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Handling natural disasters

in final payments and change orders

 

STUDENT PAPER

By Alice Créton

SKEMA Business School

Lille, France

 



ABSTRACT

Global warming is a phenomenon we need to face because it has consequences in many areas in our society, like in contracts. By increasing their intensity and frequency, global warming is fostering natural disasters which slow or even block companies’ activities causing tremendous losses. Although companies’ activity is responsible for most of worldwide gas emissions, feeding global warming, the losses are often offset by insurance companies. The paper aims to demonstrate that the uses of these insurance companies can be unfair as the size and benefits of an organization characterize their insurances options. Moreover, it takes responsibility away from companies. By using a Multi Attribute Decision Making process, regulating insurance companies will appear to be the best solution to tackle this issue.

Keywords: Final payment, Change order, Natural disasters, Global warming, Companies’ liability

 

INTRODUCTION

Each time a natural catastrophe hits a place in the world, it has great financial impacts on companies. According to the Financial Times, the recent hurricane IRMA that hits the Eastern coast of the USA on September 2017, is costing 20 billion dollars to insurances. However, the forecast was much higher – 100 billion dollars estimation – as it was supposed to hit Miami much harder. Because of global warming, these kinds of natural disasters have been increasing steadily over the years in term of number but also intensity. One day, a hurricane hitting Miami as hard, or even harder, as it was forecast by insurers for Irma is a credible assumption, and it will cost a tremendous amount of money.

Nowadays, a natural disaster is considered as an Act of God – that is to say, a hazardous event. Thus, its consequences can be covered by a particular clause: The Force Majeure Clause. This clause withdraws a party’s liability if an unpredictable event happens and prevents this party from performing the tasks predicted in the contract. The final payment in the contract is changed, so is the order.

Nevertheless, in a recent article of the Guardian, only 100 companies are being accounted for 70% of the world’s greenhouse gas emissions which represents the first cause of global warming. Their main responsibilities in global warming link them to the increase of natural catastrophes around the world. Can we still excuse these companies for their loss in environmental damage? Even if every natural catastrophe remains unpredictable in long term, companies play an important role in their occurrence and they should not be completely excused when they cannot respect a contract because of a natural disaster. They should face their liabilities depending on their impact on the global warming. This assumption is questioning the scope of the Force Majeure clause.

STEP 1 – OBJECTIVE STATEMENT

  1. How can we consider companies’ responsibility in the occurrence of natural disasters in contracts?
  2. How does it impact final payment and change order in contracts when natural disasters occur?

More…

To read entire paper, click here

 

Editor’s note: Student papers are authored by graduate or undergraduate students based on coursework at accredited universities or training programs.  This paper was prepared as a deliverable for the course “International Contract Management” facilitated by Dr Paul D. Giammalvo of PT Mitratata Citragraha, Jakarta, Indonesia as an Adjunct Professor under contract to SKEMA Business School for the program Master of Science in Project and Programme Management and Business Development.  http://www.skema.edu/programmes/masters-of-science. For more information on this global program (Lille and Paris in France; Belo Horizonte in Brazil), contact Dr Paul Gardiner, Global Programme Director [email protected].

How to cite this paper: Créton, A. (2018). Handling natural disasters in final payments and change orders, PM World Journal, Volume VII, Issue X – October.  Available online at https://pmworldjournal.net/wp-content/uploads/2018/10/pmwj75-Oct2018-Créton-handling-natural-disasters-student-paper.pdf

 



About the Author


Alice Créton

Lille, France

 

 

 

Alice Créton is a French student in the “Grande Ecole” Program at SKEMA Business School France. She is doing a Master of Science in Program and Project Management and Business Development. She was appointed general secretary of two student unions in SKEMA, both combining her interests in environmental and humanitarian issues. She involved herself in the management of several projects and is interesting in becoming a project manager in those fields. Alice can be contacted at [email protected]