Legal – Is a wall Force Majeure?
HOUSTON – That is the strange question a client asked me recently in the midst of a protracted contract negotiation. At first, I was perplexed, and then I realized, after additional follow up questions, that he was referring to the proposed US-Mexico border wall. First, let me say that this is not a political article or opinion. My intent is to inform contractors on the potential impact on labor, and language in construction contracts that impact any potential relief.
A common construction industry headline or seminar topic over the past few years has centered on the seemingly persistent issue of a labor shortage in the construction industry. During her congressional testimony on Feb. 15, Federal Reserve Chair Janet Yellen stated that labor-force growth has been slowing in the United States and that immigration has been a source of labor-force growth.
Both sides of the political spectrum can agree that immigrants, whether legal or not, make up a large portion of the lower-skilled construction industry labor force. Some estimates state that as much as 50% of immigrants work in the construction industry, and of that portion, 20% are unauthorized workers.
With that said, back to the question of whether the impact of a border wall might be a force majeure or relief from performing contractual duties under Texas law. First, what is a force majeure? The most basic form of a force majeure clause allows a party’s performance to be excused if it is prevented or delayed by reasons not within the reasonable control of the party claiming excuse and which were not foreseeable at the time of contracting.
Texas law will not imply terms or conditions for force majeure events. It is controlled by the language in the contract. In Texas, absent a force majeure clause, the obligation to perform is absolute and cannot be excused even though performance may be impossible due to causes beyond the party’s control.
In most contracts that I review and negotiate, only labor strikes or disputes are sometimes (not always) listed as a force majeure. However, a party could draft a provision that allows its performance to be excused if it simply becomes uneconomical, unprofitable or perhaps merely less profitable to perform such as the case in the event of an extreme labor shortage. Although most force majeure clauses are drafted to specifically exclude financial or economic reasons for nonperformance, a party with superior bargaining power might be successful in negotiating such a favorable provision.
Overall, there is not much research as to the potential impact of a border wall on the Texas construction industry, as of yet, however most industry experts agree that reducing the immigrant work force will increase costs and potentially delay construction projects.
So, in general, the answer is no, the impact to the construction industry due to the proposed border wall will not permit relief under Texas law, whether it be extended time to perform or increased costs due to replacing lower-skill unauthorized workers with higher-skilled, higher-cost, authorized workers.
In addition, under most construction contract language, if there are delays on the project, the owner or the general contractor has the contractual right to accelerate the work at the contractor’s (or subcontractor’s) cost absent specific contractual relief. If there is a well-drafted force majeure or other clause that can be drafted in to the contract, then it is possible to get relief.
The force majeure clause is often deemed “boilerplate” and not carefully reviewed (unless you are a lawyer, of course). The lesson is that in a jurisdiction that allows parties to exercise the maximum freedom of contract in crafting a force majeure clause, like Texas, it is unwise to rely on boilerplate or fail to actively negotiate the force majeure clause or the contract as a whole in order to address potential risks.
Mike Cortez’s practice is focused on construction related transactions, including large complex energy procurement and construction projects, design and construction contracts, project risk management and lien and bond claims. Mike has significant experience representing clients in drafting and negotiating complex construction contracts under multiple project delivery systems. He graduated from Southern Methodist University Dedman School of Law, and Texas A&M University. He can be reached at email@example.com.
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