Time is of the Essence and
Force Majeure
RLI Design Professionals
Design Professionals Learning Event
DPLE 136
May 7, 2014
An Interview with
Rajiv Radia
RLI
RLI Design Professionals is a Registered Provider with The
American Institute of Architects Continuing Education
Systems. Credit earned on completion of this program will be
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Completion for non-AIA members are available on request.
This program is registered with the AIA/CES for continuing
professional education. As such, it does not include content
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dealing in any material or product. Questions related to
specific materials, methods, and services will be addressed
at the conclusion of this presentation.
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Course Description
This course will provide a greater
understanding of the drafting of “time
is of the essence” and “force majeure”
provisions in contracts, including how
these provisions may impact each party
to an agreement.
Learning Objectives
Participants in this session will:
• Develop a clearer understanding of the intent of
“time is of the essence” provisions;
• Learn the potential benefits to your client of a “time
is of the essence” clause and the consequences to you
of not meeting the obligation;
• Understand the components of a “force majeure”
provision; and
• Analyze some of the key issues to address with “force
majeure” events.
What does Time is of the Essence Mean?
Provides that specified dates and times in agreement are vital
Inclusion says: “We mean it!”
Delay may be grounds for cancelling the entire agreement
Why is the provision needed?
Parties to a contract are sometimes surprised to learn that
missing a contractual deadline does not always amount to a
material breach of the contract – timing is not always essential
for courts
When a party wants to make sure that the agreement makes
it clear that it is important that the contract obligations be
completed on time, a contract can include a “Time is of the
Essence” provision
Language
ALERT
“Time is of the Essence” may be disguised using other
language stressing the importance of timely completion
Will the Provision be Enforced?
Is there a “Time is of the Essence” (TOE)
Provision Included in the Contract?
YES
NO
Material Breach
of Contract
Time of
Completion Not
As Important
What if TOE Clause is Not Followed?
You may be held liable for losses caused by the delay
Consequential Damages
Liquidated Damages
Punitive Damages
You may face an injunction from the court
What is Force Majeure?
A “force majeure” clause (French for
“superior force”) is a contract provision
that relieves the parties from performing
their contractual obligations when certain
circumstances beyond their control arise,
making performance inadvisable,
commercially impracticable, illegal, or
impossible. (Black’s Law Dictionary)
TOE and Force Majeure
Time is of
the
Essence
Force
Majeure
While a ‘time is of the essence’ clause binds a party to
complete performance, a force majeure clause excuses a party
from performing their obligations under the contract; acting
as a ‘get out of jail free’ card
Drafting a Force Majeure Clause
The terms of a contract are
enforced as written so
when drafting a force
majeure clause it is
important to proceed with
caution
Be mindful of the risks that
may arise and include those
in the contract
What is a Force Majeure Event?
Characteristics of a force majeure event:
 The event must be external to the contract and the parties
 The event must render the party’s performance radically
different from what the parties originally contemplated
 The event must not be reasonably foreseeable
 The occurrence of the event must be beyond the control of
the party seeking to use force majeure as an excuse for nonperformance
What is a Force Majeure Event?
Unforeseeable events derived from acts of
nature or acts of people:
FLOODS
TORNADOES
STRIKES
WAR
RIOTS
Reasonable Forseeability
The event must be unpredictable: If it can be
predicted, the party is expected to prepare for it.
Some examples of foreseeable events may be:
Earthquakes in California
Tornadoes in the Great Plains states
Union Strikes
Control
Two concepts in interpreting whether
a party had “control” over the event:
1. A party may not affirmatively
cause a force majeure event
2. A party may not rely on an
event excusing performance
if the party could have taken
reasonable measures to
prevent the event
Impossibility
Many provisions will only excuse performance when it
would be impossible, however impossibility is a high
threshold
Broaden the scope of the clause by using phrases such as:
• inadvisable
• commercially impracticable
Which will allow for performance to be excused under more
circumstances
How Much is Excused or Delayed?
Be sure to recognize and specify whether the
force majeure event excuses or delays the
entire obligation or only part of the obligation
Sweeping Language
If the phrase “or any other event beyond the
party’s control” is included, rather than
expanding the scope of events, it likely reduces
it
What Happens if An Event Occurs?
Ask Yourself: If the force majeure event
continues – can performance be delayed if
not excused?
What Happens if An Event Occurs?
If work can be
delayed under the
force majeure
clause, specify a
time it needs to be
completed or a
method to
determine a new
time
Time vs. Money
Does the force majeure clause allow for extra
time AND extra money?
Common Disputes
Notice Requirement
Notice provisions
require that notice be
given in a timely
manner before either
party can rely on a
force majeure event
Force Majeure
I hereby
invoke the
force majeure
clause.
XJohn Hancock
Other Considerations
The clause should give equal consideration
to both parties
Time is of the Essence Summary
Owner’s way of saying “Get this done on time, we mean it!”
Not following will be seen as a material breach and may allow
the owner to cancel the entire contract
Significant financial consequences if there is a material breach
The clause may be disguised in other language
Courts will enforce the dates if TOE clause is included
Force Majeure Summary
Force
Majeure
clause can
act as a “get
out of jail
free” card
Be sure to
define what
constitutes a
force
majeure
event
Be aware of
how much
performance
is excused or
delayed
Don’t use
words such
as
“impossible”
to determine
when the
clause
applies
Force Majeure Summary
Make sure the clause indicates a method of
determining a new date to complete performance
Ask yourself whether the clause allows for extra
money in addition to extra time to complete
performance
Be aware of and strictly follow the notice requirement
The clause should apply equally to both parties
This concludes The American Institute of Architects
Continuing Education Systems Program
Laurel Tenuto, Client Risk Management Coordinator
[email protected]
Marie Bernier, Senior Risk Management Consultant
[email protected]