COVID-19 – Local Government Contracts and Force Majeure Clauses (14 April 2020)


Introduction

Local Governments, as part of their day to day functions, enter in contractual relationships in a wide variety of circumstances. These contracts often arise after a tender process where the conclusion of that process is a signed contract.

These contracts extend to the procurement of goods or services, property, asset management, engineering and governance.

As a consequence of COVID-19 local governments have faced massive disruption to contracts that they are parties to. It may mean that the local government or the contractor are currently unable to perform their obligations under the contract.

In many cases local governments have already advised contractors to cease performing their obligations.

Are you in breach of Contract?

In the normal course if a party does not perform its obligations under a contract it can be in breach or can even be accused of repudiation.

Breaching or repudiating a contract by a local government can mean that the contractor is entitled to damages.

Force Majeure

However, the general conditions contained in many local government contracts will likely contain a “Force Majeure” clause.

A recent update on our website explains in detail the concept of “Force Majeure”. In brief, if a particular event, often defined in the general conditions as a “Force Majeure Event’ occurs then a contracting party may be able to suspend their own performance under the contract or even terminate the contract without penalty.

Typically the “Force Majeure Event” must:

  1. prevent a contracting party from performing their obligations either in whole or in part;
  2. be outside the control of the affected party; and
  3. not be reasonably capable of being resolved by the affected party.

Triggering a Force Majeure Event

“Force Majeure Events” are usually separately defined in the general conditions and often refer to acts of god, flood, earthquake and the like. These events are often different and the particular clause and definition in question should be closely scrutinised.

Essentially, COVID-19 itself and the consequences that have flowed from it will have likely triggered the ability of local governments to rely on the clause.

Some examples of “Force Majeure Events” found in contracts are:

  1. Acts of god, lightning, storm, fire, earthquake and the like;
  2. Industrial action or similar;
  3. War, riot, insurrection or similar;
  4. New laws or changes in law.

Some clauses refer to disease or epidemic and some do not. Some refer in a general sense to broad concepts like, for example “catastrophe”. Nearly all refer to changes in law.

In our view the declarations of emergency made by the State under section 56 of the Emergency Management Act 2005 (WA)and under section 167 of the Public Health Act 2016 (WA) and the directions made under these declarations will very likely trigger the “Force Majeure Event” definition in your particular contract.

Do we need to do anything?

If you have suspended the operation of a contractor under a local government contract then the answer is very possibly yes.

If you are able to rely on the “Force Majeure” clause then, provided you comply with the requirements of the clause you may well be able to avoid claims for damages and or even terminate the contract without penalty.

If you can rely on the Force Majeure clause in your contract then, depending on the operation of your clause, you may have to issue a Notice on the Contractor as soon as possible to gain the relief and benefits of the clause. 

For any further information, please contact:

Anne Wood – Partner – awood@kottgunn.com.au

Brenton Oakley – Consultant – boakley@kottgunn.com.au

The information published in this paper is of a general nature and should not be construed as legal advice. Whilst we aim to provide timely, relevant and accurate information, the law may change and circumstances may differ. You should not therefore act in reliance on it without first obtaining specific legal advice.