Force Majeure in essential Swedish IT contracts
Due to the rapid spread of the Corona virus/Covid-19 in the community, many companies and organizations have initiated measures to control the spread of the virus. In several cases, preventive measures have been taken to the effect that staff who have been in high risk areas or who have been in contact with such persons have been quarantined at home. In a worse scenario, the virus may spread in such a way that contracted IT-services cannot be performed due to large groups of staff becoming infected and on sick leave.
In today's information society, it is of great importance that IT- and communication systems can be supported and maintained. Many such systems are indeed defined as critical infrastructure to society. It is equally important that IT-related services can continue to be provided. The consequences of a widespread Corona virus may, in the worst case, lead to IT-systems no longer being maintained or supported and consultants unable to appear before the contractors for supervision and remedying of deficiencies incurred in e.g. a business-critical computer system. Time plans for delivery or implementation of critical new computer systems will not be able to be met and cloud services and data centers may be standing without proper support and maintenance. IT- and telecom services are largely dependent on staff being present either in their own organizations or with their customers.
Service providers will most likely find themselves in situations where contracts terms will not be met. The consequence of not being able to maintain contractual terms may entail the obligation of penalty payment or damages on the part of the provider and, in the worst case, the right of the contractor to terminate a contract prematurely due to material breach (cancellation). It is in the light of these consequences that many agreements contain provisions on exemption basis or “force majeure”.
In the wake of the outbreak of Covid-19, we have reviewed the existence of exemption clauses in the most essential Swedish IT contracts; Kammarkollegiet's framework contracts, IT&Telekomföretagen/Almega’s standard contracts and Region Stockholm’s typical IT contracts.
The following is a brief review of the contractual provisions of these agreements.
Kammarkollegiet's framework contracts:
- Allmänna villkor IT-konsulttjänster Resurskonsulter
- Allmänna villkor IT DRIFT 2016
- Allmänna villkor Systemutveckling, Programvaror & tjänster
- Allmänna villkor Datacenter
- Allmänna villkor Kommunikationstjänster inom tele- och datakom and
- Ramavtal avseende Upphandlingen Bemanningstjänster.
The contracts contain provisions on basis of exemption or "force majeure". Although they are not identically drafted, they essentially contain the same contractual content. In simple terms, a service provider may rely on an exemption basis for circumstances beyond the provider’s control which the provider could not reasonably have expected to have envisaged at the time of conclusion of the contract. Kammarkollegiet's contracts does not list any examples of circumstances which can be presumed as an exemption basis, but instead states consistently the it shall regard “circumstances" beyond the provider’s control. Our assessment from our review of the contracts is that a pandemic outbreak affecting a service provider is a circumstance that could not reasonably have been expected and can therefore be relied upon as a basis for exemption. Most of the agreements also contain provisions on hindrances in the supply chain, e.g. where a subcontractor or other supplier can invoke obstacles due to the Corona outbreak as basis of exemption.
The effect of a valid exemption basis is that the provider is released from liability for penalties and damages under the contract and may postpone its contractual undertakings up to 90 days. Following such a 90-days period, the contractor may terminate the contract and withdraw from the contract without liability.
An important condition which must be fulfilled in order for the provider to be able to rely on a basis of exemption is that the provider notifies the purchaser of an exemption-based circumstance that has occurred. Here, the contracts indicate different degrees of urgency as to when the notification should take place. Some of the contracts state that notification should be made immediately, while some indicate that it should be done promptly or within a reasonable time. In some of the contracts, the time must be counted from the time the provider becomes aware of the circumstance, whereas in other contracts the time is to be counted from the time the provider should have become aware of the circumstance. In the current circumstances and knowledge of the effects of the outbreak of Covid-19, it is necessary for the providers concerned to consider whether there already now are circumstances that could lead to exemption under the agreements. Should this be the case, it is time to notify the contractor.
- Avtal 90
- Agila Projekt and
The contracts contain mutual provisions on basis of exemption or “force majeure”. Some of the agreements contain the basis for exemption under their own heading “Force Majeure” and in others they are found under the heading “Limitation of Liability”. Although they are not identically drafted, they contain essentially the same contractual content. In simple terms, a party, i.e. either of the provider or the contractor, may rely on the basis of exemption for a circumstance beyond the control of the party. There are no other qualifications, but a number of examples are given that do not have direct applicability to a pandemic outbreak. Notwithstanding the fact that a pandemic outbreak is not mentioned among the examples, in our opinion, the outbreak of the Corona virus if affecting a party must fall into the definition of a circumstance beyond the control of a party.
The effect of a valid exemption basis is that the time of the performance of a party’s contractual undertakings are postponed to a later date with exemption from liability for penalties and damages. Some of the contracts contain provisions for a reduction of the customer's ongoing obligation for payment of fees and other charges. If a contractual term is prevented for more than 30 days (IT-Underhåll), two months (Agila Projekt) or for the other contracts three months, the counterparty has the right to withdraw from the contract without liability. The contracts do not contain any specific requirements for notification to the counterparty of the existence of a basis of exemption.
Example IT contracts Region Stockholm (formerly Stockholm Läns Landsting):
Region Stockholm's IT-contracts differ in most cases from the above mentioned contracts. Notwithstanding the fact that they contain provisions on exemption basis, there is a specific exception for “Epidemi mode 3”, which covers influensa pandemics or equivalent emergency situations indicating that such a circumstance is not covered by the exemption basis in the contract!