As the recovery effort continues after Hurricane Harvey and Hurricane Irma, some manufacturers are starting to deal with supply chain slowdowns or shortages. The most widely reported issue that impacts both manufacturers and consumers is the shortage of fuel. However, these natural disasters have also impacted suppliers that operate in these areas.
For those manufacturers impacted by these shortages or slowdowns, here are some things to pay attention to going forward:
- Nearly all commercial contracts have a “force majeure” clause, which is typically what a supplier will cite if they cannot deliver product on time. These clauses often refer to natural disasters, acts of God, and other events that excuse non-performance for a period of time.
- Under most state law, the triggering event must have been beyond the party’s control and not due to any fault or negligence by the non-performing party.
- If a supplier claims “force majeure,” it typically has the burden of not only establishing that a “force majeure” event took place, but whether it did anything to mitigate the impact of the shortage. So, if one of your suppliers has sent you a letter stating as much, you should ask for evidence on these points.
- Typically, if a force majeure event occurs, a supplier cannot favor one customer over another. Instead, the supplier must allocate production and deliveries among its customers. Although I am sure many in the manufacturing world would say this is unrealistic to expect, a well-documented response (sometimes by legal counsel) can aid in these efforts.
- Finally, one common issue that manufacturers often consider is whether they can “set-off” (i.e., refuse to pay outstanding invoices while the force majeure event is in effect). State law on the right to setoff can be all over the map so we typically urge our clients to do an analysis before engaging in any self-help.