Guild of Project Controls: Compendium | Roles | Assessment | Certifications | Membership

Tips on using this forum..

(1) Explain your problem, don't simply post "This isn't working". What were you doing when you faced the problem? What have you tried to resolve - did you look for a solution using "Search" ? Has it happened just once or several times?

(2) It's also good to get feedback when a solution is found, return to the original post to explain how it was resolved so that more people can also use the results.

World Financial Crises: Is this Force Majeure

36 replies [Last post]
Charleston-Joseph...
User offline. Last seen 9 years 26 weeks ago. Offline
Joined: 10 Jul 2005
Posts: 1347
Groups: None
Dear All,

The current financial crisis is experienced worldwide. Projects programme for completion will not be completed or totally stop.

An example of force majeure delays include extraordinary economic disruptions.

Can we use the current World Financial Crises as extraordinary economic disruption? If yes, who will be able to claim: the contractor or the client.

Cheers
Happy Planning and Scheduling

Replies

Samer Zawaydeh
User offline. Last seen 2 years 6 weeks ago. Offline
Joined: 3 Aug 2008
Posts: 1664
Hello,

This article ran in time about THE 25 people who might have caused the financial crises.

http://www.time.com/time/specials/packages/article/0,28804,1877351_18773...

Best,

Samer
David Wallace
User offline. Last seen 3 years 20 weeks ago. Offline
Joined: 10 Jun 2005
Posts: 100
Groups: None
"And don’t ever, ever cross that line"

or what?
Charleston-Joseph...
User offline. Last seen 9 years 26 weeks ago. Offline
Joined: 10 Jul 2005
Posts: 1347
Groups: None
We draw the line.

And don’t ever, ever cross that line

PP knows what kind of person you are.

Charleston-Joseph...
User offline. Last seen 9 years 26 weeks ago. Offline
Joined: 10 Jul 2005
Posts: 1347
Groups: None
Mike,

Don’t talk to me.

I’m not interested to listen to your ideas.

I pity those who did listen to you.
Mike Testro
User offline. Last seen 20 weeks 5 days ago. Offline
Joined: 14 Dec 2005
Posts: 4407
Hi Charleston

The answer is simple - if you do not understand the law then go to a lawyer.

I would never attempt to advise any of my clients on legal issues.

I know enough about contruction law to know that I do not know enough.

Best regards.

Mike Testro
Samer Zawaydeh
User offline. Last seen 2 years 6 weeks ago. Offline
Joined: 3 Aug 2008
Posts: 1664
Dear Charleston,

Everyone should be working within the law. That is the General idea. When you encounter a problem that you can not solve by using your Contract, then you go to court to resolve it.

If you visit the Lawyers society at the country of interest then you can buy their Civil Law book from their library. Some counties have more developed systems than others depending on the need that rose during the past years.

Best Regards,

Samer
Andrew Flowerdew
User offline. Last seen 1 year 35 weeks ago. Offline
Joined: 14 Dec 2004
Posts: 960
Groups: None
Charleston,

The Middle East is a bit of a minefield unlike most of the rest of the world.

Due to English / French etc influences in the past and Islam the law of these countries will often be a mixture or common / civil and shirah law.

Commercial law may or may not be completely separate from shirah law and follow mainly common or civil law principles.

Some research is needed to find out what is applicable in each country.
Charleston-Joseph...
User offline. Last seen 9 years 26 weeks ago. Offline
Joined: 10 Jul 2005
Posts: 1347
Groups: None
I got confuse.

How to know the contract is govern by civil law or common law.

What if the contract is located in Middle East or Asia, is there a simlistic way to know that the contract is govern by civil law or common law.

Regards,
Charlie
Andrew Flowerdew
User offline. Last seen 1 year 35 weeks ago. Offline
Joined: 14 Dec 2004
Posts: 960
Groups: None
I would check on the law of the contract first:

Force majeure is a civil law system concept and does not exist in common law systems.

If working under a contract governed by a civil law system then look at the relevant civil law code and read this in conjunction with what’s in your contract. Italian law has a concept of economic force majeure although I don’t think they had the credit crunch in mind and may not cover it.

If working under a contract governed by common law then force majeure events are strictly defined by what is written in the contract. If the event or type of event is not listed then you can’t claim for it even if it would come under a wider definition of force majeure.

That’s the starting point anyway.
Samer Zawaydeh
User offline. Last seen 2 years 6 weeks ago. Offline
Joined: 3 Aug 2008
Posts: 1664
Dear Francis,

The force majeure definition stated in FIDIC clause 19/1 can be verified. But the duration of the increased cost of construction lasted for short duration.

I have been running the numbers for most of the Construction Material, and the curves are all looking like a mountain. Interstingly enough, the prices are lower now. And contractors with big projects who stood through the past few months are making a lot of money on their old unit rates.

It all depends on how much work you did through that period. If you slowed down your business during the high prices cycle (Feb - Sept 09) and increased the activities after the end of November 09, then you (contractor) would be making a lot of money. You just have to increase the amount of work on the old contracts with the high unit rates in order to close the losses that were incurred during the months of high prices.

Best Regards,

Samer
Francis Aborot
User offline. Last seen 11 years 48 weeks ago. Offline
Joined: 13 Feb 2009
Posts: 67
Hi Samer,

It is important to prove it if you believe it is force majeure....I agree with you 100% and I like your properly chosen word CHAOS as the result of this.... Maybe ARMAGEDDON....

Thnx and more power,
Francis
Charleston-Joseph...
User offline. Last seen 9 years 26 weeks ago. Offline
Joined: 10 Jul 2005
Posts: 1347
Groups: None
The example of donkies is so simplistic.

At least the villagers got donkies.

The real world, the money goes in thin air, no donkies, maybe some papers worth zero.

Cheers,
Happy Planning and Scheduling
Samer Zawaydeh
User offline. Last seen 2 years 6 weeks ago. Offline
Joined: 3 Aug 2008
Posts: 1664
Dear Francis,

It depends on the Contract that you have. But the issue here is not proving it. Giving way to compensation will create considerable chaos in many sectors.

Best Regards,

Samer
Francis Aborot
User offline. Last seen 11 years 48 weeks ago. Offline
Joined: 13 Feb 2009
Posts: 67
Hi Samer,

I will try to prepare and EOT based on force majeure (World Financial Crisis).... Just to make my consultant’s planning engineer busy...

Thnx and more power,
Francis
Nestor Principe
User offline. Last seen 9 years 44 weeks ago. Offline
Joined: 23 Oct 2008
Posts: 151
That’s nice Samer. Can you suggest village where I can buy donkeys...kidding.

Cheers
Samer Zawaydeh
User offline. Last seen 2 years 6 weeks ago. Offline
Joined: 3 Aug 2008
Posts: 1664
Dear Francis,

The crisis can be explained with the following store:

A man goes to a village and askes to buy a donkey, so a person say, I will sell you my donkey for 1$. And the man buys the donkey for 1$. Then the man says I need two more donkeys. So another villager says I will sell you my two donkies for $2 each. And the man pays $2 for each. The the man says I need 4 more donkeys. And a villagers says I will sell you the donkies for 4 dollars ea. So the man pays 4$ each. And the man keeps paying higher until he has all the donkies in the village paying up to $20 each.

The man says, I need more donkies. I will pay 50$/ea. But the villagers have no more donkies! I man raises to 60, 70, 80, 90, 100$/ea, but no one has donkies. The man leaves town!!

A new man comes to town saying he has donkies for sale for $75/ea. All the villagers go to their banks to get loan to buy donkies for $75/ea to sell them to the 1st man for 100$/ea to make a quick 25$/ea. The banks give them the loans. The villagers buy their original donkies that are worth $1 for the new price of $75. The 2nd man sells all the donkies back to the villagers and goes out of town.

Now the villagers have their own donkies back with loans up to their ears and no money in the banks. The two men are no where to be found. Hence, global financial crisis in the big blue marble village.

...The End...

Best Regards,

Samer

Francis Aborot
User offline. Last seen 11 years 48 weeks ago. Offline
Joined: 13 Feb 2009
Posts: 67
To all,

My answer is Financial Crisis as a force majure is relative....If somebody knows exactly, please tell me.

Your discussing about Newtons law of motion...I will discuss Einstein theory of equivalence and relativity... In gravity-acceleration definition, take an example you are inside the elevator in upper floor... You accelerate going down... How can you explain the force exerted on you by the elevator?...Is it gravity or acceleration... From the point of view of the observer outside, he can calculate because he knows how fast the elevator is moving and accelerating....But inside you cannot explain...UNLESS YOU HAVE A TRANSPARENT LIFT...

Finacial crisis affects all person in the world, the effect to every individual, group, entity, or organization cannot be quantified by definite formula... Variable explanation will be available at the time...But ONE GENIOUS WILL RISE TO CLARIFY THIS ISSUE...

Is that you?.... Please tell me now..

Thanx and more power,
Francis
Nestor Principe
User offline. Last seen 9 years 44 weeks ago. Offline
Joined: 23 Oct 2008
Posts: 151
Hi Mike,

If you’re talking about age being up that’s also my concern.

Cheers..
A D
User offline. Last seen 22 weeks 4 days ago. Offline
Joined: 20 May 2007
Posts: 1027
Newtown law of motion???
Charleston-Joseph...
User offline. Last seen 9 years 26 weeks ago. Offline
Joined: 10 Jul 2005
Posts: 1347
Groups: None
So having said my humble opinion,

The next step is to look at the individual project contract to be aware of whatever entitlement both parties may have.

In case of doubts just email me: charlieorbe@gmail.com

I maybe of assistance.

Cheers,
Happy Planning and Scheduling
Charleston-Joseph...
User offline. Last seen 9 years 26 weeks ago. Offline
Joined: 10 Jul 2005
Posts: 1347
Groups: None
In reply to the sideline of this thread.

The basic law of gravity: what goes up, will go down.

the higher the height, the impact of the fall is also greater as per Newtown third law of motion.

Going back to the main issue at hand,

The World Financial Crises will eventually becomes a force majeure because of the extraordinary disruptions not forseen at the time of the contract.

Maybe the above is not applicable to UK yet, but
definitely, it is applicable in UAE.

Cheers
Happy Planning and Scheduling



Nestor Principe
User offline. Last seen 9 years 44 weeks ago. Offline
Joined: 23 Oct 2008
Posts: 151
Hi Anoon,

I have a friend who invested in the market. He started at 10K. After few year when the market was on the way up, the money he invested ballooned to about 100K. He cashed 50K and have a good life while the remaining 50K he kept in the market. After several more years the 50K became 200K. Encouraged by the growth he kept his money in the market. The financial tsunami came, in a matter of week the 200K became 50K. And the he said he lost 150K.

I don’t think so. on paper yes.

Mike,

Sorry Mike I can pick up what you mean. You are already UP fully supported by experience. I don’t see anyway down.

Cheers..
Mike Testro
User offline. Last seen 20 weeks 5 days ago. Offline
Joined: 14 Dec 2005
Posts: 4407
Hi Anoon

Why do leaves fall off the trees?

If I knew what causes the cycle I would not be a humble delay analyst.

Hi Nestor

"Anything up will fall down"

Tell me about it - at my age its the UP thats the problem.

Best regards

Mike Testro


Nestor Principe
User offline. Last seen 9 years 44 weeks ago. Offline
Joined: 23 Oct 2008
Posts: 151
Anything up will fall down.

Cheers..
Anoon Iimos
User offline. Last seen 3 weeks 6 days ago. Offline
Joined: 22 Sep 2006
Posts: 1419
Mike,

Can you give an idea why it happens (or why it is a cycle)? Is it that the Capital (Capex), was only good for a decade? Then where have all the money gone? Or is it because of growing population?

cheers!
Mike Testro
User offline. Last seen 20 weeks 5 days ago. Offline
Joined: 14 Dec 2005
Posts: 4407
Hi Raviraj

I would not rely on a wikipedia definition in support of a legal prosecution but even then it says it is not force majeure:

"where non-performance is caused by the usual and natural consequences of external forces"

Which is an economic downturn - even a global one.

It happens every 8 - 10 years - this is my third.

Look for 50 or 100 year events and you will be getting closer.

You cannot even rely on exceptional weather such as floods or tsunamis because with global warming these are to be expected as regular events.

As Ken said - lets put this one to bed unless Charleston has any more to add.

Best regards

Mike Testro.
Samer Zawaydeh
User offline. Last seen 2 years 6 weeks ago. Offline
Joined: 3 Aug 2008
Posts: 1664
Hi,

The Force Majeure requirements under FIDIC contracts have conditions. But you need to check on the civil law in the Country where you reside and what it allows if the contract is general.

Depending on the size of the project and how much finances you have to pursue such courses of action and emerge a winner you can decide what to do.

Best,

Samer
A D
User offline. Last seen 22 weeks 4 days ago. Offline
Joined: 20 May 2007
Posts: 1027
Wikipedia says,

Force Majeure (French for "superior force") is a common clause in contracts which essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties, such as a war, strike, riot, crime, or "act of God" (e.g., flooding, earthquake, volcano), prevents one or both parties from fulfilling their obligations under the contract. However, force majeure is not intended to excuse negligence or other malfeasance of a party, as where non-performance is caused by the usual and natural consequences of external forces (e.g., predicted rain stops an outdoor event), or where the intervening circumstances are specifically contemplated.

Considering the terminology stated above, is recession not a war type situation which cant be controlled by either party and nor any party is aware of weeks before!!

??
Mike Testro
User offline. Last seen 20 weeks 5 days ago. Offline
Joined: 14 Dec 2005
Posts: 4407
Hi All

Just one little word.

In Baghdad in the late 80’s we presented a claim for hail storm damage to freshly laid external terrazzo.

The Government representative heard our case with sympathy then stated "This was not an act of God - Allah is always good - this was an act of Satan"

That contingency was not in the contract so we did not pursue the claim.

Since then I have seen contract amenments to allow for Acts of God or the Common Enemy.

Best regards

Mike Testro
Ken Sadler
User offline. Last seen 23 weeks 2 days ago. Offline
Joined: 14 Jul 2008
Posts: 71
Groups: None
Lets put this one to bed - economic woes are NOT force majeure!

Recession is caused by man (more specifically this time round bankers!!) It is not an act of God.

It matters not whether the event affects both parties equally, unequally or at all.

Force majeure events are forces of nature or other natural events which are outside the control of the parties and which could not have been forseen at the time the contract was formed.

Examples being flood, lighting strikes, storms, earthquakes etc.

Specifically not acts of God (by virtue they are man-made): strikes, wars, lock-outs, insolvency, and economic hardship.

Some contracts allow the parties to rely on "difficulties in securing materials, labour or plant to carry out the works", so for example if a quarry closes down because of recession and therefore stone is no longer available locally, then that might be a compensation event but it is NOT forece majeure.

OK?
A D
User offline. Last seen 22 weeks 4 days ago. Offline
Joined: 20 May 2007
Posts: 1027
Thats what it happens in economic recession.... everyones get affected... But may be some lawyer/contract specialist can help us to find out weather it comes under force meajure or not?
Samer Zawaydeh
User offline. Last seen 2 years 6 weeks ago. Offline
Joined: 3 Aug 2008
Posts: 1664
Dear Ravi,

If both side are getting hurt because of an event, then it makes common sense to agree on the consequences of this event without any delay damages to both sides.

Best Regards,

Samer
A D
User offline. Last seen 22 weeks 4 days ago. Offline
Joined: 20 May 2007
Posts: 1027
Hi Ken,

it must be from both sides.

Even for a employer, he has plots / flats to sell and need to be paid to the contractor.....

I m working from a master developer side and plot developers r getting default giving excuse of economic recession and so, we cant pay to our contractors and so, passing the same reason to contractors....

need some lawyer advise here definitely

Samer Zawaydeh
User offline. Last seen 2 years 6 weeks ago. Offline
Joined: 3 Aug 2008
Posts: 1664
Dear Charleston.

If you need to use the FIDIC clause, then you will need to make sure that all the 4 conditions in Clause 19.1 apply to your case.

From experience, I would tell you that it does not apply outside the boundaries of the country where the project is being executed. In your case, you have plenty of examples around you to use if you want.

If you need to use it, then you should give notice as soon as it arise per clause 19.2 and your duty is to minimize the delay per clause 19.3.

Follow your contract clauses and use it if you need to.

Good luck,

Samer
Mike Testro
User offline. Last seen 20 weeks 5 days ago. Offline
Joined: 14 Dec 2005
Posts: 4407
Hi Charleston

For people of our generation we have been through more than one economic depression - they go in cycles.

If because of the economic circumstances the client runs out of money then there are contract clauses to deal with that circumstance - as with if the contractor goes bust.

So force majeure will not apply.

Best regards

Mike Testro
Ken Sadler
User offline. Last seen 23 weeks 2 days ago. Offline
Joined: 14 Jul 2008
Posts: 71
Groups: None

Hi Charleston

"an example of the force majeure delays inlcude extraordiary economic disruption"

What is your authority for this statement - is it part of a conract clause that you are quoting from?

Ken