It is now clear that the coronavirus (COVID-19) will have an effect on all industries, solar and storage included. In considering the potential impact, it is important to examine your contracts’ force majeure provisions.
Force majeure is the provision that defines occurrences such
as acts of God, war, famine and plague that are outside and beyond the control
of the parties. It allows relief for non-performance in the event that such an
occurrence is triggered.
The current pandemic is evolving quickly, with daily changes
restricting travel and shutdowns to non-essential businesses. Although the
supply chain in China may be beginning to rebound, the situation in the U.S.
may actually be the trigger for force majeure events in many contracts. In light
of this possibility, parties should be aware of the following contractual
provisions to ensure they do not unknowingly waive any of their rights.
In executed contracts:
In instances where the contract has been executed, the force
majeure language should be reviewed by both parties to see if and when an event
could be triggered. In instances of public health emergencies, some contracts
require a formal declaration from a governmental body for force majeure to
trigger, while others are triggered when the project is merely impacted.
Parties should have a clear understanding of the
circumstances under which they can declare a force majeure event in order to
negotiate the best terms possible. Parties should also ensure they do not miss
important milestones that could preclude their ability to claim force majeure
by reviewing notification processes and deadlines.
The effects on your project can by minimized by being
proactive during these events, and even by reviewing terms before they occur.
Specifically, developers impacted by supply-chain delays and logistical
constraints such as forced construction shutdowns and shelter-in-place orders
should be prepared to offer specific evidence of disruption to their
In contracts currently in negotiation:
All parties should prepare for potential schedule delays and
cost increases. If force majeure is triggered, a party may consider caps for
cost overruns or limiting relief to scheduling changes. If parties agree to
limit relief, they should make certain that all agreements are acting
cohesively by accounting for other deliverables.
Considering a project more holistically and accounting for
all phases of a project’s development and all parties involved – from suppliers
to tax equity investors – could allow for realizations for schedule
accelerations and cost savings. If you are not the party responsible for
procuring materials or constructing the project, you should ensure the other
party is required to exercise reasonable diligence to avoid, prevent or
minimize the impacts to force majeure.
The current situation is evolving rapidly, making it
necessary for parties to carefully consider the language in their force majeure
provisions. Although force majeure provisions are often glossed over or viewed
as boilerplate, events like the current coronavirus pandemic reiterate their
necessity. These proactive measures can aid both parties in navigating such
Tanya M. Larrabee is an associate at Boston law firm Sherin and Lodgen. She represents renewable energy clients in the acquisition, development and financing of solar, wind and energy storage projects, including advising on state incentive programs.
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