A capped fee arrangement bills at agreed hourly rates but establishes a ceiling beyond which no further fees accrue. Caps may apply to the matter, a phase, or a period.
Some arrangements include a collar sharing savings below the cap.
Alternative Names:
Fee Cap, Not-to-Exceed Fee
Why it Matters?
Caps are the most common alternative fee structure because they preserve familiar hourly accounting while transferring overrun risk to the firm. The failure mode is a cap set without adequate scope definition, which produces a dispute when the matter develops beyond what either side assumed. Caps also create an incentive problem near the ceiling, since work performed above it is uncompensated, which is what collar arrangements address.
Frequently Confused with
Related terms
Frequently asked questions
Why are capped fees common?
What is a collar arrangement?
