Drafting and Interpreting FORCE MAJUERE in Construction Contracts

In under a decade, Nepal’s infrastructure sector has lived through three very different disruptions: the 2015 earthquake, Covid 19 pandemic, and this year’s devastating monsoon flooding. Each one disrupted projects and sent parties back to their contracts asking the same question: who pays for this? From a force majeure standpoint, these are not interchangeable events. A geological shock, a government-ordered shutdown and a flood can be treated very differently by the same clause, and none of the three automatically counts as a force majeure event in law. That depends on what the contract says, worked out long before the ground shakes, a lockdown is announced, or the water rises.

A contractual question, not an instinctive one

Force majeure lives in the contract, not in how extraordinary an event feels. To claim relief, a party usually has to show the event was beyond its control, could not reasonably have been prevented, was not its own fault, and actually stopped or delayed the work. 

Earthquakes are a physical peril. Nepal sits on an active seismic belt, so contracts may set a threshold by magnitude or intensity, meaning a minor tremor a contractor should have designed for does not trigger relief. It is usually easy to show what caused the damage: the shaking either affected the works or it did not.

Covid 19 was a different animal. Delay came less from the virus itself than from the government response, lockdowns, travel bans and quarantine rules. Proving the cause was the hardest fought issue: was work really stopped by these measures, or by a labour/materials shortage that would have happened anyway? The event also had no clear end date, so parties had to keep reassessing rather than filing one notice and moving on.

Flooding is a physical peril too but its threshold concerns rainfall and river levels. The contract may prescribe a further test by qualifying how rare it is. For example, if the contract includes ‘10-year flood’ as a requirement before qualifying as a force majeure event, that means there is only a 10% chance of that water level being reached in any given year. Ordinary seasonal flooding, which a contractor is expected to have budgeted for, usually will not meet that bar.

It also matters to separate the event from its consequences. A flood may last hours; an earthquake, seconds. The effects, reinstating roads, assessing damage, replacing equipment, can last months or years, as Nepal’s post-2015 reconstruction showed. Good drafting addresses both: how long the event lasted, and how long its effects genuinely stopped work.

Relief is targeted, not automatic

A common misconception is that force majeure suspends the whole contract. Relief is usually granted only to the extent the event actually stops or delays a specific obligation, and the affected party still has to show how the force majeure event and the delay are linked. Contracts also separate three outcomes: being excused from delay or liability, getting time extension and being paid costs. One category of event may allow extra time while another category may allow recovery of both time and cost. The real question is not only ‘is this force majeure?’ but ‘what did the parties agree should follow once it is?’

Keeping the project’s contracts aligned

This matters most on large infrastructure projects with several linked agreements, since each may treat the same event differently. If the contractor gets a six-month extension but the project company can only recover four months from the government or buyer, it is exposed for the gap, and the same mismatch can arise on cost. Project-financed contracts often manage this by directly linking the contractor’s entitlement to whatever relief is obtained further up the chain.

Force majeure lives in the contract, not in how extraordinary an event feels. To claim relief, a party usually has to show the event was beyond its control, could not reasonably have been prevented, was not its own fault, and actually stopped or delayed the work.

Insurance should sit alongside the clause

A force majeure clause decides who bears a cost but insurance decides who actually pays it. Businesses should review their cover, Contractors’ All Risks (CAR) for physical damage, business interruption for the knock-on loss, alongside the FM clause, not after a loss happens. Worth checking in advance: whether the policy’s reporting deadlines and its definition of a qualifying flood or earthquake match the contract, since a mismatch can mean losing cover or relief just when it is needed most.

Notice and mitigation are part of the bargain

Force majeure clauses typically require detailed notice: an initial notice, then updates on how long the event will likely last and what is being done to remedy the effects. Recent English case law draws a clear line: where a contract plainly says missing a notice deadline forfeits relief, courts will enforce that. However, the English courts do not assume every reporting duty carries that consequence unless clearly stated in the contract. The drafting lesson here is to state plainly what happens if a notice deadline is missed.

An affected party cannot simply wait for conditions to improve. Affected parties are usually expected to take reasonable steps to reduce the damage and get the works back on track by protecting the site, sourcing replacement equipment, or claiming insurance. Identical events can turn out very differently depending on how notice and mitigation obligations are handled, so the response should be documented as carefully as the disruption itself.

From delay to restoration, and who else is in the room

A major disaster raises the question ordinary delay clauses rarely answer well: what happens once the works are seriously damaged? The issue is no longer just extra time; it is whether, and how, the project gets rebuilt. The restoration plan may involve calling for a technical investigation to determine whether rebuilding still makes sense and a considered decision on whether to proceed, a process Nepal’s hydropower sector went through after 2015 and will likely repeat now. Rebuilding is not automatically the right answer: damage, insurance, time left on the project and future economics all factor in. A restoration process that has been agreed in advance gives everyone a framework for that decision rather than negotiating one under pressure.

Lenders have a stake too. Having put money in against future cash flows, a force majeure event hits their financing as much as the employer and contractor, which is why the project development agreement may often give lenders real say over restoration plans and termination. In practice, a major force majeure event rarely stays within the construction contract alone; the government, employer, contractor, insurers and lenders are usually all involved.

Some events make continuing genuinely impossible or commercially unrealistic. Project agreements commonly allow termination once effects drag on beyond a set period as a final step, after notice, mitigation and a considered look at restoration.

What the law says about force majeure

Most of Nepal’s large infrastructure is delivered as public works. Public procurement in Nepal is governed by the Public Procurement Act, 2007 (Act) and Public Procurement Rules, 2007 (Rules). The Act lists ‘circumstances beyond control (force majeure)’ as one of the terms procurement contracts should cover, naming it in English alongside the Nepali. The Act also foresees force majeure as one of the grounds for extension of time and for termination of the contract. But the Act does not define what constitutes force majeure, that is left to the contract.

Contractors are subject to a broad insurance obligation under the Rules. Unless the procurement contract provides otherwise, the Rules require contractors to insure infrastructure projects valued above Rs 2,000,000. This obligation runs from the date the site possession is handed over to the contractor until the taking over certificate is issued, and it requires cover for all losses arising from any cause, subject to a limited set of exclusions including: war, hostility or invasion; rebellion, revolution, insurrection, military rule or civil war; and radiation. Insurance specific to other force majeure events would need to be agreed separately between the parties.

Private works are not covered by the Public Procurement Act or Rules discussed above. For those, Nepal’s general contract law under the National Civil Code, 2017 is the relevant framework. The Civil Code excuses performance where there has been a ‘fundamental change in circumstances’, including war, flood, landslide, fire, earthquake and volcanic eruption. In such cases, prior payments must be refunded, outstanding payment obligations may fall away and each side must account for work already done or sums already paid. Mere difficulty, reduced profit or loss, a third party’s fault, strike or lockout, and new tax or duty are expressly excluded. Although the contract law covers what has already changed hands, it offers no extension of time and no clear mechanism for allocating the cost of restoration. Therefore, a clear well drafted force majeure clause remains essential.

A case for better public data

One practical gap in Nepal is the lack of public records of how force majeure events have been handled on past projects: what qualified, what relief followed, how disputes were resolved. Government bodies and regulators could close that gap by publishing anonymised summaries of past decisions on public infrastructure and PPP projects. Even a modest dataset would give contractors, employers, insurers and lenders a real benchmark to negotiate against, and would likely cut both the number and cost of disputes.

Conclusion

Nepal’s construction sector has tested its force majeure clauses against a devastating earthquake, global pandemic and severe flooding within a single decade, and each has demanded a different reading of the same words. Businesses should go beyond agreeing which events belong on the list and ask: does the clause tell physical perils apart from government-driven ones; who bears the time and cost consequences of each; and does the insurance actually match the clause.

No contract clause can prevent a flood, an earthquake, or a pandemic. What a well-drafted force majeure clause, backed by appropriate insurance, can do is allocate risk in advance and provide a clear framework for getting a project back on track when disruption occurs. Better public data on past events would make that planning more effective for all stakeholders. In major infrastructure projects, that clarity can help reduce disputes, improve bankability and support more resilient long-term investment.