15.4.1.1 The purpose of force majeure provisions is to give the Affected Party relief from liability and,
if the event continues for a certain period, to give the parties an opportunity to terminate the Contract. The definition of Force Majeure Events (see Section 15.4.1.2) (Scope of Force Majeure) should only include events which, unlike Relief Events, are likely to have a catastrophic effect on either party’s (although usually the Contractor’s) ability to fulfil its obligations under the Contract. In practice, such events are highly unlikely to occur. As neither party is likely to be in a better position than the other to manage either the occurrence or the effects of force majeure, and the events may continue for a long period of time, such events are given a different treatment from Relief Events and the financial consequences shared.
15.4.1.2 The following is the required definition of Force Majeure Events: “Force Majeure Event”39
means the occurrence after the date of Contract of: (a) war, civil war, armed conflict or terrorism; or
(b) nuclear, chemical or biological contamination unless the source or the cause of the contamination is the result of the actions of or breach by the Contractor or its sub- contractors; or
(c) pressure waves caused by devices travelling at supersonic speeds,
which directly causes either party (the “Affected Party”) to be unable to comply with all or a material part of its obligations under this Contract.
15.4.1.3 Relief for Force Majeure Events applies only to the extent that the Contractor or the
Authority is unable to comply with all or a material part of its obligations under the Contract and the parties cannot agree within a limited period (say 6 months) how to resume the Project.
15.4.1.4 The Authority should not be obliged to pay the Contractor any amount simply to service the
Contractors’ debt obligations in whole or in part, but the parties should recognise that the Contractor may wish to include certain tolerances into its Contract to allow for this. If termination occurs, the Authority will in any event compensate the Contractor for outstanding Senior Debt.40 If termination does not occur, then the parties will be discussing continuation of the Contract against a back drop of such a compensation payment.
15.4.2 Consequences of Force Majeure
15.4.2.1 On the occurrence of a Force Majeure Event, the parties should consult to attempt to find a
way to continue the Project, such as agreeing how it can be reinstated if destroyed (although neither party will be obliged to do this). The solution will depend on the nature of the event and its effects, but may involve altering the service requirement, amending the payment mechanism or even extending the term of the Contract. The required drafting for dealing with the effects of Force Majeure Events is set out in Section 23.3 (Termination on Force Majeure).
15.4.3 Relief Events, Force Majeure Events and Insurance
39 This definition should not be expanded without a very careful consideration of the specific issues on the Project concerned, as the effect can be
to dilute or undermine agreed areas of risk transfer. It is recognised, however, that there are some obvious sector specific changes that may be needed (for example, certain MOD projects might exclude some of paragraph (a) if it is intended to operate during times of war). The definition may also be narrowed to cope with the fact that paragraph (b) may be inapplicable to environmental projects or projects involving chemical treatment which may be designed to deal with a certain degree of chemical contamination. The NHS has specific provisions dealing with chemical and biological contamination.
15.4.3.1 Contractors may take out advance loss of profit or business interruption insurance against
certain of the Relief Events (see Section 17 (Insurance)) to provide a replacement revenue stream for financiers and others reliant on the revenue of the Project for the duration of the event and/or the duration of a rebuild. Such insurances will often be subject to an excess for a number of days and so the occurrence of any such event may still involve the Contractor in substantial cost. Such insurance may not be available in respect of all types of Relief Event and, generally, will only pay out where there is physical damage to the Project.
15.4.3.2 The issue of allocating the risk of Relief Events and Force Majeure Events should be
treated separately from the issue of whether or not insurance is available. The primary factor in allocating risk is who is best placed to manage the risk and its consequences and, in the case of Relief Events, this is the Contractor. Whether it can insure against such risk is a matter for the Contractor as it is essentially the Contractor’s decision to manage the risk (to the extent the insurances are not required) in a satisfactory manner. Authorities should therefore not accept the argument that uninsurable events should inevitably fall within the definition of force majeure or an equivalent. This would significantly extend the definition of Force Majeure Events (see Sections 17 (Insurance) and 23.3 (Termination on Force Majeure)). Force Majeure is specifically given a different treatment in this guidance as the occurrence of the events listed in Section 15.4.1.2 are judged to be risks which the Contractor is not necessarily best placed to manage, and so should be shared by the Authority.