Force Majeure: What Is It and Why Care?

by drjim on June 16, 2008

Force Majeure or Act Of God In Contracts

Force Majeure or Act Of God In Contracts

While reading the Wall Street Journal last week, I happened upon a very small article that mentioned that Alcoa, the large metal processing company, had declared a force majeure on alumina (also known as aluminum oxide which is used in aluminum production) deliveries from its operation in Western Australia. This somewhat boring legal term caught my eye because I’ve worked on a number of contracts that had a “force majeure” clause; however, I never really understood how or when it could be used. Well now thanks to Alcoa I know.

In Alcoa’s case, there was a file and an explosion at another company’s gas-processing facility. It’s going to take at least two months to repair the plant and restart the gas supply. It turns out that to process alumina and turn it into aluminum requires a lot of gas. This means that Alcoa is going to have to cut their output and therefore forced them to declare a force majeure.

What does all this talk of aluminum mean to you? If you live in Australia, it probably means that you should go buy beer and lawn chairs right NOW because prices will probably be going up. For all other product managers, this should serve as a reminder that if your product relies on another vendor, that force majeure portion of the contract is not just “contract boilerplate” — it really can be put into action. You need to spend some time thinking about what you would do if the unthinkable happened — force majeure was declared. A backup plan/vendor is always good to have. If that’s not possible, then a good P.R. campaign and working out the next steps that you would need to take with the folks in the legal department would be good to do.

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