Force Majeure in Indian Contracts

Force majeure is a contract clause that suspends the obligations of both parties, the contractor and the government, when an extraordinary event makes performance impossible or impractical through no fault of either party. In Indian government works contracts, force majeure clauses are standard but narrowly interpreted, and successfully invoking one requires careful documentation and prompt notification.

What is Force Majeure in Indian Contracts in government procurement?

The legal foundation for force majeure in India is Section 56 of the Indian Contract Act, 1872, which provides that a contract becomes void when performance becomes impossible due to an act of God or a supervening event. However, the courts have interpreted this narrowly, commercial difficulty or increased cost alone does not constitute impossibility. The contract must contain an explicit force majeure clause defining the covered events, because the statutory defence under Section 56 is even harder to establish than a contractual clause.

Standard CPWD GCC and NHAI concession agreements define force majeure events to include: natural disasters (floods, earthquakes, cyclones, lightning), war and acts of terrorism, civil commotion or insurrection, government-imposed quarantine or lockdown, and epidemics declared by a competent government authority. Some contracts also include "change in law" as a force majeure-like relief event, separately defined.

To invoke force majeure, the contractor must: give written notice to the department within the specified time limit after the event begins (typically 7-14 days in CPWD contracts, 14-21 days in NHAI contracts), describe the event and its impact on the work, quantify the delay to the extent possible, and continue to mitigate the impact as much as practicable. The contractor must resume work as soon as the force majeure event subsides.

The consequence of a valid force majeure claim is generally extension of time only, not compensation for losses caused by the event. NHAI concession agreements are somewhat more generous, they may provide for cost sharing for prolonged force majeure events beyond 180 days. CPWD contracts typically restrict relief to EOT with no additional payment.

COVID-19 presented the most significant force majeure test in recent memory. The Ministry of Finance and the Department of Expenditure issued an Office Memorandum in February 2020 and multiple subsequent circulars confirming that COVID-19 constitutes a natural calamity under the force majeure clause for central government contracts. This protected contractors from LDs during lockdown periods if they had given proper notice.

Why it matters for bidders

Bidders must read the force majeure clause in each NIT carefully, the events listed, the notice period, and the consequences (EOT only vs. EOT plus cost relief). On long-duration contracts of three years or more, force majeure risk, wars, natural disasters, epidemics, is real and should influence the contingency loading in bid prices.

Failing to give notice in time is the most common way contractors lose their force majeure protection. An event that clearly qualifies as force majeure can still result in LD liability if the contractor did not send the required notice within the contractual window. Bid teams should establish a protocol for monitoring and notifying force majeure events on all active contracts.

For PPP contracts (HAM, BOT), force majeure clauses distinguish between political force majeure (which may entitle the concessionaire to compensation) and natural force majeure (which provides only EOT). Political force majeure includes government actions that make the project unviable, change in law affecting revenue, currency restrictions, or government-imposed embargoes. This distinction is important for concessionaires financing projects through project finance where lenders require certainty of debt service.

Example

A bridge contractor in Assam faces unprecedented flooding that submerges the construction site for 11 weeks in 2023. The contractor sends notice within 7 days of the flood reaching the site, documents the event with photographs, meteorological department certificates of unprecedented rainfall, and gazette notifications. The department accepts the force majeure claim and grants an 11-week EOT. No Liquidated Damages are charged for that period. The contractor bears their own overhead and equipment idle costs during the flood, no additional payment is made, but is protected from LD deductions that would otherwise amount to Rs 1.2 crore.

Key rules / thresholds

The notice period is strictly enforced. Under NHAI Model Concession Agreement, notice must be given within 14 days of the force majeure event beginning. Under CPWD GCC 2022, notice must be given "forthwith", courts have interpreted this as within 7 days. Extended force majeure beyond 180 days in NHAI contracts can trigger termination rights for either party, with compensation calculated under the concession agreement's termination payment provisions.