Force Majeure means unforeseeable events beyond the reasonable control of a Party such as but not restricted to natural disasters, labor strikes, war or warlike conditions, riot, sabotage and serious fire.
Heidy Han | Partner
W&H Law Firm Shanghai Office
Member of Intl. Bar Association
WeChat: 13818408820
Case Background
Client engages Consultant to provide services relating to construction management, and 85% of the total contract value are paid by Client monthly while the remaining 15% are the retention monies. Consultant was required to adjust the payment schedule when submitting in last month a claim for its monthly payment due to a Force Majeure event, COVID-19 as declared by Client. Consultant seeks legal advice from Ms. Han.
Ms. Hans Comments
1. Force Majeure
Pursuant to the guideline issued on February 2, 2020 by the Shanghai Municipal Commission of Housing and Urban-Rural Development, Client should be responsible for obtaining approval from the construction administration authority for resuming work on the project site. In the email by Clients staff, it is not sure that: (1) whether Client is in the process of applying for the abovesaid approval, and (2) whether the construction administration authority rejects Clients application and for what reasons.
If Client has obtained the abovesaid approval (not likely) but it decides not to resume work on the project site for the safety reason, it cannot use the Force Majeure term against Consultant. Probably, Client is now in the process of and has difficulties in obtaining the abovesaid approval by the end of March. As such, this situation caused by the COVID-19 epidemic is indeed an unforeseeable event beyond the reasonable control of Client.
2. Consultants work
Suspended due to Force Majeure
As mentioned before, Consultants work on construction related phases cannot continue until the construction administration authority permits Client to resume work on the project site. Therefore, the project schedule will be certainly extended. Client has claimed that the COVID-19 epidemic is a Force Majeure event, and Consultant may agree on that, so that Consultant will be released from any liability for breach of contract due to performance delay or non-performance under the CM contract, and of course, the parties can adjust the project and payment schedules.
The CM contract provides no provision with respect to sharing of Consultants labor cost loss during the period of Force Majeure, which can be negotiated by both parties. Consultant may propose that its labor cost loss of those employees whose onsite work are suspended (mainly in Feb and March 2020) due to Force Majeure will be shared by both parties, for example half and half.
3. Consultants additional work
Caused by Force Majeure
Given that the effect of the COVID-19 epidemic on many industries will not disappear quickly, Consultant will probably have additional work caused by Force Majeure not only during the period of Force Majeure but also after Force Majeure. For Consultants additional work, it is reasonable and fair for Consultant to propose to submit the cost per actual staff timesheets and in line with the provisions of Change Orders under the CM contract.
4. Consultants written notice to Client
Consultant may mention the definition of Force Majeure as stipulated in the CM contract in order to agree with Client that the COVID-19 epidemic is a Force Majeure event. If Consultant internally cannot get a new payment schedule quickly, it had better send Client a short letter to first confirm the Force Majeure event, inform them that Consultant is now working on revision to the payment schedule per their request, and ask them if they have any further concern to be addressed by Consultant in this regard, so as to avoid the risk of potential breach of contract due to non-performance or delay in performance.
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