Volcanoes, force majeure and business continuity

As a follow-up to Douglas’s post yesterday on Force majeure and Icelandic volcanoes, I thought I would add some additional comments.

I am aware of one incident involving a supplier claiming relief for a force majeure event. This followed a fire, which destroyed the supplier’s premises. Despite the supplier having an obligation to have in place a business continuity plan, the supplier claimed that the right of relief for the force majeure event (the fire) trumped its failure to have in place appropriate fire prevention systems, and therefore it was not liable to the losses incurred by the customer as a consequence of the fire. It is for this reason that it is crucial that you consider the interaction between a supplier’s obligations to have in place business continuity and disaster recovery procedures, and the relief that it is entitled to in the event of a force majeure event. This requires a careful review of the drafting of these clauses.

Following on from this, Douglas and I were discussing the potential impact of the erruption of the Eyjafjallajoekull volcano*. The prolonged closure of civil aviation space is likely to impact mainly upon the physical movement of goods, rather than people or information (data can be sent electronically, and people can video or tele-conference). For example, if your supplier has a service level obligation to replace a defective component within 48 hours, but is unable to meet that because it cannot get the replacement component flown over from the manufacturer in the USA, is that force majeure? Possibly yes.

It is for this reason that it is important that you properly scrutinise your supplier’s business continuity plans, and ensure that the supplier’s plan is sufficient and proportionate for the service you require (bearing in mind that if you don’t identify a deficiency until the plan is implemented, then there won’t be much you can do about it – at least in the short term).

For example, should you be requiring your suppliers to maintain a local (within driving distance) parts bin to guard against supply-chain problems? If your supplier otherwise proposes a just-in-time approach, and the supported system is business critical, then this may well be prudent to specify this.

*For those of you wondering how you pronounce “Eyjafjallajoekull”, the New York Times has a useful summary. My favourite tip is that is sounds like “Hey ya fergot la yoghurt”.

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