An increasingly
popular and sensitive topic in the power plant construction arena is force
majeure, a well-known concept which has increased relevance in the wake
of September 11.
September 11 has resulted in
a fundamental re-examination of risk parameters in the energy construction
industry. But even before the tragic events of that day, power plant constructors
were frequently invoking force majeure clauses in an overheated and labor
short market to justify delays in bringing plants on line. Terror and
labor shortages, in an unpredictable and dynamic market - each guarantees
that force majeure will assume increasing importance in defining the risk
profiles of successful power plant construction projects.
Force majeure is widely misunderstood
- by owners, lenders, and contractors alike. It is often improperly used
as a catch-all phase to excuse contractual non-performance, no matter
the cause. The parties are of course free to define force majeure differently;
in every instance, however, the language of the contract must be consulted
to determine the rights of the parties.
Immediately after September
11, major American equipment vendors sent written notices to their customers
that the events of that day constituted potential force majeure incidents,
especially as they impacted transportation and the short-term disruption
of the aviation industry. Contrast this situation, however, with those
force majeure claims arising from labor shortages. In an overheated construction
environment with insufficient numbers of craft labor and experienced power
plant designers, certain EPC contractors have recently sought to use this
unavailability of labor as the reason for their inability to timely perform,
justifying a force majeure time extension. This issue is the basis for
litigation on delayed power plants.
Within the power industry,
owners fairly argue that the exigencies of the labor market were reasonably
foreseeable, within the control of the contractor, and were consequently
within the risk profile assumed by the contractor.
In energy construction, the
shortage of skilled labor and the demands that the inevitable construction
boom would place upon that shrunken pool should have been anticipated
by a prudent EPC contractor. Consider combining September 11 and labor
shortages. In New York City, skilled craft such as operating engineers
flocked to work at Ground Zero, for understandable reasons of patriotism
and pay. Faced with a diminution of their work force as a result of this
force majeure event, contractors elsewhere in the City consequently may
have not been able to maintain progress. In this unique circumstance,
a labor shortage resulting from an underlying force majeure event may
justify a time extension. Absent the underlying, unforeseeable event,
however, the lack of labor is classically a risk assumed by an experienced
contractor. Only if the parties have expressly addressed this issue by
contractually defining a craft shortage as a force majeure event will
this analysis be altered.
September 11 fundamentally
impacted the risk analysis of American commerce. As lenders become even
more risk averse and the insurance industry retrenches and limits hedges
to unforeseen risk, force majeure will become even more important in establishing
the risk profile of a project.
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