Of course. "Capped fee litigation" is a specific type of alternative fee arrangement (AFA) between a client and a law firm. It's a hybrid model that combines elements of both hourly billing and a fixed fee.

Core Definition

In capped fee litigation, the law firm agrees to bill its services on an hourly basis, but with a crucial twist: the total fees will not exceed a pre-negotiated maximum amount (the "cap").

If the work is completed for less than the cap, the client pays the lower, actual amount. If the hours worked would normally exceed the cap, the client pays only the capped amount, and the law firm absorbs the loss.

How It Works: A Simple Example

Let's say a client is facing a commercial lawsuit.

• Standard Hourly Billing: The law firm charges $500/hour. If the case takes 200 hours, the bill is $100,000. If it takes 300 hours, the bill is $150,000. The client bears all the risk of case complexity and inefficiency.


• Capped Fee Arrangement: The client and firm negotiate a capped fee.


• They agree to bill at $500/hour.


• They also agree to a cap of $120,000.


• Scenario A (Case settles quickly): The firm works 180 hours. The bill is $90,000 (180 x $500). The client pays $90,000.


• Scenario B (Case goes to trial): The firm works 260 hours. The standard bill would be $130,000 (260 x $500). However, because of the $120,000 cap, the client pays only $120,000. The firm effectively works 40 hours for "free."

Key Characteristics

• Hybrid Structure: It's not a pure fixed fee. The client still sees itemized hourly bills, providing transparency into the work being done.


• Risk Sharing: This is the primary feature. The law firm takes on the risk of the case running over budget, while the client is protected from a runaway legal bill.


• Scope is Critical: The cap is always tied to a specific, defined "scope of work." If the scope changes significantly (e.g., the opposing party adds new claims, or an appeal is necessary), the law firm will typically seek to renegotiate the cap.


• Incentive Alignment: It incentivizes the law firm to work efficiently. Since they won't get paid beyond the cap, they are motivated to manage the case effectively and avoid unnecessary procedures.

Pros and Cons

Advantages for the Client

• Budget Certainty: The client knows the absolute maximum they will have to pay in legal fees, which is crucial for financial planning.


• Risk Mitigation: Protects against the open-ended financial risk of traditional hourly billing, especially in unpredictable litigation.


• Efficiency Incentive: The law firm is financially motivated to be efficient and strategic, as wasted hours come out of their pocket once the cap is hit.


• Transparency: Unlike a pure fixed fee, the client still receives detailed bills showing how time is spent.

Disadvantages for the Client

• Potentially Higher Hourly Rate: To compensate for the risk of hitting the cap early, the law firm may negotiate a higher blended hourly rate within the cap than their standard rate.


• Scope Creep Challenges: If the case expands beyond the original scope, the client may face a request for a higher cap or a new fee arrangement.


• May Not Be Offered: Law firms may be reluctant to offer a cap on very complex or high-risk cases where the endpoint is difficult to define.

Advantages for the Law Firm

• Client Attraction: Capped fees are an attractive selling point for clients seeking cost control.


• Reward for Efficiency: If the firm completes the work well under the cap, they are rewarded with an effective hourly rate that is higher than their standard rate.


• Strengthens Client Relationship: Demonstrates a commitment to partnership and shared risk, which can build long-term trust.

Disadvantages for the Law Firm

• Financial Risk: The firm bears the downside risk if the case becomes more complex or protracted than anticipated.


• Pricing Pressure: Requires the firm to accurately forecast the cost of litigation, which is inherently uncertain. A miscalculation can be costly.


• Administrative Complexity: More complex to set up and manage than a simple hourly arrangement, requiring clear scope definitions and communication.

Comparison to Other Fee Structures

When is it Used?

Capped fees are common in situations like:

• Corporate Clients: Companies with in-house counsel use them to control outside legal spending on specific litigation matters.


• Predictable Disputes: For litigation types where the path is relatively well-trodden, making it easier to estimate costs (e.g., certain types of contract disputes, insurance defense).


• Phased Litigation: A firm might propose one cap for the discovery phase and a separate cap for the trial phase.