The term commercially reasonable efforts (CRE) is often used in life sciences contracts. Yet while it may be familiar on the page, what does it really mean in practice?
When parties to a contract cannot agree precisely on what one party will do by what time - usually because there are extraneous factors that are likely to affect progress - a CRE obligation can offer a means of compromise.
In this third insight in our 'Life sciences contract disputes toolkit', we look at how CRE is interpreted by the courts and what you can do to define it and improve its meaning in your contracts.
You can also read the previous articles in the series:
CRE meaning in case law
There are three efforts (a.k.a. endeavours) obligations that have become standard provisions in contractual lexicon, dependent on how much responsibility a party has to progress matters. The English Courts have, over time, established the following interpretations of these different efforts obligations:
- Best efforts is the most onerous. It means that a party must take all steps that a prudent, determined and reasonable person, acting in their own interests and desiring to achieve the result, would take. It is not an absolute obligation, but it can involve the party having to act against its own commercial interest and take all reasonable courses open to it, not just picking one.
- Reasonable efforts is the least onerous and means that a party does not need to act against its own commercial interests and only needs to take one reasonable course of action, not all, to try to achieve the outcome.
- All reasonable efforts lies somewhere between the first two efforts obligations. Where it sits depends on the circumstances but, put roughly, if a party has not started work on the obligation then it is nearer to reasonable efforts, whereas if work has commenced then it is nearer to best efforts.
CRE as defined terms
There is an increasing trend for the parties not to rely upon these common law interpretations of what the phrases mean, but to take the time to define what CRE means to them. This often focuses on using a comparator i.e. what a similarly situated company with a similarly situated pharmaceutical product would do - adding an element of objectivity to the obligation.
What is often missing though, either at the time the contract is drafted or at the dispute stage, is sufficient thought being given as to what company might exemplify that similarly situated entity/product. That further step would really help to give the defined term more practical effect in both its interpretation and application.
How to make CRE work better
So many life sciences contracts are only really successful if there is some symbiotic collaboration. The parties usually want the same end results, but how they are to be achieved and, most particularly, the amount of resources invested and the delays in getting there, are often a source of tension.
While an efforts obligation will ensure that the deal can be finalised, it may just be storing up problems for later. A more proactive and preventive strategy is to consider trying to negotiate the following additions to the wording:
- A cap/minimum on expenditure.
- A long stop date by which the obligation must be completed.
- Progress reporting.
- Step in rights.
Sorting out nascent disputes before they fester and grow is to everyone's advantage.
Want to learn more?
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