Is Your Force Majeure Clause Too Weak?
PurchTips edition #87
By Charles Dominick, SPSM, SPSM2, SPSM3
How Much Risk Is In Your Force Majeure Clause?
It has been difficult to walk into manufacturing purchasing managers' offices over the past two months without noticing the stacks of envelopes in their inboxes.
What's in the envelopes, you ask? Letters from suppliers claiming that the recent US hurricanes have caused them to declare Force Majeure and that shipments will be substantially delayed.
I've never seen this degree of Force Majeure in my career. So it is an appropriate time to revisit how Force Majeure clauses should be negotiated and written.
In the past, Force Majeure was always an easy term to which to agree. The thinking was: "Sure, Mr. Supplier, if you get hit with once-in-a-blue-moon disasters like hurricanes or terrorist attacks, you can delay shipments."
But, suddenly, Force Majeure events aren't so uncommon. Purchasers who took Force Majeure lightly are now struggling to maintain continuity of supply. So, when negotiating a Force Majeure clause, address these three things.
- Will you get to waive any obligation of exclusivity to your supplier in the event of Force Majeure? Sure, you may still have to accept delivery and pay for the quantity you ordered. But if your management decides that it is worth it to buy an additional quantity from another supplier during the time your contracted supplier is recovering, you should have the legal right to do so.
- Will you get "Most Favored Customer" treatment after your supplier has recovered? Large companies often negotiate a guarantee that they will get the best pricing out of all its supplier's customers, but getting scarce materials first in the event of Force Majeure is perhaps a higher priority.
- Can your supplier provide you with a written contingency plan for each event it wants defined as Force Majeure? Insist on specificity like the quantities of materials, tooling, people, and other resources that will need to be redirected to another facility and the process of redirecting them.
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