COVID19 and “Best”, “reasonable” or “all reasonable” endeavours to mitigate delays

“Best”, “reasonable” or “all reasonable” endeavours /efforts to mitigate the delay … Most contracts in the engineering and construction industry usually incorporate endeavours/efforts obligations to require the contractor to take measures and action to mitigate delay, e.g. a contractor′s delay, delay caused by a Force Majeure event.

The question arises as to whether the implications of these obligations are fully understood. It might appear that there is little difference between them, however, the difference can be significant and when signing a contract , the contractor may not fully appreciate the legal implications of these obligations or the financial liabilities and the level of risk taken.

It is fundamental to understand the difference between them. “Reasonable endeavours” means the contractor must take steps to mitigate the effect and its loss and must not take unreasonable steps that increase its loss, but without being obliged to incur additional cost e.g. re-sequence of non critical activities, reduce workforce .. Whereas “best endeavours” means the contractor has to use all measures necessary to overcome the delay and its effects, including to expend money on the additional costs in order to attempt to mitigate the effect. Therefore, “best endeavours” should be avoided and if this is not possible then, identify and address any clauses including endeavour obligations prior to signing a contract and allow for adequate contingencies for the risks.

The term “all reasonable endeavours ” is seen as the ‘middle ground’ between “resasonable” and “best” and creates ambiguity and depending on the applicable Law and the circumstances it may impose the same obligations as “best endeavours”. Hence, this should also be avoided, regardless of how attractive a compromise between “reasonable” and “best” may seem.

In order to successfully manage the situations where the contractor is obliged to mitigate delay, is necessary to understand which are the obligations with regards to the measures and actions to be taken and the rights of the other party to ask for mitigations measures. The above paragraphs describe the general understanding for mitigation endeavours, however, for each project is necessary to read in full the relevant contract clauses, because it might happen that the interpretation may vary.

With the COVID19 outbreak we are facing unprecedent times and there is a huge uncertainty about the project outcomes. This means that depending on the mitigation obligations in the contract a party may be obliged to take measures to overcome the delay which are very costly under normal circumstances , but due to the exceptional situation because of the COVID19 may have an uncertain or little probability to achieve the required result and to require incurring additional cost without a cap. This may exacerbate the negative effect to the project margin and the losses unaffordable.

Before entering into discussions and or battle with your counterparty, you will need to know your contracts in detail and understand which are the obligations and rights with regards to mitigation. Then you can start open and honest discussions to find workable solutions. It will be essential to deal with it realistically and reasonably and do not try to exploit the COVID19 situation.  

And if you need to enter into new agreements, such as an acceleration plan, be aware to take care not to commit to best endeavour obligations and to define and agree how the risks resulting from the COVID19 situation will be managed and the compensation and remedies.

 Fernando Falcon