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HomeNewsForce majeure: ‘Draconian price increases smack of a cartel’

Force majeure: ‘Draconian price increases smack of a cartel’

THE flooring industry is uniting in its concerns over force majeure. Both flooring contractors and manufacturers have told CFJ they’re becoming increasingly concerned about the prevalence of force majeure in the aftermath of Covid-19.

While global supply chains have been impacted hugely, not just by the pandemic and the resulting lockdowns, but by the confusion concerning where responsibility lies for delayed, missed, and incomplete deliveries, tensions are rising throughout the industry.

Force majeure refers to a clause that is included in contracts to remove liability for natural and unavoidable catastrophes that interrupt the expected course of events and restrict participants from fulfilling obligations.

Now the managing director of a major UK flooring contractor told us: ‘I’ve had two letters in the last week regarding force majeure with price increases from manufacturers. We had agreed annual rates with our supply chain over the past year but now manufacturers are going back on that, citing the increase in costs in raw materials, particularly with respect to resin. Nothing can be done about it unfortunately, so we’re taking the hit. We can’t push those increases onto clients because we have fixed contracts with agreed rates.’

The contractor says the only form of resolution is down to the nature of personal relationships between contractors and manufacturers, and the resulting negotiations. ‘The worry is that when raw materials costs are set at a certain level, I can’t see manufacturers going back on those increases and reducing the costs. Are they going to keep prices at the higher level when things return to normal? That’s the question – and the worry.’

But CFJ has also heard from a manufacturer which said there’s been a big increase in suppliers claiming force majeure, citing abysmal weather in the US as well as a fire at BASF affecting availability. This, in turn, said the manufacturer was leading to supply issues and ‘massive’ price increases. ‘Every manufacturer must be hurting now – not just our immediate competitors but flooring manufacturers as well.’

This was, said the manufacturer,  ‘the single biggest topic to hit us for a long time and is here to stay certainly for the balance of this year’. He added that the ‘opportunity to impose draconian price increases smacked of a cartel’.

Peter Kouwenberg, associate solicitor in the corporate and commercial department at Taylor Walton, told CFJ force majeure shouldn’t be seen as a silver bullet by those introducing it. ‘In order to minimise potential loss in FM scenarios, it’s vital that those applying force majeure give a prompt, contractually compliant notice to the other party of possible or actual disruptions to performance, to allow them to prepare and to act appropriately to mitigate loss or damage.’  

It will also be prudent for businesses to consider if there is any alternative way of performing the contractual obligations, rather than leaving the client with the problem, which could help protect the long-term relationship, says Peter.

He adds: ‘Retaining written evidence of any disruption is essential, as either party may wish to take matters further, once the contract to supply has been terminated or suspended. While we await the outcome of Covid-19 force majeure claims, there is plenty for businesses to consider, from checking contract clauses cover all possible eventualities to checking they have adequate insurance cover, but a review of standard contract terms and conditions is a crucial first step.’

Peter points out that force majeure measures are a clear warning for businesses to ensure their related clauses are drafted very carefully, especially if they hope to rely on them to defend a breach of contract, whether it’s caused by natural disasters, wars or compliance with government restrictions during a pandemic.

‘When including a force majeure clause, it should enable the business to invoke a rights of suspension and/or termination of its duties and obligations under the contract. The inclusion of the words ‘epidemic’ and/or ‘pandemic’ in the clause may be sufficient to trigger force majeure. Where these terms have not been included, the emergency measures to address or contain any outbreak, like a travel ban or quarantine zones, may be sufficient to trigger force majeure. If a business seeks to invoke a force majeure clause, it must show any failure to perform its contractual obligations cannot be attributed to other factors, such as any additional cost of performance.’

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