Liability Caps Decide the Downside
If this goes wrong, how much can you actually recover?
The idea
A limitation of liability clause sets the maximum one side can be required to pay when things go badly.
In the real world
Liability capped at fees paid in the previous twelve months.
Going deeper
A cap sets the maximum recoverable amount, and it is frequently tied to fees paid rather than to the loss suffered. Those two numbers can differ by orders of magnitude.
A £2,000-a-year supplier whose failure causes £150,000 of loss, under a twelve-month fee cap, leaves you carrying £148,000. Nothing has gone wrong with the contract; it worked as written. The practical check is to read the cap against the worst plausible consequence of that supplier failing, rather than against the contract value, since those are what the clause is actually balancing.
Where it stops applying
Caps are often negotiable, particularly upward for a price, and certain liabilities cannot be limited by law in many jurisdictions. The cap is a starting position, not a fixed fact.
Why it matters
It is often the single most financially significant clause in an agreement.
Try this today
Compare one supplier's liability cap against what their failure could actually cost you.
Test yourself
A £2,000-a-year supplier's failure causes £150,000 of loss. Their contract caps liability at twelve months of fees. What is recoverable under it?
Show the answer
Around £2,000. The cap, not the loss, determines the recovery, so the remaining £148,000 sits with the customer. That is why the cap should be read against the worst plausible consequence rather than against the contract value.
Learn this in the feed Answering from memory, then again days later, is what makes it stick.