Part 1, the first of a two-part series about surviving the effects of the pandemic in India, focuses is on force majeure’s impact on contract management’s effectiveness in India. Part 2 surrounds how the supply chain solution under the pandemic impact and why it’s time for India to “think beyond its border.”
After Covid 19 we all entered a new paradigm shift of new normal and like everything else, the contracting practice and implications and applications of contract law also underwent changes. In India, we have found it especially relevant to assess the effectiveness of new contract practices, specifically relating to how to apply force majeure clauses under the Covid norms.
Force majeure clauses specifically deal with risks arising out of a force majeure, event -- often broadly defined as an unforeseeable event, over which parties have no control. Force majeure events generally do not a result from a default of one party. They cannot be prevented by parties exercising reasonable care and caution.
As soon as a force majeure event occurs, the force majeure clause requires the parties to mitigate the results of the incident and then estimate time and cost losses arising from it. As stated, in general, force majeure events are not attributed to either party. All parties must bear their own costs; the affected party is given an extension of time to fulfill the obligations resulting from a specific force majeure event. However, in certain situations, either the costs must be paid, or the contract demands that the parties must renegotiate the terms to the extent the force majeure event might affect performance according to the contract.
Today most contracts have force majeure clauses. Until COVID-19, these clauses occupied a somewhat obscure part of the contract and were rarely the focus of attention. However, force majeure took centerstage when Covid-19 was categorized as “force majeure” by India’s Ministry of Finance, Government of India, vide their notification of 19 February 2020.1
Regarding the Infrastructure projects, in particular the Road Sector, which was one of the most hit, both the Ministry of Road, Transport and Highways (MoRT&H), Government of India, and the National Highways Authority of India, have issued various circulars, most important being two MoRT&H circulars dated 18 May and 6 March 2020, respectively2 wherein several reliefs were granted for all national highway works, including:
- expeditious release of payments,
- extension of time,
- expeditions approval of change of scope,
- relaxation of Performance Bank Guarantee (PBG) rules,
- relaxation in Ernest Money Deposit (EMD) for Micro, Small and Medium Enterprises (MSME) companies such as the medium and small enterprises,
- extension of concession agreement,
- relaxation in remittance of toll money for tolling contractors, etc.
The National Highways Authority of India has also relied on the MoRT&H circulars, to come out with its own circulars which entitle the contractors the above reliefs.
One requirement of law relating to force majeure is when the contract itself provides for the force majeure and reliefs therefrom, the aggrieved party is bound to follow the process of notification. The courts also, while providing reliefs under the force majeure, are required to be within the four corners of the contractual provisions.
Today much work is left to be done. Most importantly, the force majeure clause needs to be amended by including a synopsis of the pandemic and its treatment. In case of a lockdown, a consultant working from home should be recognized for services provided and be paid accordingly. Contracts that demand onsite availability or workshops or supervision at site, must consider clauses for allowing personnel to work from remote locations in case of Covid and lockdown. In addition, contracts must be sensitized by including a suitable provision on Health and Safety norms. Periodic inspection and review should be set up by the client. The coverage of employees at site needs to be stated for Covid situations.
In a nutshell, not only do we have much work ahead, but change in attitude as well is needed with the contracting parties and the contracts been executed by them to make sure we transform into the new normal situation, duly prepared and aware.
The opinions and views represented in this article are the authors alone, and do not constitute legal advice
- Notification 19.02.2020 Force majeure clause
- See 6 March circular and 18 May circular and article commentary titled, Economic Times, titled Force Majeure: How successful has the law been post Covid in India? April 21, 2021
ABOUT THE AUTHOR
Mohit Khullar is a Contracts and Commercial management professional with more than 20 years of experience in Management Consulting and advisory on negotiation, dispute resolution, commercial management, debt management and project controls. He has a master’s in business administration from IMT Ghaziabad, India and CCCM from NICMAR India.
SMEC is a global engineering, management and development consultancy delivering innovative solutions for our clients and partners. Leveraging a 70-year history of delivering nation-building infrastructure, they provide technical expertise and advanced engineering services to resolve complex challenges across the project lifecycle, from initial concept, feasibility, planning and design through to construction, commissioning, operation, and maintenance.
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