- February 29, 2024
- 15 min read
- Sirion
Introduction
A crisis can strike at any moment, affecting your business’s ability to meet contract obligations. Without the right response, your organization can end up in hot water.
Force majeure clauses offer an opportunity to delay or be entirely excused from deliverables in the event of unforeseeable circumstances. However, drafting a force majeure declaration response must be done carefully and promptly to remove your liability. This is where advancements in AI and generative AI can help.
Keep reading to see how you can use AI to declare force majeure more efficiently and protect your business.
Understanding Force Majeure
Force majeure is a clause that relieves a party from fulfilling its contract obligations when unforeseen events beyond either party’s control happen. To be able to enforce this clause, the event must check a few boxes.
What are the 3 Elements of a Force Majeure Event?
Generally speaking, a force majeure event must be:
- Unforeseeable
- External to the contract parties
- Serious enough that it makes it impossible for a party to fulfill contract obligations
While some events may be excluded from force majeure, the contract clause language often covers:
- Natural disasters, such as fire, floods, or storms
- Governmental or societal actions, such as war, invasion, civil unrest, and labor strikes
- Infrastructure failures related to energy or transportation
How to Declare Force Majeure and Avoid Liability
Declaring force majeure must be done carefully and in a specific amount of time to avoid further complications. Make sure you follow the right steps to avoid conflict.
1. Review and Asses the Event
The first step in declaring force majeure and limiting your liability is determining if the event meets the proper criteria. Examine the event to see if it meets the above requirements and move forward from there.
2. Gauge the Contract Clause Language
Force majeure clauses can vary depending on the parties’ contracting standards. Carefully review the specific language used in your contract to see how, if at all, you may be excused from fulfilling your contract obligations.
In some cases, the clause may be written in a way that only allows for obligation delays; in others, you may be fully excused.
3. Give Notice, If Necessary
Many clauses require the parties to give notice of a force majeure declaration a specific number of days before the event or within a certain time frame once the event is triggered.
Make sure you’re following terms and promptly give notice. If you don’t notify counterparties according to the contract terms, you may not be able to declare force majeure and can be held liable for unmet obligations.
4. Draft the Right Form of Notice
How you deliver your notice is just as important as when. Force majeure clauses may dictate the form of notice necessary, to whom the notice must be sent, and how it must be sent.
Using AI to Accelerate Force Majeure Declaration
If a force majeure event occurs, your legal team must act quickly to protect the business and avoid further conflicts. But that’s impossible when legal teams are stuck manually searching for affected contracts.
Artificial intelligence lets you react with the scale and speed you need in the face of force majeure events. When crisis strikes, you can use AI to:
- Perform Contract Analysis: Extract data from and review thousands of contracts and identify specific language, clause details, and other key data points in minutes.
- Draft Reaction Documents: Use AI-powered contract authoring capabilities to create templates that declare force majeure or initiate a negotiation process to amend existing contracts.
- Establish Proactive Measures: Improve contract risk management programs and set up automations that alert you to which agreements have force majeure clauses in the first place.
Protect Your Business When Disaster Strikes with CLM
If global events like the COVID-19 pandemic taught us anything, it’s that crisis can hit at any moment. The real question is: are you ready to hit the ground running or will poor processes and legacy tech leave you slow to respond?
Don’t wait until you’re up against the clock. Contact our team to see how Sirion’s advanced AI and an efficient CLM can empower you to protect your business when facing a force majeure event.
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