For the past two years, public procurement contractors have been forced to invoke force majeure to protect themselves from liability for delays in performance of contracts. We thought everything had been written about force majeure, but the war in Ukraine requires the invocation of force majeure in a different context.
Our social and economic reality requires continuous crisis management. After two years of pandemic, contracting authorities seem to have assumed that contractors have become immune to the negative effects of successive waves of increased infections, but the effects of war were not calculated by anyone into their bid price.
Overnight, the outbreak of war in Ukraine changed not only the reality of people in the combat zone. Ukrainians residing abroad rushed to save their homeland, abandoning their previous occupations. Rightly and obviously, many of them left their jobs in Poland. However, their decision has had an impact on the possibility of uninterrupted performance of the contracts in which they were involved.
In turn, some companies have lost the ability to use Ukrainian subcontractors, Ukrainian supplies, or goods distributed from that direction. Or the goods they need have been bought as humanitarian aid, or their Polish employees have gotten so involved in helping Ukraine that their productivity has dropped.
Finally, there are those executing contracts with a Russian element. The fight is not going on there, but the ongoing war and the sanctions imposed on Russia may interfere with performance of those contracts. Indeed, the impact of the war on the possibility of uninterrupted performance of contracts may be felt even by those whose contract at first sight has no connection with any of the countries actively involved in the war.
The situation is changing dynamically and dramatically, meaning that the impact of the war in Ukraine on ongoing contracts, including public contracts, may be increasingly severe. How this impact translates into the contractor’s liability under a public contract will be a question of factual circumstances, but also of the terms of the contract.
What is force majeure?
The notion of force majeure is not defined in the Polish regulations, but commercial practice has developed a definition which is replicated in most contracts concluded under the regime of the Public Procurement Law.
There is usually little doubt that war is a case of force majeure. Most often, it also covers military operations in general, invasion, terrorism, mobilisation and embargoes. What is currently happening in Ukraine falls into this category, that much is clear. It is an event that is:
- Impossible (or nearly impossible) to foresee, and
- The effects of which cannot be prevented.
Is war force majeure only on the battleground?
For an event to qualify as force majeure, it must affect performance of the contract. It does not matter where it occurs.
As a result of globalisation of economic relations and contracts, the performance of a public contract under Polish law, within the territory of Poland, is influenced by circumstances taking place outside Poland’s borders and exposed to the effects of military actions undertaken in the territory of Ukraine.
If the war is ongoing in Ukraine, it could constitute force majeure in Poland if it disrupts the performance of a Polish contract. For example, if a contractor is hindered by a sudden outflow of manpower, a sudden increase in the cost of fuel and other key raw materials, or a sudden shortage of certain raw materials or goods due to the ongoing situation in Ukraine, it may invoke the force majeure clause.
But force majeure caused by the war in Ukraine may affect contractors carrying out contracts in Poland also in the territory of other states, if the supplies come from there or elements of the contract are performed there. If due to restrictions imposed on Russia it is not possible to make deliveries at the moment, then such a situation is force majeure and results from the war.
When does force majeure occur?
Force majeure occurs at the moment when the impact of a given event on contract performance begins. This is relevant in the context of the deadlines specified in contracts for force majeure notifications, which often refer to waiver of the right to invoke force majeure if the notification is not submitted on time.
We would point out that as in the case of the pandemic, obtaining certification confirming the occurrence of force majeure in Ukraine is neither necessary nor sufficient for successful invocation of force majeure.
Why invoke force majeure?
If the contract provides for liability rules, including contractual penalties for failure to complete works, services or supplies on time, a contractor that fails to perform its obligations as a result of disruptions related to the war in Ukraine will be able to evade such liability on the grounds of lack of fault.
However, the contractor must demonstrate the effect of the war on the inability to perform or on the due or full performance of contractual obligations. The obstruction in performance of the contract must have its origin in force majeure and not in the contractor’s own failures.
Invoking the force majeure clause by parties to the contract allows them to free themselves from liability for the consequences of disruptions resulting from the impact of the war in Ukraine, i.e. to avoid contractual penalties and damages on that account.
If the contract does not include provisions relating to force majeure, it should be remembered that under Art. 471 of the Polish Civil Code, the obligor must compensate the obligee for the damage resulting from failure to perform the obligation, or improper performance of the obligation, unless the failure or improper performance is a consequence of circumstances for which the obligor is not responsible. Therefore, force majeure may be invoked as a circumstance excluding the obligor’s liability even when the contract does not expressly use the concept of force majeure.
Adjustment of the contract
In addition to the possibility of exemption from liability for non-performance of the contract, force majeure such as war in Ukraine will in many cases require adjustment of implementation of the contract to reflect new socio-economic circumstances. This may mean the necessity to resort to contractual clauses and legal provisions allowing the contract to be amended due to unforeseen circumstances. In this regard, the parties must agree.
In the case of the pandemic, the method for adjustment of contracts was laid out in the Covid Special Act, but an act of that sort is unlikely to be seen in this case. Although Art. 15r of that act does not apply to the war in Ukraine, the rationale behind it may offer valuable guidance on how contracting authorities should proceed with respect to the need to amend public contracts accordingly.
In this case, the contractual right of withdrawal from a contract due to prolonged operation of force majeure is not excluded. As a result, it is in the public interest to proceed with these changes quickly, so that public contracts can be performed despite obstacles.
Mirella Lechna-Marchewka, attorney-at-law, Anna Prigan, attorney-at-law, Infrastructure, Transport, Public Procurement & PPP practice, Wardyński & Partners