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COVID-19 and Coping with a Force Majeure

March 16, 2020 3 min read
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COVID-19, also known as coronavirus, has sparked a global wave of event cancellations, uncertainty and stress. Health concerns aside, the events community has been dealt a complex, serious blow — not from the virus itself — but all the contracts impacted by cancellations.

Best laid plans have quickly become a scramble to recoup costs and reschedule venues, speakers, caterers and more. At scale, as in the case of SXSW, these cancellations have a massive economic impact, triggering layoffs and potential legal battles over contractual obligations and payments. 

All the while, one key, oft-overlooked contract clause — force majeure — has helped some companies, including Ironclad, navigate tricky situations and minimize losses.

A Closer Look at Force Majeure

The force majeure clause is defined to fulfill an essential purpose: excuse a party from its contractual obligations that become impossible or impracticable, due to an event or effect that the parties could not have anticipated or controlled. The COVID-19 crisis is the most recent example of a force majeure, but other examples have included the September 11 terror attacks and Hurricane Sandy in 2012.

While force majeure clauses rarely represent a sticking point in contract negotiations, things can quickly get complicated in the days and weeks following a catastrophic event or crisis. The challenge of a force majeure clause lies in interpretation — it can be easy for parties to disagree on what does or does not constitute a qualifying event. Without getting into the nuances of making a case for or against a force majeure, the critical point to remember is that quickly identifying impacted contracts can be essential for recouping any funds, rescheduling key event talent and minimizing corporate losses.

Maintaining Control With Digital Contracting

At Ironclad, we recently felt the repercussions of the coronavirus pandemic. In the days leading up to our Apex: The Modern GC Summit event, initially scheduled for March 12, 2020, our marketing and legal teams closely monitored the situation, ultimately deciding to postpone. As part of the decision-making process, we had to assess the financial liabilities for our inaugural conference.

Luckily, because all contracts were processed and stored in Ironclad, our teams were able to pull all affected agreements within minutes, as well as search for force majeure, cancellation and refund clauses in our Dynamic Repository.

“As soon as our marketing team realized there was a good chance of postponing Apex, they asked Legal to review all of the Apex contracts and identify possible associated penalties for each canceled contract due to the Coronavirus outbreak,” said Mikaela Waters, Legal Operations at Ironclad. “Postponing Apex represented a significant impact on our financial losses and liabilities to inform, so we wanted to ensure we made a sound decision.” 

Specifically, Ironclad’s marketing team requested vital contract metadata, including:

  • Vendor/Partner Name
  • Brief Description of Services
  • Total Contract Value ($)
  • Penalty for cancellation ($)
  • Total amount Ironclad had already paid ($)
  • Force Majeure Clause (True/False)
  • Notice Period to exercise termination 

Apex deliberations took place a day before a key executive meeting, meaning time was of the essence to make an informed recommendation to company leadership. But because all Apex contracts were easily accessible in Ironclad, what could have been a terrible weekend project was completed by the Legal Operations team over a cup of coffee early Saturday morning.

“Without Ironclad, the process of identifying key contracts and clauses would have been a huge undertaking,” said Crystal Wu, Legal Operations at Ironclad. “Because we were able to act so quickly, we helped our leadership team and board make an informed decision about postponing Apex. We were able to swiftly follow up with each vendor to offer credit toward a rescheduled date.”

Lessons Learned From the COVID-19 Crisis

For our Ironclad Legal and marketing teams, Apex postponement amid the COVID-19 pandemic provides a crucial learning moment, not just for in-house legal but anyone who interacts with contracts. Understanding the nuances of your contracts, as well as preparing for a worst-case scenario, can pay significant dividends, should the unexpected occur. 

“Although the circumstances surrounding our Apex postponement were not ideal, our contracting approach was a gamechanger and excellent reminder of best practices,” said Vera Devera-Dalrymple, Community Manager at Ironclad. “Before signing with a vendor, ensure that your contract contains language on three key scenarios: refund, cancellation or rescheduling, and force majeure. That way, all parties understand how to handle the terms and conditions under which money, services and goods exchanged if an issue arises.”

 

About Ironclad

Ironclad is the #1 contract lifecycle management platform for innovative companies. L’Oréal, Staples, Mastercard, and other leading innovators use Ironclad to collaborate and negotiate on contracts, accelerate contracting while maintaining compliance, and turn contracts into critical carriers of operational business intelligence. It’s the only platform flexible enough to handle every type of contract workflow, whether a sales agreement, an HR agreement or a complex NDA. The company was named one of the 20 Rising Stars on the Forbes 2019 Cloud 100 list, and is backed by leading investors like Accel, Y Combinator, Sequoia, and BOND. For more information, visit www.ironcladapp.com or follow us on LinkedIn and Twitter.

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