So let's get started. This month I will build on a topic that I spoke about briefly at the CIO Decisions conference in June: force majeure (a contract clause that excuses performance in certain circumstances). Many of you asked about the intersection between force majeure and disaster recovery -- specifically, how to prevent a vendor from invoking the force majeure clause to negate its disaster recovery obligations. There are primarily three steps you should consider taking to ensure that you don't encounter this situation.
- Draft force majeure clauses properly. A properly drafted force majeure clause is designed to excuse a party's performance for an act of God (an earthquake, a weather calamity, etc.) or other events that are truly outside a party's control (an act of terrorism, a war, etc.). Many force majeure clauses are drafted far too broadly and include events that may actually be in a party's (i.e., the vendor's) control, such as labor or supply shortages.
And generally these clauses are far more favorable to vendors than to customers. If you intend to sign a contract that includes a force majeure clause, ensure that it does not excuse a vendor's performance for acts that are (or could have been) in the vendor's control.
- State the vendor's disaster recovery obligations. If disaster recovery is an issue in your transaction, the contract should precisely define what constitutes a "disaster" as well as the vendor's obligations if one occurs. This includes negotiating and attaching the vendor's disaster recovery plan as an exhibit to the contract. Don't forget to define the timing of the vendor's obligations and penalties for noncompliance.
- Ensure that force majeure events do not excuse disaster recovery obligations. So you have drafted a force majeure clause and defined the vendor's disaster recovery obligations. How then can the vendor avoid fulfilling its disaster recovery obligations in the event of a disaster? Easily: If a force majeure event occurs (say, a flood, which may also qualify as a "disaster" under your definition), the force majeure clause may excuse the vendor from performing all its obligations under the contract. The very event for which you require disaster recovery services has negated the vendor's disaster recovery obligations! The fix is generally simple (but will likely be the subject of intense negotiation with vendors). In contracts where disaster recovery is an issue, eliminate the force majeure clause completely. Because the clause generally favors vendors, it's better for customers not to include it in the contract if disaster recovery services could be implicated.
Careful consideration of force majeure clauses in transactions that may involve disaster recovery is critical to ensure that a vendor is required to fulfill its disaster recovery obligations when a disaster occurs.
This article is not a substitute for legal counsel. In any given situation, the impact of the law depends on many factors. The author recommends engaging legal counsel to assess your legal liability.
Matt Karlyn, J.D., M.B.A., is a member of Foley & Lardner LLP's Information Technology & Outsourcing Practice Group in Boston. Write to him at firstname.lastname@example.org.
This was first published in September 2006