Updated: May 24, 2020
After contracts are fully executed, they are often filed away and forgotten. Now, COVID-19 is making some contract agreements impossible to fulfill and attorneys are being asked to review all contracts for force majeure clauses. Reviewing for clauses can be a tedious task, especially since many organizations have thousands of contracts with differently worded clauses. So, how can attorneys efficiently get through all these clauses to ensure they are complaint?
What is Force Majeure?
A force majeure event is one that a party cannot control. Most often, this refers to an “Act of God” (like an earthquake or hurricane) or something rare, like a nuclear catastrophe. Other examples include war, terrorist attacks, nationwide blackouts, workforce strikes, and medical crises. Many contracts, ranging from real estate leases to sales agreements, will have a force majeure clause included to determine how to handle performance interruptions that these events will inevitably cause.
When Does Force Majeure Apply?
Unfortunately, each contract clause is unique. Analyzing these clauses must be on a contract-by-contract basis. Each contract is specifically negotiated to take into account a specific set of objectives, different obligations that may be affected in different ways, and each jurisdiction’s different applicable laws. While the concept of an ‘excuse from performance of contractual obligations due to unexpected events’ is common in many jurisdictions, there are differences in scope and operation. Businesses may need to be alerted to these differences in laws, in addition to carefully tracking the noticing time that must be given, when a force majeure event is triggered.
Using AI to review Force Majeure clauses
AI can help with every area of business and can be used to identify force majeure clauses. Businesses everywhere are feeling the effects of COVID-19 and trying to scrape together a response plan to deal with delays and reductions in their workforce. The resulting crisis has already affected performance under many contracts and could have lasting effects. Now is the time for organizations to have a detailed picture of what their force majeure clauses say and know the subsequent obligations. Businesses should explore how AI solutions can help with their current and future needs when it comes to streamlining the process of clausal review.
Contract analysis software with AI capability that combines technology with expert human reviewers offers the best results. In the case of force majeure clauses, a user can set the search parameters and the contract analytics software can quickly analyze contracts to determine if they contain force majeure clauses. Then, it will pinpoint variances between the contracts and extract key data. It can even use other terms besides “force majeure” that apply to unforeseen events and would be regarded as a force majeure clause even without the explicit language. For example, the contract review software can pull out data that would support invoking the clause to excuse performance during the current COVID-19 pandemic.
It could also identify all applicable noticing procedures, which is important because notice to certain parties regarding the event is a pre-requisite to relying on the clause. With these items highlighted by the AI software, human analysts can then swiftly view the information and identify the next steps for each contract. After the human analysis, the AI contract review software will then generate an organized report for business leaders and legal teams to identify all pertinent factors. Leaders can review these abstracts and create a business strategy on how to handle a force majeure event.
Three benefits of using AI in contract review
The benefits of using contract analytics to assist with managing an organization’s force majeure clauses are numerous and include:
Quick identification of processes and response times, allowing more time for strategy-driven and risk assessment tasks as opposed to manual review;
The ability to identify contracts without force majeure clauses so that they can be handled differently;
The ability to identify variances or clauses that are lacking in adequate protection;
All of this supports the use of AI software for assisting with force majeure response efforts. It will save organizations time and money as well as allow them to spend their time assessing risk, negotiating contracts, mitigating damages, creating a response plan, and getting business operations back up and running.
For more information, please contact:
Caroline Woodman, Senior Vice President and Managing Director, Asia, Epiq
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