REALWorld Law


Allocation of risk

What risks in a construction or engineering contract are normally borne by the contractor? To what extent is force majeure relevant in such contracts?



In so-called ‘traditional’ procurement, the building contractor is responsible for the construction of the works, but not for their design. In design-build contracts, the building contractor also takes on responsibility for design of the works, usually by retaining the design consultants. In some scenarios, the design consultants may be appointed by the owner in the usual way, even before the building contractor is selected; when the owner enters into the design-build contract, the design consultants’ appointments are simultaneously transferred across (or ‘novated’) to the building contractor and this places single point design (as well as workmanship) responsibility on the contractor and gives the building contractor control of the design process.

Force majeure clauses are often included in design and construction contracts.  It is common for a force majeure clause to provide a contractor with only an extension in time.  In some contexts compensation will be payable as well, but it is often limited when available.  For example, certain force majeure provisions will entitle a contractor to be compensated for the cost of maintaining and securing the construction site during a shutdown.

However, given that force majeure clauses are creatures of contract, they can be heavily negotiated and unique from contract to contract. Their interpretation will be governed by the normal rules of contractual construction. Force majeure provisions will be construed strictly in the event of any ambiguity. In this context, it means that the clause will be interpreted against the interests of the party that drafted and is seeking to rely on it (contra proferentem).

Importantly, parties cannot invoke a force majeure clause if they are relying on their own acts or omissions.

Most force majeure provisions will also be negated where a particular event was within the contemplation of the parties when they made the contract. The event must also have been outside the control of the contracting party.

The events which trigger the operative clause must be clearly defined. It is in the interests of both parties to ensure that the 'force majeure' is clearly defined in their contract.