What does the term "force majeure" refer to in contract management?

The term "force majeure" refers to a clause in a contract that relieves parties from liability or obligation when extraordinary events or circumstances beyond their control prevent them from fulfilling their contractual duties. This can include natural disasters, war, terrorism, epidemics, or other events that are unforeseeable and cannot be avoided even with reasonable care.

In contract management, the force majeure clause is crucial because it acknowledges that there are situations where parties may be unable to perform their contractual obligations due to circumstances outside their control. Consequently, this clause helps to protect the parties from penalties or liability when such events occur, allowing them to either suspend obligations temporarily or terminate the contract if necessary.

The other options do not capture this specific aspect of contract management. The requirement for arbitration addresses dispute resolution processes, pricing adjustments pertain to modifying financial terms based on certain conditions, and performance metrics relate to measuring how well a contract is being executed—all of which do not encompass the concept of force majeure.