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Valid Cause to Declare Force Majeure? 3
- Thread starter Ashereng
- Start date
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2
- #2
Force majeure means issues outside the control of both parties.
Can the contractor get people if he was willing to pay more? Import workers from another location? Work the existing labour force longer hours and pay overtime?
If yes then that is not a force majeure issue but a normal business risk issue. The simple fact that the local labour shortage is causing the contractor some extra cash is not a force majeure issue.
Typical examples of force majeure issues are weather far outside norms, train wrecks closing transportation links, wars or riots etc.
If you were contractually scheduled to attend a meeting on the other side of the country on 12 Sep 01 then that would have been a force majeure issue.
See also
Similar to force majeure is frustration. A contract may be discharge by frustration if conditions exist making it impossible to fulfill the terms of the contract. Examples would be a contract to rent a specific warehouse would be discharged by frustration if the building burned down. If the contract was only for some space in any warehouse and the one intended for use burned then force majeure would be an allowable delay in finding another suitable space.
Force majeure is usually an allowable delay claim and not a reason to discharge the contract. Frustration is a means of discharging the contract with the terms unfulfilled.
Rick Kitson MBA P.Eng
Construction Project Management
From conception to completion
Can the contractor get people if he was willing to pay more? Import workers from another location? Work the existing labour force longer hours and pay overtime?
If yes then that is not a force majeure issue but a normal business risk issue. The simple fact that the local labour shortage is causing the contractor some extra cash is not a force majeure issue.
Typical examples of force majeure issues are weather far outside norms, train wrecks closing transportation links, wars or riots etc.
If you were contractually scheduled to attend a meeting on the other side of the country on 12 Sep 01 then that would have been a force majeure issue.
See also
Similar to force majeure is frustration. A contract may be discharge by frustration if conditions exist making it impossible to fulfill the terms of the contract. Examples would be a contract to rent a specific warehouse would be discharged by frustration if the building burned down. If the contract was only for some space in any warehouse and the one intended for use burned then force majeure would be an allowable delay in finding another suitable space.
Force majeure is usually an allowable delay claim and not a reason to discharge the contract. Frustration is a means of discharging the contract with the terms unfulfilled.
Rick Kitson MBA P.Eng
Construction Project Management
From conception to completion
- Thread starter
- #3
RDK,
Thank you for responding.
My question is somewhat hypothetical at this point, soon to be more concrete. For the purpose of this quote, let's say:
There are no more people available to be hired, regardless of price.
Import of workers from another location is problematic as the contractor is a smallish local firm. Hiring from the US may also be problematic (refer to your other thread regarding engineering licenses and NAFTA).
Longer hours and OT is not an option since we are having problem hiring them in the first point above.
The concern I have is that the contract may be awarded, and then thwarted because of a labour shortage.
Thank you for responding.
My question is somewhat hypothetical at this point, soon to be more concrete. For the purpose of this quote, let's say:
There are no more people available to be hired, regardless of price.
Import of workers from another location is problematic as the contractor is a smallish local firm. Hiring from the US may also be problematic (refer to your other thread regarding engineering licenses and NAFTA).
Longer hours and OT is not an option since we are having problem hiring them in the first point above.
The concern I have is that the contract may be awarded, and then thwarted because of a labour shortage.
- Thread starter
- #4
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1
- #5
If the contract has yet to be let, and you have this level of concern, surely the time to address the risk is now and the way to do it is together.
If you can agree a way to reduce the risk, all to the good. If you can't, you have time to think about whether you actually want to enter into the arrangement. At the very least, you can agree whether a labour shortage would constitute force majeure before it becomes a really contentious issue.
A.
If you can agree a way to reduce the risk, all to the good. If you can't, you have time to think about whether you actually want to enter into the arrangement. At the very least, you can agree whether a labour shortage would constitute force majeure before it becomes a really contentious issue.
A.
- Thread starter
- #6
zeusfaber,
Absolutely! That's why I am floating this now.
My OP asked "is it common to for "shortages of necessary labour" to be included as a valid cause to declare Force Majeur?"
I was just wondering whether this is a common and/or growing trend, whether people have seen it on contracts and/or used it on a contract.
Have you seen it in a contract, or used it in a contract?
Absolutely! That's why I am floating this now.
My OP asked "is it common to for "shortages of necessary labour" to be included as a valid cause to declare Force Majeur?"
I was just wondering whether this is a common and/or growing trend, whether people have seen it on contracts and/or used it on a contract.
Have you seen it in a contract, or used it in a contract?
I see what you mean now.
No - I've never ever put "shortage of labour" in a Force Majeure Clause, nor seen it used in one.
The document linked here
shows our standard clause, along with some extra triggers we're allowed to include if pressed in negotiation.
There's Open Government for you.
A.
No - I've never ever put "shortage of labour" in a Force Majeure Clause, nor seen it used in one.
The document linked here
shows our standard clause, along with some extra triggers we're allowed to include if pressed in negotiation.
There's Open Government for you.
A.
- Thread starter
- #8
Shortage of labor can be a force Majeure. I have herd of a case were this has happened. I have also seen contracts that expressiy prohibit labor shortage as an FM. However, in the US, contractsare limited to what could have reasonably be anticipated by the parties at the time of signing the contract.An FM is generally hard to completely define. In general, if a contractor is late due to circumstances beyond his control and has made reasonable efforts to mitigate,the best thing for the owner to do is grant a reasonable time extension.
- Thread starter
- #10
DRC1
Thank you for your reply.
My OP was:
You mentioned that you have seen contracts that "expressiy prohibit labor shortage as an FM".
What would your estimates be of the % of contracts that you have seen that prohits labor shortage as a FM?
What would our estimates be of the % of contracts that you have seen that allows it?
Thank you for your reply.
My OP was:
You mentioned that you have seen contracts that "expressiy prohibit labor shortage as an FM".
What would your estimates be of the % of contracts that you have seen that prohits labor shortage as a FM?
What would our estimates be of the % of contracts that you have seen that allows it?
Most contracts I see are silent on labor shortage as an FM
I do not recall any contracts that specifically allow it. My popinion would be that if the contract is silent, the topic is open for debate. I have seen a few, not very many, (Maybe 3 or 4) that expressly prohibit it.
I do not recall any contracts that specifically allow it. My popinion would be that if the contract is silent, the topic is open for debate. I have seen a few, not very many, (Maybe 3 or 4) that expressly prohibit it.
- Thread starter
- #12
It is usual to specify the general sort of conditions that trigger force majeure clauses; war, riots, etc are the common ones.
You may put in shortage of labour but I think that that would be a tough one to prove or disprove since there are always people available if you are willing to pay enough money.
If you can pay enough money to avoid the impact of the event or circumstances than that is not a force majeure type of condition.
What trade are we talking about here? You can always put an advertisement in the St John newspaper.
You have two options that I see. One is to grant the contractor extra time or money to complete the work and the other is to stick him to the exact letter of the contract and make him responsible for the time and or money cost.
What is your end goal here? Is it to enforce the letter of the contract at all costs or is to get your project complete and productive on time?
If it is to enforce the contract at all costs then deny any claim and generally stick the contractor with the problem. This may delay your completion because is the contractor goes bankrupt you will have to re-tender and start again. It may affect other work to come later exposing you to delay claims on these jobs. You may get some financial relief from any bonds or insurance in place but once these run out and the contractor is bankrupt then you will be on the hook for all costs.
I also doubt if lost revenue or potential profits are a factor to be considered in fighting a delay claim either.
You will also get a reputation as someone who put a local contractor out of business and when you have a small job you will have a smaller pool of contractors willing, available and capable of doing your work.
If your goal is to get the job done on time then sit down with the contractor and openly and honestly discuss how you can achieve that. You may have to pay extra but this may be much less than the costs of delaying the work.
You will gain a contractor locally who is willing to work with you in the future even to the point of giving you preferential treatment (emergency response for example).
I once worked for a pulp and paper mill. We were replacing the debarking equipment. The debarking of the logs is the first step and if the debarking stops then the supply of logs for the process stops and no paper is coming out the other end of the mill in addition to shut down and other costs.
We were told at the start of the job that the mill made $1,000,000 a day and we were to do nothing to screw that up. The mill followed through by treating their contractors very well. They were virtually guaranteed of making a fair profit unless they did something really stupid. They would respond very quickly to all of our concerns and if something came up that was not considered at the bid time then we sat down and discussed it. If extra cash was required to fix the problem it was available.
The end result was that we could get any of the contractor we to do almost anything we wanted or needed them to do. If one contractor was short of equipment because of a breakdown the equipment was supplied by another, often the competitor, with no hassle.
We paid out several thousand in extras that were arguably the contractor’s responsibility. However this was money well spent because we could have spent more than that arguing about the issues and negated the considerable good will between the mill and the contractors and delayed the project.
We removed all the debarking equipment and replaced it with new including the waste disposal equipment on time with no unscheduled shutdowns of the plant and continued to process between 700 and 800 cords of wood a day.
My point is that sticking the contractor to the letter of the contract may be the most costly decision you can make. Give and take is required on all construction projects and this sounds like one of those cases.
Rick Kitson MBA P.Eng
Construction Project Management
From conception to completion
You may put in shortage of labour but I think that that would be a tough one to prove or disprove since there are always people available if you are willing to pay enough money.
If you can pay enough money to avoid the impact of the event or circumstances than that is not a force majeure type of condition.
What trade are we talking about here? You can always put an advertisement in the St John newspaper.
You have two options that I see. One is to grant the contractor extra time or money to complete the work and the other is to stick him to the exact letter of the contract and make him responsible for the time and or money cost.
What is your end goal here? Is it to enforce the letter of the contract at all costs or is to get your project complete and productive on time?
If it is to enforce the contract at all costs then deny any claim and generally stick the contractor with the problem. This may delay your completion because is the contractor goes bankrupt you will have to re-tender and start again. It may affect other work to come later exposing you to delay claims on these jobs. You may get some financial relief from any bonds or insurance in place but once these run out and the contractor is bankrupt then you will be on the hook for all costs.
I also doubt if lost revenue or potential profits are a factor to be considered in fighting a delay claim either.
You will also get a reputation as someone who put a local contractor out of business and when you have a small job you will have a smaller pool of contractors willing, available and capable of doing your work.
If your goal is to get the job done on time then sit down with the contractor and openly and honestly discuss how you can achieve that. You may have to pay extra but this may be much less than the costs of delaying the work.
You will gain a contractor locally who is willing to work with you in the future even to the point of giving you preferential treatment (emergency response for example).
I once worked for a pulp and paper mill. We were replacing the debarking equipment. The debarking of the logs is the first step and if the debarking stops then the supply of logs for the process stops and no paper is coming out the other end of the mill in addition to shut down and other costs.
We were told at the start of the job that the mill made $1,000,000 a day and we were to do nothing to screw that up. The mill followed through by treating their contractors very well. They were virtually guaranteed of making a fair profit unless they did something really stupid. They would respond very quickly to all of our concerns and if something came up that was not considered at the bid time then we sat down and discussed it. If extra cash was required to fix the problem it was available.
The end result was that we could get any of the contractor we to do almost anything we wanted or needed them to do. If one contractor was short of equipment because of a breakdown the equipment was supplied by another, often the competitor, with no hassle.
We paid out several thousand in extras that were arguably the contractor’s responsibility. However this was money well spent because we could have spent more than that arguing about the issues and negated the considerable good will between the mill and the contractors and delayed the project.
We removed all the debarking equipment and replaced it with new including the waste disposal equipment on time with no unscheduled shutdowns of the plant and continued to process between 700 and 800 cords of wood a day.
My point is that sticking the contractor to the letter of the contract may be the most costly decision you can make. Give and take is required on all construction projects and this sounds like one of those cases.
Rick Kitson MBA P.Eng
Construction Project Management
From conception to completion
- Thread starter
- #14
RDK said:
My apologies for not being clearn enough with the type of information I am searching for.
My OP is:
Ashereng said:
I am trying to gauge how common it is to include a "shortage of necessary labour" clause in a contract.
I am looking for feedback from people who have seen "shortage of necessary labour" clauses in contracts (wither expressly included or excluded), and to share their their estimates on the percentage of contracts that include this type of clauses.
I appreciate the postings regarding what force majeure is. I understand what force majeure is, how it should be structured in a contract, etc.
I also appreciate the postings regarding how to deal with contracts, contracters, what can go wrong on a job, my company's reputation, etc.
In the end, I am looking for some statistical data.
Never seen it.
Rick Kitson MBA P.Eng
Construction Project Management
From conception to completion
Rick Kitson MBA P.Eng
Construction Project Management
From conception to completion
- Thread starter
- #16
While not specifically answering your question, most of our bids are essentially done with the lack of personnel to begin with. Assuming that the company is already running at a reasonable personnel utilization, we assume from the onset that we'll need to hire additional personnel to execute a contract. That's one of the risks we normally accept.
TTFN
TTFN
- Thread starter
- #18
Thanks IRstuff,
So, you are saying you will bid, knowing tht you will need to hire additional personnel, and you will take the risk that you can't find the required personnel, and pay the penalty? Hmmmm.
Have you/your company been in the situation when you could not find sufficient personnel? Did you/your company end up paying the penalty?
So, you are saying you will bid, knowing tht you will need to hire additional personnel, and you will take the risk that you can't find the required personnel, and pay the penalty? Hmmmm.
Have you/your company been in the situation when you could not find sufficient personnel? Did you/your company end up paying the penalty?
Ashereng,
I would say 3 or 4 contracts out of a lot, at least 100. Most contractors do not carry sufficet labor to staff work 100% all the time and do plan to gear up for large projects. However, I have had periods when labor shortages have exsisted. Not much can be done. Sometimes labor can be bought in from other areas, but that can be expensive. Longer hours can be worked, but that quickly becomes unproductive. Hiring in an area where a severe labor shortage exists will generally result in very poor qualitity or inexperienced labor, which will effect the quality of the work. The more risk that is passed to the contractor, the more contingency will be put in the price to offset some of the risk. I would not try to pass the risk for severe labor shortages on to the contractor, because as RDK pointed it out, there is in reality, little good that will come out of it.
I would say 3 or 4 contracts out of a lot, at least 100. Most contractors do not carry sufficet labor to staff work 100% all the time and do plan to gear up for large projects. However, I have had periods when labor shortages have exsisted. Not much can be done. Sometimes labor can be bought in from other areas, but that can be expensive. Longer hours can be worked, but that quickly becomes unproductive. Hiring in an area where a severe labor shortage exists will generally result in very poor qualitity or inexperienced labor, which will effect the quality of the work. The more risk that is passed to the contractor, the more contingency will be put in the price to offset some of the risk. I would not try to pass the risk for severe labor shortages on to the contractor, because as RDK pointed it out, there is in reality, little good that will come out of it.
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