Drafting Force Majeure Clauses for Services Agreements

Force majeure clauses are often overlooked until they're needed. Recent events like the COVID-19 pandemic highlight their importance in contracts, even for SaaS companies, which can be impacted by government actions and issues with service providers.

The International Chamber of Commerce (ICC) offers standard model clauses that companies can use as a reference.¹ While some companies may draft their own clauses, these models provide a safe template.

In this article, we reviewed and analyzed the force majeure clauses in master service agreements from 22 top SaaS vendors. Our goal is to identify key elements and offer guidelines for drafting effective force majeure clauses.

What are force majeure clauses?

Generally, contracts should be fulfilled without interruption. However, force majeure events are unforeseen circumstances that prevent parties from meeting their obligations. Force majeure clauses allocate risks and specify the consequences of such events They offer protection to parties who otherwise would find it unreasonably difficult or challenging to fulfil their contractual obligations. Therefore, vendors and customers must negotiate the force majeure clause to manage this risk effectively.

Key Elements of a Force Majeure Clause

A force majeure clause should contain the following elements:

1. A disclaimer of liability
2. A non-exhaustive definition of a force majeure event
3. An exception for payment obligations

They may also, but do not have to, contain the following elements:

4. Notice of force majeure event
5. Duty to take reasonable efforts to mitigate against the force majeure event
6. Termination and refund obligations

Sample clauses

We set out below our example of a comprehensive force majeure clause that can be used in a SaaS services agreement incorporating all of the above elements:

Exclusion of Liability, Definition of FM Event, Payment Obligations Exception: “Neither party shall be liable for any failure or delay in performing its obligations under this Agreement (except for the obligation to pay fees) if such failure or delay is caused by any event beyond the reasonable control of the affected party ("Force Majeure Event"), which include, but are not limited to, acts of God, war, terrorism, pandemics, earthquakes, floods, fires, embargoes, riots, strikes, labor disputes, governmental actions, hacker attacks, or failure of the Internet or other utilities.”

Notice for Force Majeure Event, Duty to Mitigate: “The party affected by a Force Majeure Event shall promptly notify the other party in writing of the occurrence of the event and will use reasonable efforts to mitigate the effects and minimize any resulting delay in performance.”

Termination & Refund: “If the Force Majeure Event continues for more than [specified period, e.g., ninety (90) consecutive days], either party may terminate this Agreement upon written notice to the other party. In the event of termination due to a Force Majeure Event, any pre-paid but unused fees shall be refunded to the Customer on a pro-rata basis from the date the Force Majeure Event commenced.”

We break down each of the key elements below.

Guidelines to drafting a force majeure clause

1. Ensure the list of force majeure events is non-exhaustive

Most force majeure clauses define what constitutes a force majeure event (“FME”), typically listing examples of events beyond the parties' reasonable control.

As a vendor, ensure the definition of a FME is (1) non-exhaustive and (2) includes a catch-all provision.² Every agreement we reviewed included phrases like "including without limitation" or "including but not limited to."³ For the catch-all, commonly used phrases are "any cause/event beyond the parties' reasonable control." As a customer, you may want to limit a FME to a closed set of events, not anything beyond reasonable control.

2. Set out specific examples of force majeure events

Most agreements reviewed (90%) included specific examples of force majeure events. While some companies like Workday⁴ and Atlassian⁵ used broad definitions without specific examples, it is better to provide clear examples to avoid disputes about whether an event qualifies as force majeure. As previously mentioned, including a catch-all phrase or non-exhaustive language can cover any events unanticipated at the time of contracting.

Common force majeure events include acts of God, acts of war, natural disasters (earthquakes, floods), pandemics, government actions, social actions, and cyber or infrastructure events.⁶ At the end of this article, we provide a table of the most common specific force majeure events from top SaaS vendor contracts. Refer to this table when deciding which examples to include in your contracts. We particularly recommend that SaaS vendors include cyber or infrastructure-related examples, as disruptions in these areas can severely impact service provision and fulfillment of contractual obligations.

Although the definition of force majeure events can be placed in a separate section of the contract, usually under definitions, we recommend including it within the force majeure clause itself. This approach ensures the clause is comprehensive and easy to reference.⁷

3. Explicitly relieve parties of liability upon a force majeure event

All but two of the reviewed SaaS vendor contracts relieved the affected party from its performance obligations during a force majeure event.⁸ Most force majeure clauses relieved parties from liability for failure or delay due to events beyond their reasonable control. WorldCC suggests that liability should not be relieved unless the ability to perform is eliminated or materially impacted.⁹

About 27% of agreements included a qualifier, stating liability is relieved only to the extent the delay is caused by a force majeure event.¹⁰ However, 59% of SaaS vendor agreements did not add any qualifiers, simply stating, "neither party will be liable or responsible to the other party for any delay or failure to perform any obligation under this agreement if such failure or delay is caused by a force majeure event."¹¹ It is likely more favorable for the vendor to avoid adding qualifiers to the relief of liability for a force majeure event, although this ultimately depends on the risk allocation agreed upon by the parties.

4. Remove the exception for payment obligations

Vendors should include an exception for payment obligations in their force majeure clauses. Although not every company includes this exception,¹² this exclusion ensures that even if other obligations are suspended, fees must still be paid, maintaining revenue flow during a dispute. As a customer, the longer the time period of a force majeure event before a termination right of the contract, the longer the customer may be paying for services without receiving the benefit of such services.

These exclusions are typically drafted as exceptions in the limitation of liability, using phrases like "except for the failure to pay fees”,¹³ "except an obligation to pay fees/make payments for services received”,¹⁴ and "excluding customer’s failure to pay amounts owed when due."¹⁵ Canva and Benchling include this as a separate obligation.¹⁶

5. Include the duty to use reasonable efforts to mitigate a force majeure event

In our review, 32% of contracts included an explicit duty for the affected party to make commercial or reasonable efforts to mitigate a force majeure event.¹⁷ This duty benefits the customer more than the vendor because the non-affected party can remind the affected party of this obligation. Failure to mitigate could be considered a breach of contract. Many vendors avoid this explicit duty in their contracts, but there is often an implied or statutory duty to mitigate damages.

A sample clause could be: "The party affected by a force majeure event shall use reasonable efforts to mitigate its effects and minimize any resulting delay in performance." Most companies use the standard of “reasonable efforts”,¹⁸ although other qualifiers that could be used are “commercially reasonable efforts”,¹⁹ or stronger language such as “all reasonable actions.”²⁰

6. [Optional] Require notice of force majeure event for clear communication

Notice requirements for force majeure events are not common, with only 14% of reviewed contracts including them.²¹ However, affected parties typically provide notice to prevent breach of contract claims, as they will be excused from their obligations due to the force majeure event. According to the "WorldCC Contracting Principles" report by World Commerce and Contracting, such notice should be given "as soon as practically possible" after the event occurs.²² Contract terms are often vague but urgent, using phrases like "prompt notice."²³ Some companies, like Autodesk, allow more flexibility, requiring notice only "when possible."²⁴

Most contracts do not specify the content of a force majeure notice to avoid being too onerous, but exceptions exist. For instance, DataDog requires the affected party to state the expected duration of the event.²⁵ A force majeure notice can include the following features: identification of the contract, a description of the event, its impact on contractual obligations, mitigation efforts, notification of intent, and contact information.²⁶

This notice requirement is distinct from the requirement to notify if services are being terminated due to the force majeure event, which will be discussed next.

7. Be clear on the consequences of termination and refunds

Companies may want to include an option to terminate services if a force majeure event causes severe or extended disruption, though only 14% of reviewed contracts have this provision.²⁷

If termination or modification is allowed due to a force majeure event, such changes should be proportional to the impacted obligations.²⁸ For example, instead of termination, Workday allows delays in obligations equal to the delay caused by the force majeure event.²⁹ If offering termination, ensure there is a clear procedure, including (1) a specific duration of the force majeure event before termination is permitted, and (2) a requirement for written notice of termination. The option for termination should be allowed only if the force majeure event has a "material" impact on obligations.³⁰

The duration before termination varies: 15 days (Benchling),³¹ to 30 days (Freshworks),³² to 90 days (Alation).³³ A longer timeline is recommended to ensure termination is reserved for severe disruptions. Written notice of termination ensures clarity, though some, like Benchling,³⁴ do not require it. Typically, no separate timeline exists for the notice of termination,³⁵ and it can be immediate.³⁶

To prevent unjust enrichment, vendors might offer pro-rated refunds³⁷ or refunds for prepaid, unused fees.³⁸ Customers should pay for products delivered or services completed up to the termination date.³⁹ Neither party should receive compensation from the other for costs or damages due to a force majeure event.⁴⁰

Conclusion

Force majeure events can significantly impact the contractual relationship between two parties. It is crucial that a force majeure clause is properly worded to protect both parties' interests.

For vendors, the key elements to include in a force majeure clause are:

1. Relief from liability
2. A clear, non-exhaustive list of force majeure events
3. An exception to payment obligations.

For customers, the key elements to include are:

4. A duty for the affected party to mitigate the impact of the force majeure event
5. Clear notice requirements for force majeure events
6. Provisions for termination and refund if the force majeure event is severe or prolonged

Appendix 1: Common force majeure event types

Classic

• Act of God / Acts of God: 84%
• Act of War/War: 74%
• Terrorism / Terrorist Acts: 74%

Natural disasters

• Flood: 52%
• Earthquake: 47%
• Fires: 47%
• Natural Disasters: 26%

Health

• Pandemics: 42%
• Epidemics: 16%

Government acts

• Restrictions / Acts of Government / Actions or Decrees of Governmental Bodies: 52%
• Embargo / Embargoes: 37%
• Sanctions: 11%

Social acts

• Riots: 58%
• Strikes: 42%
• Labor Shortage or Dispute / Labor Strife: 37%
• Civil Unrest: 21%
• Sabotage: 11%
• Theft: 11%

Cyber / infrastructure

• Failure of the Internet / Internet disturbances / Internet service provider failure or delay: 58%
• Hacker Attack / Acts of Hackers / Cyberattacks: 32%
• Telecommunications Failures: 32%
• Denial of Service Attack: 21%

Sources