Radar and lightcurve data suggest that a significant fraction of the Earth-crossing asteroids are contact or nearly-contact binary systems. These binaries have the relative orbit of their components changed by the planetary gravity gradient when they experience close encounters with the Earth (and the other inner planets). Farinella (1992, Icarus 96, 284) showed that the time scale for a binary to undergo important orbital energy changes is comparable to its lifetime vs. impact against the planets. We have now refined this estimate, by calculating orbital energy changes for a range of initial conditions by a Monte-Carlo technique and including the effects caused by the hyperbolic (rather than rectilinear) geocentric motion of the binary's centre of mass. The results show that the encounters are effective in changing the orbital energy - i.e., the semimajor axis of the system - unless or until the components are very close to each other or in physical contact. Also, the orbital angular momentum of the binary is changed over the same time scale as the energy, although for a close system the orbital eccentricity is damped by tidal effects in the intervals between successive encounters. The final end-product of this evolution is either the escape of the components or a collision between them. This may explain the origin of contact or nearly-contact systems such as- (4769) Castalia and (4179) Toutatis, of very slow rotators (tidally despun while members of a binary system), such as (887) Alinda, (3288) Seleucus and (3102) 1981 QA, and of pairs of Earth-approaching asteroids with similar (rare) compositions, such as (3551) 1983 RD and (3908) 1980 PA.