The 9/11 terrorist attack and extreme weather events such as Hurricane Katrina show that a company’s normal operations can be suddenly and unexpectedly delayed or halted for extended periods of time.
3Com Corporation in Marlborough, Mass., faced such a situation when, before dawn on Sunday, Dec. 11, 2005, senior executives were awakened by a phone call bearing devastating news.
The greatest non-wartime explosion in Europe since World War II had just destroyed a large, aviation fuel depot outside of London. It had caused massive damage to surrounding homes and businesses including 3Com’s European Headquarters. Fortunately, no one was hurt but it did present numerous and immediate issues. Like 3Com, your company can suddenly and unexpectedly be hit directly or, if the disaster affects your supplier, indirectly by such events. Either way, it can seriously affect your operations.
Therefore, every company should plan for such events to both limit their exposure from a disaster and to allow for business continuity.
One key and ongoing step that a company should take is to pay close attention to the force majeure clauses in its various agreements.
A force majeure clause in a contract may specifically provide for delayed or excused performance in the event of a disaster. Often treated as a “boilerplate” clause that attracts, at best, an attorney’s cursory attention during review, force majeure clauses are essential in a crisis. This clause should be tailored to the contract at hand.

Topics to consider

Topics to consider when drafting such a clause include:
The types of situations that can excuse performance. These are the events that excuse performance and should be carefully constructed. Commonly used clauses run the gamut from a simple statement such as “any causes beyond the reasonable control of that party” to a comprehensive list of every possible act of God and man.
Items, if any, not to be excused. Are there elements of the agreement that should not be excused by an event of force majeure? For example, it is common not to excuse a party’s obligation to make scheduled payments for services rendered and goods delivered.
Notice requirements. A company may be unaware that its supplier on the other side of the world experienced a devastating fire and, therefore, cannot deliver crucial components on time. Therefore, the non-performing party should be obligated to promptly notify the party excusing performance so alternative plans can be made.
Efforts to end force majeure events. Once a force majeure event commences, the non-performing party must take all reasonable steps to end the event so that normal performance obligations can resume.
Extended force majeure events. A delay of a few days is often not fatal, but what happens if the duration of the force majeure event lasts weeks or even months? Some clauses commonly seen in agreements extend performance indefinitely one day for each day the event lasts. If this is an exclusive agreement, such a clause can prohibit a company from finding an alternative vendor in the interim as so doing would violate the agreement.
For example, if you have agreed to buy a fixed quantity of goods, and you buy them from another source due to the delay, you may be required to take delivery of the delayed goods at a later date when they are no longer needed. Therefore, consider having options should the force majeure event exceed an agreed-upon time, such as 30 days.
Options to consider include: (i) the ability to procure the deliverables from an alternate source without penalty and, if applicable, the non-delaying party to receive credit relief against any minimum purchase requirements, which sometimes includes a requirement that the non-performing party pay any increased costs of such procurement incurred by the party excusing performance; (ii) the ability to terminate a portion of the agreement so affected and to equitably adjust any related payments to reflect the terminated deliverables; and (iii) the ability to terminate the entire agreement without liability to the non-delaying party.

Sample clause

Below is a sample comprehensive force majeure clause:
“1. Neither Party shall be liable for any default or delay in the performance of its obligations under the Agreement [except for the obligation to pay money] (i) if and to the extent such default or delay is caused, directly or indirectly, by fire, flood, earthquake, elements of nature or acts of God, riots, civil disorders, terrorism, rebellions or revolutions in any country or any other cause beyond the reasonable control of such Party, and (ii) provided the nonperforming Party is without fault in causing such default or delay, and such default or delay could not have been prevented by reasonable precautions and can not reasonably be circumvented by the non-performing Party through the use of alternate sources, workaround plans or other means.
2. In such event the non-performing Party shall be excused from further performance or observance of the obligations(s) so affected for as long as such circumstances prevail and such Party continues to use its best efforts to recommence performance or observance whenever and to whatever extent possible without delay. Any Party so delayed in its performance shall immediately notify the Party to whom performance is due by telephone (to be confirmed in writing within two (2) days of the inception of such delay) and describe at a reasonable level of detail the circumstances causing such delay.
3. If any event under the first paragraph above substantially prevents, hinders, or delays performance of the Services necessary for the performance of COMPANY functions reasonably identified by COMPANY as critical for more than three (3) consecutive days, then at COMPANY’s option:
(i) COMPANY may procure such Services from an alternate source, and Vendor shall be liable for payment for such Services from the alternate source, for so long as the delay in performance shall continue, up to the charges actually paid to Vendor for the Services with respect to the period of non-performance;
(ii) COMPANY may terminate any portion of the Agreement so affected and the charges payable hereunder shall be equitably adjusted to reflect those terminated Services; or
(iii) COMPANY may terminate the Agreement without liability to COMPANY or Vendor as of a date specified by COMPANY in a written notice of termination to Vendor. Any termination under (ii) and (iii) above must be made within twenty (20) days following the event, which triggered such right. Vendor shall not have the right to any additional payments from COMPANY for costs or expenses incurred by Vendor as a result of any force majeure occurrence.”

Dana J. St. James, legal director of 3Com Corporation, is a member of the board of directors for the New England Corporate Counsel Association. 3Com, headquartered in Marlborough, Mass., is a leading provider of secure, converged voice and data networking solutions for enterprises of all sizes (www.3 Com.com). Dana’s practice concentrates on commercial, intellectual property, products liability, and real estate law. He can be reached at 508.323.1398 or [email protected].