What is a capped fee arrangement?

A capped fee arrangement sets a maximum total fee while billing at an hourly rate below it. The client pays actual hours worked up to the cap. If work exceeds the cap, the firm absorbs the overage. This structure gives clients budget certainty while preserving hourly flexibility for straightforward matters.

Setting caps that protect the margin

Review similar past engagements. Find the 75th percentile of hours, not the average. Multiply by your rates. Add 15% buffer. That is your cap. Caps based on best-case scenarios guarantee regular overages, price based on realistic to slightly pessimistic estimates.

Documenting what falls outside

'The cap covers initial filing and one round of response. Additional responses, appeals, or related matters are outside the cap and will be billed separately.' Clear boundaries in writing prevent disputes. Point to the document when clients request out-of-scope work.