I’ve been attending legal and contract conferences for more than two decades (if you count the greatest legal conference: law school), and I don’t think the following thought has ever crossed my mind as I scanned the rooms full of attendees: “These are the kind of people who get excited about force majeure clauses.”
Before COVID-19, seasoned attorneys and contract professionals focused their attention and negotiation capital on “meatier” business and legal terms: Price! Delivery of service! Termination! Data privacy! Indemnification! Accordingly, force majeure, along with the other boilerplate terms, was relegated to the end of the document and the end of the negotiation. I am not alone in this experience or observation; according to the IACCM “Most Negotiated Clauses List,” most recently updated in 2018, force majeure clauses don’t appear on the radar.
Obviously, things have changed.
As COVID-19 disrupts commerce, companies are looking closely at what their force majeure clauses say and how they impact their risk outlook. Those once-overlooked clauses will impact billions, if not trillions, of dollars in commercial value. Now we’re all the kind of people who get excited—or stressed—about force majeure clauses. As my colleague Todd Smith put it earlier this week, “force majeure is having a moment.”
As these clauses find themselves in the spotlight, law firm attorneys have inundated general counsel and in-house lawyers with guidance concerning force majeure, noting how widely ‘boilerplate’ can vary from contract to contract, with material impact.
Some clauses are silent on disruptions like a pandemic. In fact a recent analysis of contracts managed on the Icertis Contract Management (ICM) platform suggests that as many as 4 in 5 force majeure clauses do not mention pandemics or related health crises. We’ll have more on this in our upcoming webinar, Contracts and COVID-19: AI-Powered Answers in Times of Uncertainty.
Other versions of the clause might include the words “pandemic” or “outbreak”, but fail to provide further definition of what constitutes one. Some of the most robust clauses specifically define an agency (CDC, WHO) as the reference for declaration.
The task at hand right now is for legal departments and contract teams to quickly surface all their contracts across the globe, determine what obligations and entitlements they have under the current situation, and develop a plan to protect their business and be good partners to their customers and suppliers. Some companies will do this work manually and sift through their paper contracts; others (those with digitized contracts in a central repository) will have the help of AI and contract management software.
But regardless of how companies get through this current crisis, the bigger question will be how to take the lessons learned today to become a stronger company tomorrow.
One of those lessons: don’t take boilerplate for granted.
While I don’t have a COVID-19 crystal ball, I believe that when we arrive at the “new normal” following this outbreak, every standard force majeure clause will be reviewed and revised to include pandemics, and for those seeking more robust guidance in the clause, it will name the specific and agreed upon government agencies responsible for declaring them. A similar cadence followed other past crises and tragedies, like 9/11 and the Mumbai terror attacks.
But once a company’s attorneys lock in on the new acceptable language, the work is just beginning; this is where process and technology can play a significant role. How will Legal be sure that all new contracts being created across the world include these newly formulated clauses? How will they deploy these new templates to new teams? How will existing contracts be re-negotiated to include the updated force majeure, and what will be the process to amend and capture those understandings? There is no doubt that a massive repapering effort is on the horizon to reflect contingencies for pandemics.
Only with a centralized contract lifecycle management system can companies confidently answer these questions. Templates managed centrally in a single contract repository means no one will be sending out outdated force majeure language. Approvals for language will no longer live on hard drives or email folders. New agreements and amendments will no longer be in the form of paper and stored in filing cabinets. With all existing contracts managed on a single platform, mass amendments can be executed at scale to accelerate repapering efforts. Even third-party paper can be quickly analyzed as it comes into the system and flagged if it does not comply with new standards.
To this last point, it will be interesting to watch if force majeure makes IACCM’s next list of most negotiated clauses. No doubt, my crystal ball is certain that it will be a hot topic of conversation when legal conferences start back up.