Liability caps and playbook floors: encoding ‘it depends on deal size
Most firms' cap positions are conditional on fees, contract value or role. Here is how to write them down so Review can apply them, and a checklist before you switch them on.
Ask a commercial partner what the firm’s position on a liability cap is and the honest answer is usually “it depends”. It depends on the fees. It depends on whether we are supplier or customer. It depends on whether there is a data-processing element. It depends on who is on the other side.
That answer is correct. It is also unusable by software until someone writes down what it depends on.
This guide covers how firms encode conditional cap positions in a ZAAN playbook, so that Review flags the right thing on a two-page SaaS order form and on a forty-page outsourcing MSA without a human re-reading the playbook each time.
Caps are functions, not numbers
The first mistake we see is a playbook entry that reads: “Limitation of liability: cap at 12 months’ fees.” Review will apply it faithfully, and it will be wrong on half the firm’s matters.
A workable cap position has four parts:
- A basis. Fees paid in the preceding twelve months; total contract value; a fixed sum; or the greater or lesser of two of these.
- A multiplier or range. 100% of annual fees. 150%. “Between 100% and 200%, depending on tier.”
- Carve-outs from the cap. Matters that are uncapped: fraud, wilful misconduct, death or personal injury caused by negligence, and anything that cannot lawfully be limited. Often also breach of confidentiality and IP indemnity, but these are negotiable and firms differ.
- Super-caps. A second, higher cap for a defined category, most commonly data-protection breaches. Typically expressed as a separate multiplier or fixed sum.
Each of the four can vary by deal. The playbook’s job is to say how.
Floors, tiers and the fallback ladder
Playbooks in ZAAN express conditional positions as tiers over one or more variables. The variables Review can read from a draft or a matter record are: annual fees, total contract value, term length, our role (supplier, customer, licensor, licensee, processor, controller), counterparty type where the firm tags it, and whether a DPA is attached or referenced.
A simplified supplier-side position from a UK technology practice, anonymised and reproduced with their permission, reads like this in prose:
Where annual fees are below the lower threshold, cap at 100% of annual fees; floor at twelve months’ fees even if the contract is shorter. Between thresholds, cap at 125% of annual fees. Above the upper threshold, cap at 150% of annual fees or a negotiated fixed sum, whichever is lower. Data-protection super-cap at 300% of annual fees in all tiers. Uncapped: fraud, wilful default, death and personal injury, and indemnities for third-party IP claims where we are licensor.
Each tier has a primary position and up to three fallbacks. The fallback ladder is what Review walks when a reviewer declines a proposal as too aggressive, a behaviour introduced in Review 4.0. For the middle tier above, the ladder might be: 125%, then 100%, then 100% with a twelve-month floor, then escalate to partner.
The floor deserves its own mention. A floor is the position below which Review should stop proposing fallbacks and instead flag High with “below playbook floor: escalate”. It is the line between negotiation and a decision the client needs to make. Playbooks without floors generate the most complaints, because Review keeps offering fallbacks the firm would never actually agree.
What Review does with it
With a tiered position in place, Review reads the draft’s cap clause, extracts the basis and multiplier, reads fees and role from the matter or the draft’s commercial schedule, selects the tier, and compares. The flag shows the tier it selected and why (“Tier 2: annual fees between thresholds, supplier side, DPA attached”). If it cannot determine a variable, it says so and shows the comparison under each candidate tier rather than guessing.
Severity follows distance from position. A cap at or above the primary position: no flag. Within the fallback ladder: Medium, with the nearest fallback proposed. Below the floor: High. A missing super-cap where a DPA is attached: High. A carve-out list missing fraud: High, always, because no fallback exists for that.
Common failure modes
Fees are not where you think. On framework agreements the fee basis is in the order form, not the MSA. Tag the matter or attach the order form; Review cannot select a tier from a document that contains no numbers.
Role is ambiguous. Mutual agreements, resale arrangements and joint ventures confuse role detection. Set it on the matter.
“Total contract value” over a rolling term is undefined. Decide whether you mean the initial term or the committed term, and say so in the playbook.
Super-caps without a trigger definition. “Data breach” in a cap clause should point to a defined term. If the draft’s definition is narrower than your playbook assumes, the super-cap is narrower too. Review flags undefined triggers as Note.
Aggregate versus per-claim. A cap that is per-claim rather than aggregate is a materially different position. Make the playbook explicit; Review distinguishes the two and will flag a silent switch as High.
Checklist
Before switching a cap position on in Review, confirm:
- The basis is named (annual fees, contract value, fixed sum) and defined for rolling terms.
- Every tier has a primary position, at least one fallback, and a floor.
- Carve-outs are listed, and fraud and wilful misconduct are among them.
- Super-cap categories point to defined terms.
- Aggregate or per-claim is stated.
- Role and fee source are set on the matter template for the practice group.
- Someone owns the playbook entry and is named on it.
Tiered positions take a knowledge lawyer an afternoon to write down the first time. Most of the afternoon is spent discovering that the partners did not quite agree with each other, which is a useful afternoon to have had.