Beware of “Best Efforts”
As the father of three children, I’ve coached my fair share of youth sports teams over the years. Baseball, softball, basketball, skiing… you name it.
Thinking back on my coaching tenure, I probably relied on one phrase more than any other: “Do your best!”
Nothing controversial there. It’s friendly, encouraging, and while not particularly specific, it’s intended to convey the need to try hard and let the chips fall where they may. If you get a hit or make the basket, that’s great. If you don’t, well, no worries, there’s always next time.
In commercial contracts, on the other hand, agreeing to “do your best” is not nearly as innocuous or necessarily benign. Here, especially if you agree to perform with your “best efforts,” you’re potentially committing to assume a great deal of responsibility — and risk.
Understand What You Are Agreeing To
Commercial contracts often include a clause (or several) which sets the level of effort the other party must use to achieve the goal of the contract. Examples include: “best efforts,” “commercial best efforts,” “reasonable efforts,” and “commercially reasonable efforts.”
These clauses, known as (surprise) “effort” clauses, can be found in a range of contracts, from software as a service contracts, to professional services agreements, to leases, to acquisition agreements, and more. The legal obligation that these effort clauses convey, despite their casual and everyday-sounding wording, can be harsh.
For example, a database software client was recently asked to insert the following requirements into its form contract:
Vendor shall use best efforts to provide Customer with a temporary solution or workaround that reduces the impact and urgency of the Incident and that is reasonably acceptable to Customer within 4 hours.
The use of the “best efforts” standard in this clause should trigger caution for numerous reasons.
Although these effort clauses are commonly used in commercial contracts, no uniform, court approved definitions exist for these standards. Interpretations vary by court and applicable governing state law. Frequently, courts will look to the context in which the clause was used.
“Best efforts” is generally considered the most demanding of the standards. Parties commonly view this standard as requiring one party to take every action conceivable to accomplish the goal of the contract, whether or not the action is unreasonable, or the cost exceeds the value of the contract. Clearly, a harsh standard!
Recent cases do seem to show that courts are stepping away from this harsh view, clarifying, instead, that “best efforts” does not absolutely mean every conceivable effort. Nevertheless, the confusion and range of interpretation in the use of this clause suggests that if your obligations include the “best efforts” standard, you should proceed with caution.
#1. Carefully review and verify terms.
Rather than assume that everyone involved has the same understanding, each party should carefully review the use of these terms and verify the level of effort required prior to signing. Specify, as much as possible, what efforts — exactly — are required in the event of a delay or failure to perform by one party.
The ideal approach is to define each standard clearly and precisely within the contract itself and include objective criteria for determining if a party’s obligation has been met. This approach, however, will likely consume drafting and negotiating time, and therefore is generally limited to complex contracts in which substantial dollar amounts are involved.
Either way, if a brief conversation regarding the term does not lead to an agreement between the parties, then it’s likely that those involved have a different expectation regarding the level of performance required.
#2. When possible, remove “best efforts” language entirely.
When it’s not feasible to define the appropriate standard clearly and precisely, my approach, whether representing a vendor or a customer, is to remove all “best efforts” language and replace it with an effort clause requiring a lesser commitment.
For example, in a recent negotiation, my vendor client proposed to change its support service resolution obligation from “best efforts” to “commercially reasonable efforts.” Such a change would require my client to respond to — but not necessarily fully resolve — certain types of incidents within a set time period.
Of course, the other party may not agree to a less onerous effort clause. At that point, at least, each party can make an informed business decision and decide how to proceed.
Commercial contracts frequently contain language that is commonly used in everyday conversation. While that wording may make these documents feel less intimidating or confusing, it’s critical to remember that many “ordinary” terms have specific legal meanings and may carry with them specific legal obligations.
Read your contracts carefully — preferably with the assistance of counsel — before signing on the dotted line!