Our regular legal contributor Claudia Gerrard returns to contracts in the security industry. This month, she looks at: best and reasonable endeavours.
About the writer: Claudia Gerrard is a Legal Consultant working for Excello Law and she specialises in law relating to the security, leasing and parking sectors. Visit www.excellolaw.co.uk.
It happens all the time: you receive a contract from a third party which includes those mystical words ‘reasonable endeavours’ or ‘best endeavours’. It may be that you are providing services. Do the words put a greater obligation on you? Or if you are the person receiving the services, can you expect a higher or lower standard depending on what phrase is used? As we’ve seen from previous articles, contracts are not always straightforward or easy to understand. Generally, they contain obligations on each party which must be fulfilled. Failure to do so will be a breach of contract and might not be easily forgiven. Using ‘endeavours’ is seen as a legal way of acknowledging this fact. It accepts that you might not always meet your contractual obligations. That comes back to the original question: is ‘reasonable’ better than ‘best’ endeavours? And what about that hybrid ‘all reasonable endeavours’? What, if any, is the practical difference between the three phrases?
This is best illustrated by a looking at an everyday example. Take the following scenario. A company enters into a contract with a security contractor to provide the following services:
i) Gate operation and access control;
ii) Front desk reception and identity checking; and
iii) Routine protection and monitoring of offices and parking areas.
This entails supplying four security guards for each 12-hour shift. The guards all need to be SIA licensed. The contract contains an agreed, fixed fee. Fairly standard, one would imagine. However, the contractor finds he is suddenly unable to supply SIA licensed guards due to illness and holidays. Without staff, he cannot provide the services and this could ultimately entail a shutdown of the building. The client can’t operate the building without security personnel. The contractor knows there are a number of options open to him. n particular, he can source staff from a third party agency, but this would involve him in significant additional costs. Not only would the contractor have to pay the agency a fee, but the agency guards are on a higher hourly rate than the contractor’s own staff.
The contractor also knows he would have difficulty renegotiating the contract price with the client. As stated, the fees were agreed and can only be increased in limited circumstances. The contractor would probably end up bearing any additional costs himself. What is the extent of his liability under the contract?
Let’s imagine there are three versions of the contract. In version one of the contract, the contractor has to ‘use best endeavours to provide the services’. In the second version, he has to ‘use reasonable endeavours to provide the services’ and in the third version, he has to ‘use all reasonable endeavours to provide the services’. ‘Best endeavours’ places the most stringent obligation on the contractor in our example. Using ‘best endeavours’ means the contractor must take all steps possible to fulfil his obligations under the contract. This includes looking at all options available to him to provide the services. And he must adopt the best option to provide the services. This is the case even where that option involves him in additional costs.
Under version one of the contract, the contractor would have to bear the agency costs and the increased hourly rate. Failing to do so would be a breach of the contract. In turn, the contractor would be liable for all the costs which ‘flow naturally’ from that breach. The client might have to close the building. And closure of a building could have significant financial implications: the costs of which would have to be borne by our contractor. In the second version of the contract, by contrast, ‘reasonable endeavours’ operates less harshly. The contractor would be under the same obligation to look at all options available in order to provide the required staff. However, he could weigh up the additional costs when deciding what to do. Where a party is under an obligation to use ‘reasonable endeavours’, any expenditure in meeting his obligations should only be minimal. If the costs are ‘significant’, as in our example, the contractor would not be in breach of contract if he failed to provide the more costly staff.
The third version of the contract could cause the most problems in trying to work out the contractor’s obligation. The reason is that ‘all reasonable endeavours’ is a hybrid between the two – ‘best’ and ‘reasonable’ endeavours. This means that the contractor must again look at all the options. But it is more likely that he would be required to sacrifice his commercial interests, to fulfil his obligations. In our example, therefore, the contractor would probably be expected to use the agency staff, unless the costs were so exorbitant that it would be ‘unreasonable’ for him to do so.
In reality, therefore, there may be little practical difference between ‘best’ and ‘all reasonable’ endeavours. Either obligation could involve our contractor in significant additional costs. So ‘reasonable’ endeavours is likely to be most favourable for the contractor and least favourable for the client. There is one further complication, when including an obligation to use ‘endeavours’, whether ‘best’ ‘all reasonable’ or ‘reasonable’. Each case is decided on its own facts, which means there is no certainty in the contract. It is better by far to be as specific as possible about each party’s obligations. This avoids uncertainty and ultimately reduces the risk of disputes between the parties.
Best and reasonable endeavours: Ten Top Tips
Regardless of the type of endeavours to be specified, consider the following:
1) Cost of meeting the obligations: consider whether the contractor, as in our example, should bear any costs when trying to meet his obligation. If possible, specify an upper maximum and whether the costs will be borne by both parties jointly.
2) Specify time periods: insert an upper limit in terms of the time the contractor must spend in trying to find alternatives. Include a cut-off period, after which time the contractor will not be in breach if he cannot find an alternative.
3) Consider the position if legal proceedings are required: if the contractor needs to take legal action or appeal against a decision, include whether failure to do so is a breach of contract. If so, also allow time for the legal matter or appeal to be dealt with.
4) Include the practical steps the contractor needs to follow: this could cover matters such as notifying the client of the steps being taken and providing routine updates and reports. This allows the client to remain informed of the situation and the progress being made.
5) State what the client can do if the matter isn’t resolved: clarify whether the client can step in and make alternative arrangements if the contractor is unable to do so. Include details on who bears the costs in doing so and whether the client needs to obtain prior consent from the contractor before incurring any costs.
6) Consider how far a party can protect its own commercial interests: in our example, therefore, consider whether a party is obliged to take any steps if this would involve costs or otherwise be contrary to the contractor’s best interests.
7) Cover the specific steps that the contractor is or is not expected to carry out: this could cover matters such as use of third party staff, so that the contract might state specifically that the contractor must use agency staff if unable to provide his own staff.
8) Keep written records: the contractor, in our instance, should maintain a detailed record of the options which were considered and steps which were taken. As well, record the reason why any steps were or were not taken. This could prove useful if a dispute ensues.
9) Maintain an open dialogue: good communication is essential. The parties should, as far as possible, try to work together to resolve the issue in a way which is mutually beneficial.
10) Force majeure: consider force majeure clauses which cover matters which are beyond the reasonable control of either party and which make it clear when a breach will arise.
