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 development.
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 unpredictable circumstances.
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.