Liability caps in contracts: why the number matters more than you think

A liability cap sets the maximum amount one party can claim from the other if something goes wrong. Every commercial contract should have one — but the number matters enormously.

Why liability caps exist

Without a cap, a small mistake in a project could expose you to claims worth far more than your fee. A developer paid 5,000 euros whose code causes a data breach could face claims of millions. Liability caps protect both parties by setting a proportionate maximum.

How they work

Caps are typically expressed as a fixed amount, a multiple of fees paid, or the total contract value. A cap of "total fees paid under this agreement" is common and generally fair. A cap of "10x the annual fee" is generous to the client. A cap of "100 euros" in a large contract is effectively no liability at all.

What to watch for

Check whether the cap applies to both parties or only to one. Look for carve-outs — some types of liability (fraud, wilful misconduct, IP infringement, data breaches) are often excluded from the cap. Check whether the cap is per-incident or aggregate across the entire contract term.

Negotiating liability caps

As a service provider, push for a cap equal to the total fees paid. As a client, push for a higher cap or specific carve-outs for critical risks. Always ensure the cap is proportionate to both the contract value and the realistic risk exposure.