Relief for government contractors facing supply disruptions

The COVID-19 outbreak in China will be considered a ‘force majeure’ situation, which refers to extraordinary events and circumstances beyond human control, the Finance Ministry said on Wednesday.

The move provides some relief to companies with central government contracts forced to default on contract obligations due to delays in input shipments from China.

The declaration of a ‘force majeure’ situation was one of the major demands of industry representatives who met Finance Minister Nirmala Sitharaman to discuss the fallout of the epidemic on Tuesday.

Senior government officials met on Wednesday afternoon to discuss their demands and the response measures needed to deal with supply chain disruptions.

The Expenditure Department has now issued an office memorandum to the Secretaries of all Central government Ministries and departments in this regard.

“A doubt has arisen if the disruption of the supply chains due to coronavirus in China or any other country will be covered in the Force Majeure clause. In this regard, it is clarified that it should be considered as a case of natural calamity and FM may be invoked, wherever considered appropriate...” said the memo.

“This would avoid imposition of penalties and other negative consequences on the companies executing government contracts who may be dependent on supplies from affected areas,” said a senior official.

The memo noted that an FM clause “does not excuse a party’s non-performance entirely, but only suspends it for the duration of the FM. The firm has to give notice of FM as soon as it occurs and it cannot be claimed ex-post facto.”