks the suppliers to procure the items from
other regions as alternate. Since the virus is a relatively new phenomenon, it is unlikely that any
force majeure clauses would explicitly refer to the event of a Coronavirus outbreak. Accordingly, in
order to rely on the clause, parties will need to consider the other events included, such as
epidemics, actions by government agencies, or work stoppages.

The party seeking to assert the force majeure clause typically has the burden of proving its
applicability, including that the event was beyond its control and without its fault or negligence. This
analysis may become more complicated when the force majeure clause is not explicit and simply
uses the term “act of God,” which is boilerplate language in many force majeure clauses.

Performance of contract shall continue to be so prevented for a period less than 30 days then during
that period the Contract shall be considered as suspended. Upon the ending of the Force Majeure
event the Contractual obligations of the parties shall be reinstated with such reasonable
modifications to take account of the consequences of the Force Majeure event as may be agreed
between the parties.

With the epidemic turning into an official pandemic in March, we are seeing a huge spike in
countries around the globe due to governments and businesses taking respective measures, such as
travel bans, border controls and closings.

Coronavirus may not be a force majeure event for new contracts as its global impact has been well
documented and it is now possible to anticipate its impact on supply chains. In the absence of an
applicable force majeure provision, or as alternative, parties could be excused from performance by
claiming impossibility or impracticability.

Fortunately, listing pandemics as a qualifying force majeure event in contracts became more
frequent after the 2003 outbreak of severe acute respiratory syndrome (SARS). Even if the contract
fails to account for pandemics, recent government actions, including state-mandated closures of
certain businesses, may provide a means for a party to have their performance excused. For
instance, if the contract lists “government orders” as a force majeure event, state-mandated
closures of your business renders a party unable to perform under the contract, the performance
may be excused.
 DAWOOD SHAIKH
REG NO: 63068
MBA SPRING 2020
WEEKEND, CITY

And how procuring agency can efficiently deal with it to make sure uninterrupted supply and
operations?

Given the current uncertainty and global reach of the outbreak, measures to mitigate potential
negative implications include:

• Consider which existing contracts may be impacted by closures or delays, or where counterparty
may seek to terminate or suspend the contract.
• Seek information and invite communications from suppliers or customers regarding the impact of
the outbreak, to prepare as best you can for potential disruptions.
• If in doubt about whether a force majeure event applies to specific contracts your organization is a
party to, or what relief may be available, seek legal advice before acting or sending
communications.
• Consider how the risks associated with this outbreak, or a future outbreak of similar effect, could
be mitigated in future contracts.