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Act of God clause for salt shortage

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  • SIMA
- Posted: March 5, 2015
By Cheryl Higley

Among the clauses some snow & management contractors have considered is force majeure. But two attorneys that were contacted were skeptical that the clause could be successfully defended if invoked as a solution to the salt supply shortage.

According to Patrick McGuiness, an attorney for Zlimen & McGuiness, PLLC, a broad definition of force majeure is that it is a contract provision that frees both parties from fulfilling their contractual obligations if a disaster outside their control hinders or prevents them from doing so. In other words, if an "Act of God" or other unforeseen catastrophe prevents you from fulfilling the contract, you won't be liable. The clause typically lists examples of disasters that will trigger the exception (such as fires, floods, wars, and governmental acts). They also usually require the parties to make reasonable efforts to minimize the costs of the disaster.

McGuiness says force majeure clauses are good to have in a contract because they provide an excuse for non-performance due to something completely outside of their control that makes the performance impossible. However, force majeure clauses generally do not apply to materials shortages.

"If all the salt available to a particular city were to be lost in a barge or train accident, and no other salt could be obtained, then perhaps the force majeure clause would protect the contractor. Another example would be if a labor strike caused salt to become unavailable," he says. "However an ongoing pattern of weather that causes a shortage of a material probably wouldn't fall under a force majeure clause."

When a contract lists a fixed price per unit for a material, or a fixed price for the season to include as much as necessary to perform the work, then it is assumed that the contractor has built their pricing structure around past price fluctuations. Simply because salt become extremely expensive, does not mean that a contractor can fail to perform on the contract due to the shortage. The contractor would need to show the impossibility of obtaining salt, not just the extreme expense of it, he says.

Darryl Beckman, legal columnist for Snow Business magazine and partner with Beckman, Ogozalek, Perez, suggests first reviewing the terms of the written contract to see if there is a clause discussing the responsibility of a party to perform due to an inability to secure materials, including salt.

"In an absence of such a clause, a party seeking relief due to an inability to secure salt or any other necessary material is at the discretion of the court. I have not presented or opposed such an argument, and I don't how a court would rule, other than to state I would not rely upon the forgiveness of a court to protect my company from a failure to perform due to a material shortage," he says.

McGuiness agrees and adds that a better option for protecting contractors would be including specific language in the contract addressing salt pricing and shortages.

"While it is a business decision for each company involved, perhaps there is a price above which a surcharge is passed along to the customer (similar to fuel surcharges). Alternatively, the contractor can use language that excuses them from performance of that portion of the contract unless the customer is willing to pay the actual cost of the material above and beyond a specific price point," he says. "I know these options may not be popular with contractors in very competitive markets, but the alternative option would be to simply re-adjust salt pricing for future years based upon this past year's issues."

Ultimately, could a contractor use a force majeure clause to argue that they did not have to perform on their obligations due to the salt shortage?

"Maybe, but it would involve a lot of work to prove. Unless there was nothing else to fall back on, it wouldn't be my go-to clause if I were defending a contractor in a salt shortage breach of contract case," McGuiness says.

This article contains general legal information and should not be relied upon as legal advice. Contractors should consult with a qualified attorney about their contracts whenever making changes or modifications.

Cheryl Higley is editorial director of Snow Business magazine. Contact her at .chigley@grandviewmedia.com.
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