Why "Reasonable Efforts" Is the Most Dangerous Phrase in Contract Law

Why "Reasonable Efforts" Is the Most Dangerous Phrase in Contract Law

In nearly every contract I review, somewhere between the boilerplate and the business terms, I find it: "reasonable efforts." It appears in everything from SaaS implementation schedules to M&A covenants to IP licensing milestones. On its face, it seems harmless—even fair. But after two decades litigating commercial disputes, I can tell you that "reasonable efforts" is the single most dangerous phrase you can leave in a contract. It is a litigation subsidy disguised as a compromise.

The Problem: "Reasonable" Is Not a Standard—It's a Lawsuit Waiting to Happen

Under U.S. common law, "reasonable efforts" means different things to different judges, juries, and industries. Unlike "commercially reasonable efforts" (which courts often interpret as requiring good faith and ordinary business judgment) or "best efforts" (which can demand near-heroic measures), "reasonable efforts" sits in a murky middle. There is no uniform definition. In Bloor v. Falstaff Brewing Corp., the Second Circuit famously wrestled with "best efforts," but the standard for "reasonable efforts" remains even less settled.

Consider this practical example: Your client, a software vendor, agrees to use "reasonable efforts" to achieve a go-live date of March 1. A supply chain delay hits—something that happens in 30% of implementations. Your vendor team works extra hours, reallocates resources, but misses the date by two weeks. The customer sues, claiming "reasonable efforts" required the vendor to pay for expedited shipping, hire temporary staff, or even bump other clients. The vendor argues it did what any reasonable company would do. Who wins? Nobody knows. That uncertainty is the danger.

Three Real-World Scenarios Where "Reasonable Efforts" Backfires

1. Intellectual Property Licensing

Your client licenses a patent portfolio to a manufacturer, with a covenant to use "reasonable efforts" to commercialize the product. The manufacturer launches in one region, does minimal marketing, and sells 500 units. Your client expected national distribution. In litigation, the manufacturer argues it acted reasonably given market conditions. The court must now decide: Is one region reasonable? What about a marketing budget of $10,000? Without objective benchmarks, the phrase becomes a weapon for the party who drafted it—and a trap for the one who agreed to it.

2. M&A Earn-Outs

Earn-out provisions are notorious for breeding disputes. A seller agrees to stay on post-acquisition and use "reasonable efforts" to hit revenue targets. The buyer then cuts the seller's budget, reassigns key staff, and imposes new approval processes. When the target is missed, the seller claims the buyer's actions made "reasonable efforts" impossible. The buyer counters that the seller simply didn't try hard enough. This is not a legal dispute; it is a he-said-she-said with millions at stake.

3. SaaS Implementation and SLAs

I recently settled a case where a SaaS vendor promised "reasonable efforts" to provide 99.9% uptime. The system went down for six hours due to a third-party cloud provider's outage. The customer demanded a full refund. The vendor argued it used reasonable efforts by having redundant systems (which failed anyway). The settlement cost both parties over $150,000 in legal fees—money that could have been saved with a defined uptime credit and a clear force majeure carve-out.

What to Use Instead of "Reasonable Efforts"

The antidote is specificity. Replace the ambiguous phrase with measurable, objective standards. Here are three alternatives that actually work:

• Define specific actions: "Vendor shall (i) allocate no fewer than three full-time engineers to the project, (ii) respond to critical bugs within four hours, and (iii) provide monthly progress reports." This eliminates interpretation entirely.
• Use "commercially reasonable efforts" plus a definition: "Commercially reasonable efforts" is better, but still vague. Define it: "'Commercially reasonable efforts' means efforts consistent with the degree of skill, care, and diligence that a similarly situated company would use under comparable circumstances."
• Set objective benchmarks: "Manufacturer shall achieve first commercial sale within 18 months and shall spend no less than $500,000 on marketing in Year One." Now you have a binary test—either they did or they didn't.

The Bottom Line for In-House Counsel

Every time I see "reasonable efforts" in a draft, I ask the business team: "What does that mean to you?" If they cannot give me a concrete answer, we change the language. The phrase is a blank check for litigation. In a world where your law firm AI tool can already flag ambiguous terms and suggest precise alternatives, there is no excuse for leaving this landmine in your contracts.

Practice Pointer: When reviewing a contract with "reasonable efforts," ask opposing counsel: "If your client does X, Y, and Z, but the result is not achieved, have they breached?" If they cannot answer yes or no, the clause is not ready for signature.

Drafting precise obligations is not about being difficult—it is about protecting your client from the cost, delay, and uncertainty of litigation. "Reasonable efforts" is a phrase that benefits only one party: the lawyers who will bill to argue about it later. Delete it from your vocabulary today.