Consequences of Force Majeure in Public Procurement during COVID-19

Dr. Md. Nurul Islam

6th August, 2020 02:47:10 printer

Consequences of Force Majeure in Public Procurement during COVID-19

 

During COVID-19 pandemic, “Force Majeure’ is being applied in supply chain management in Bangladesh in different perspectives. In procurement, wider in supply chain management “Force Majeure’ is a contractual obligation but exploited in different manners in public procurement. I hope, this writing will help people with supply chain management, the procurement professionals and the stakeholders to understand the consequence, scope and application of ‘Force Majeure’ in public procurement.

 

Force Majeure is a French term that literally means "greater force." It is related to the concept of an ‘Act of God’, an event for which no party can be held accountable, such as a hurricane or a tornado. Force majeure also encompasses human actions, however, such as armed conflict. Generally speaking, for events to constitute force majeure, they must be unforeseeable, external to the parties of the contract, and unavoidable. These concepts are defined and applied differently depending on the jurisdiction.

 

The concept of force majeure originated in French civil law and is an accepted standard in many jurisdictions that derive their legal systems from the Napoleonic Code. In common law systems such as those of the United States and the United Kingdom, force majeure clauses are acceptable but must be more explicit about the events that would trigger the clause. The key takeaways are:

 

•             Force majeure is a clause that is included in contracts to remove liability for natural and unavoidable catastrophes. It also encompasses human actions, such as armed conflict.

 

•             Questions about what is and is not "foreseeable" in a legal sense have been raised given the increased awareness of pandemics, asteroids, super-volcanoes, cyber threats, and nuclear warfare.

 

•             French law applies three tests for whether a force majeure defence is applicable— the event must be unforeseeable, external, and irresistible.

 

Force Majeure: Bangladesh Context

 

Public Procurement Rules 2008 stated in its Rule 2.(24) "Force Majeure" means an event or situation beyond the control of the Contractor, a Supplier or Consultant that is not foreseeable, is unavoidable, and its origins not due to negligence or lack of care on the part of the Contractor; such events may include, but not be limited to, acts of the Government in its sovereign capacity, wars or revolutions, fires, floods, epidemics, quarantine restrictions, and freight embargoes, which elaborated in Standard Tender Documents (STD) published by Central Procurement and Technical Unit (CPTU), Implementation Monitoring and Evaluation Division (IMED), Ministry of Planning. Such as, the STD PG3 (Procurement of Goods 3) stated in its GCC Clause 36.1, Force Majeure may include, but is not limited to, exceptional events or circumstances: (i) war, hostilities (whether war be declared or not), invasion, act of foreign enemies; (ii) rebellion, terrorism, sabotage by persons other than the Contractor’s Personnel, revolution, insurrection, military or usurped power, or civil war; (iii) riot, commotion, disorder, strike or lockout by persons other than the Contractor’s Personnel; (iv) munitions of war, explosive materials, ionising radiation or contamination by radio-activity, except as may be attributable to the Contractor’s use of such munitions, explosives, radiation or radio-activity; (v) natural catastrophes such as cyclone, hurricane, typhoon, tsunami, storm surge, floods, earthquake, landslides, fires, epidemics, quarantine restrictions,  or volcanic activity; (vi) freight embargoes; (vii) acts of the Government in its sovereign capacity.

PPR 2008 and STD PG3 General Condition of Contract Clauses

 

Who decides: The Head of Procuring Entity (HOPE) decides the existence of a Force Majeure that will be the basis of the issuance of order for suspension of supply as stated under GCC Sub Clause 39.2 (GCC Clause 36.2).

 

Notice of Force Majeure: If a Party is or will be prevented from performing its substantial obligations under the Contract by Force Majeure, then it shall give notice within fourteen (14) days after the party became aware, to the other party of the event or circumstances constituting the Force Majeure and shall specify the obligations, the performance of which is or will be prevented (GCC Clause 37.1). Notwithstanding any other provision of this Clause, Force Majeure shall not apply to obligations of either Party to make payments to the other Party under the Contract (GCC Clause 37.2).

 

Duty to Minimise Delay: Each party shall at all times use all reasonable endeavours to minimise any delay in the performance of the contract as a result of Force Majeure (GCC Clause 38.1). A party shall give notice to the other party when it ceases to be affected by the Force Majeure (GCC Clause 38.2).

 

Consequences of Force Majeure: The supplier shall not be liable for forfeiture of its security, liquidated damages, or termination for default if and to the extent that it’s delay in performance or other failure to perform its obligations under the contract is the result of an event of Force Majeure (GCC Clause 39.1). The Procuring Entity (PE) may suspend the delivery or contract implementation, wholly or partly, by written order for a certain period of time, as it deems necessary due to Force Majeure as defined in the contract (GCC 39.2). Delivery shall be made either upon the lifting or the expiration of the suspension order. However, if the Procuring Entity terminates the contract as stated under GCC Clause 40, resumption of delivery cannot be done (GCC Clause 39.3). After receiving notice under GCC Sub Clause 37.1, the Procuring Entity shall proceed to determine these matters under the provisions of the contract (GCC Clause 39.4).

 

Conclusion and recommendations

 

Given Force Majeure’s resurgence in today’s world, there are several key points that people need to know about force majeure and apply in public procurement (Gregory Brown, May 2020):

 

1.            “Force Majeure” is contractual, not a sudden claim: Force Majeure clauses should be included in the contract. If contract does not have a force majeure clause, then the defence will not be available.

 

2.            Force Majeure clauses govern its application: Because force majeure is a contractual principal, its application is governed by the language of the force majeure clause at issue. Typically the events that will trigger a force majeure clause are specifically enumerated in the clause itself. If an event is not specifically listed in a force majeure clause, then that event likely will not trigger the provision.

 

3.            Events making performance “Impractical” may not trigger Force Majeure: Even where a specifically enumerated event makes contract performance impractical, a force majeure clause may not be triggered. The force majeure event must cause “extreme and unreasonable difficulty, expense, injury, or loss.” A mere increase in expense does not excuse performance (Butler v. Nepple (1960) 54 Cal. 2d 589, 599).

 

4.            Force Majeure event must be the cause of failure to perform: Just because a force majeure event occurs does not mean that performance is excused. The event itself must be the reason and the cause of the failure to perform. If a failure to perform is attributable to a party’s negligence, rather than the force majeure event performance will not be excused.

 

5.            Force Majeure events must be unforeseeable: If a party could have prevented the force majeure event, or performed notwithstanding the event a force majeure clause likely will not be triggered. There must be an occurrence that “could not have been prevented by the exercise of prudence, diligence and care” in order for force majeure to apply. (Pacific Vegetable Oil Corp. v. C. S. T., Ltd. (1946) 29 Cal.2d 228, 238).

 

6.            Force Majeure is not limited to “Acts of God”: While “Acts of God” such as weather anomalies, and the Covid-19 pandemic may trigger a force majeure clause, human actions can be the subject of force majeure as well. Courts have found manmade events such as war and labour strikes sufficient to trigger force majeure clauses.

 

7.            “Stay at Home” orders may trigger a Force Majeure Clause: Because force majeure is not limited to acts of god, actions taken by state local governments that make contract performance impossible may trigger a force majeure clause. This is extremely relevant in today’s climate given the significant actions being taken by State and local governments to combat Covid-19.

 

When considering these issues, it is incumbent to keep in mind that the present challenges are being felt on a massive scale throughout society. The hope for all of us is that the ravages of COVID-19 will pass quickly. In the meantime, it is important to remember that everyone is struggling and that more than ever businesses will need to maintain, as much as possible, good relationships. As such, we strongly encourage negotiated resolutions where they can be reached.

 

 

 

The writer is a Chartered Procurement Specialist, Bangladesh e-Government ERP Project BCC, ICT Division, Dhaka. E-mail: [email protected]

 

 

 


Top