Fee Cap

What is a fee cap?

A fee cap is a maximum amount the client will pay for a matter regardless of actual time and expenses incurred. Unlike flat fees, work is still billed hourly, but fees stop accumulating once the cap is reached. Caps provide clients budget protection while allowing flexibility for matters where scope is uncertain. The service provider absorbs risk if the matter exceeds estimates.

Setting appropriate caps

Base caps on realistic estimates of what the matter will require. Add a reasonable buffer for uncertainty. Consider your historical experience with similar work and this specific client. Caps set too low create losses; caps set too high provide no meaningful protection. Communicate clearly what happens if the matter tracks toward the cap. Early warning allows adjustments before the cap is reached.

Managing work against caps

Track time and expenses against the cap throughout the engagement. Report progress to the client regularly. When approaching the cap, discuss options: narrow scope, accept the cap, or negotiate additional budget. Do not simply work past the cap expecting payment. The cap is a commitment. If you consistently exceed caps, your estimating process needs improvement.