Understanding How Force Majeure Provisions Relate to COVID-19

April 21, 2020 Rajesh Bagga

Now that it’s earnings season, every CFO will be asked two questions related to COVID-19: What is your overall risk or exposure based on vendors invoking force majeure clauses due to Covid-19? How will this impact earnings?  Even for large organizations, the impact could be colossal.

As the COVID-19 pandemic continues to bear down on us, with country borders shut down, and mandatory stay-at-home orders and social distancing measures in place, risk and compliance managers must assess – quickly – what the impact force majeure contract clauses will have on their company’s performance. With halting or full-on work stoppages occurring everywhere, can a customer’s vendors invoke the force majeure to excuse their obligations? Similarly, can companies invoke force majeure provisions to excuse their own performance? And, what is the recourse? Failure to understand the implications poses massive economic and operational risk.

Why are force majeure clauses so complex?

A force majeure clause may excuse a party’s performance based upon the occurrence of an unforeseen event – a trigger. Risk and compliance managers have been asking whether or not contracts contain applicable force majeure clauses since the pandemic began. But the question is more far more complex than simply whether the clause exists. What does the clause say? For example, some versions do not identify “epidemic or pandemic” as a triggering event. Others, meanwhile, contain notice and/or mitigation requirements, or the right to terminate the contract for cause. A contract may have a force majeure clause but does it include an epidemic or pandemic? Or, if it does, is there also a notice provision in it that requires notices must be given within a specific timeframe? Or, is there also a mitigation requirement in it, giving the customer the right to terminate the contract for cause based solely on implications of the force majeure clause? In addition, the similar “Adverse Event” clause shifts the focus from the occurrence of the triggering event to the impact of the triggering event upon one of the parties.

Rapidly combing through hundreds or thousands of contracts looking for the force majeure clause, on a global basis, is a mammoth task and one that is extraordinarily time-consuming and costly for companies to do themselves. To address this very urgent need during the COVID-19 crisis, Conduent Legal and Compliance Solutions reconfigured its operations and delivery to ensure that we could keep supporting our clients to help them find the answers they need, and as quickly as they need them. In keeping within state-mandated compliance with governmental stay-at-home orders and social distancing guidelines, we transitioned our entire managed review team to remote working and set them up in a dedicated, private and secure environment.

Cutting edge in rapid, large volume & complex clause extraction

We’ve been leveraging the experience and expertise that we built providing risk assessments due to major triggering events, such as regulatory changes, mergers or acquisitions, and are now focusing that capability on COVID-19. Our solution uses cutting-edge technology, an experienced workforce and well-developed processes to ingest and process our client’s contracts – whether 5,000 or 50,000 in number – and quickly extract force majeure contract provisions at a detailed level, including components of the clause and rights and obligations.

Conduent has been helping clients hone in on contract complexity and nuance. For some clients, we break down force majeure provisions to show that, for example, the force majeure provision did not include epidemic or pandemic events as a trigger so COVID-19 did not provide a basis to excuse performance. Another contract containing an “Adverse Event” type of force majeure clause was an Adverse Event type provision and gave one party the right to terminate the contract for cause if the counterparty failed to provide timely notice of an adverse event that prevented performance. Further, in another scenario, we identified and extracted clauses addressing business continuity and disaster recovery.

Our flexible solution enables us to identify anything in a contract to the level of detail that the client requires. Conduent does this type of work at scale for very large enterprises in short timeframes. The force majeure provision carries more weight now than it ever did. To find out how Conduent can help you find answers, email us at www.conduent.com/solution/legal-business-solutions or call 1-844-ONE-CNDT.

About the Author

Rajesh Bagga is Director of Contract Analytics and Management Services of Conduent Legal and Compliance Solutions

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