Delay Claims, Disruption Claims, Prime Contract, Subcontract

Hurricane Season and Disaster Preparedness: Part 1 – Review Your Construction Contracts Now, Not After the Storm

The Gulf Coast hurricane season runs from June 1st to November 30th each year. Because this is a known risk, many businesses prepare emergency response plans to mitigate risks to persons and property, but many of those same businesses are not prepared to mitigate economic risks arising from ongoing construction projects. As we approach the one year anniversary of Hurricane Harvey, now is the time to be thinking about how to preserve your rights under your existing construction contracts if we are faced with another natural disaster.

Do Your Contracts Have a Force Majeure Clause?

One of the ways to be prepared for a natural disaster is to review your existing contracts and determine whether they contain force majeure clauses. This is important because the general rule in Texas is that an act of God or a natural disaster does not relieve the parties of performing their contractual obligations unless the parties expressly provide otherwise in the contract.i  This means that if you are unable to perform on a project due to a natural disaster, you are not automatically shielded from suffering the consequences of your non-performance. Accordingly, “[t]o avoid liability for acts of God, contracts frequently contain force majeure clauses, which are enforceable under Texas law.”ii

Relief from Force Majeure Clause Depends on the Contract Language

The general purpose of a force majeure clause is to excuse non-performance of obligations when the non-performance is caused by circumstances beyond the reasonable control of the party or by an event which is unforeseeable at the time the parties entered into the contract.iii  However, it is important to remember that “[t]he scope and effect of a ‘force majeure’ clause depends on the specific contract language, and not on any traditional definition of the term.”iv  As a result, whether or not an event rises to the level of a force majeure event is “utterly dependent upon the terms of the contract in which it appears.”v  Thus, when the parties have themselves defined the contours of force majeure in their agreement, those contours dictate the application, effect, and scope of the force majeure clause and reviewing courts are not at liberty to rewrite the contract or interpret it in a manner which the parties never intended.vi

Invoking Protection of a Force Majeure Clause

If you review your contract and find a force majeure clause, your next step should be to review it carefully to determine whether you have to give notice after the event begins to invoke the protections of the clause. This is important because there are often notice requirements and deadlines that are included in force majeure clauses, and compliance with them may be a condition precedent to seeking relief under the clause. You should look for any requirements to give notice within a certain amount of time after an event and determine whether notice must be given to a specific person or sent in a specific way, e.g. by certified mail to a specific person at a specific address. In short, you should carefully review your contracts and determine whether there is any immediate action that must be taken to secure your rights. Make a note of your findings and have it in an accessible location. That way, if disaster does strike, you will not be left scrambling at the last minute to figure out how to protect yourself.

 

TL;DR Version –

  1. Its hurricane season.
  2. Check your contracts now to determine whether they contain a force majeure clause.
  3. If there is a force majeure clause, make a note of whether you have to give notice in a specific way to a specific person within a certain amount of time after the event to be protected by the clause.

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[i] GT & MC, Inc. v. Texas City Ref., Inc., 822 S.W.2d 252, 259 (Tex. App.—Houston [1st Dist.] 1991, writ denied); Metrocon Constr. Co. v. Gregory Constr. Co., 663 S.W.2d 460, 462 (Tex. App.—Dallas 1983, writ ref’d n.r.e.).
[ii] Id.
[iii] Hydrocarbon Mgmt., Inc. v. Tracker Exploration Inc., 861 S.W.2d 427,435-36 (Tex. App.—Amarillo 1993, no writ).
[iv] Virginia Power Energy Mktg., Inc. v. Apache Corp., 297 S.W.3d 397, 402 (Tex. App.—Houston [14th Dist.] 2009, pet. denied).
[v] Sun Operating Ltd. P’ship v. Holt, 984 S.W.2d 277, 283 (Tex. App.—Amarillo 1998, pet. denied).
[vi] Allegiance Hillview, L.P. v. Range Texas Prod., LLC, 347 S.W.3d 855, 865 (Tex. App.—Fort Worth 2011, no pet.).
 

 

 

 

 

 

Sean McChristian is a partner in the construction practice group of Porter Hedges.  He represents contractors, subcontractors, developers, owners, suppliers, sureties, and design professionals in all types of construction-related disputes. Sean is certified by the Texas Board of Legal Specialization in Construction Law.  To read Sean’s full bio, click here.