A not to exceed fee, often shortened to NTE, is a time and materials fee with a ceiling. The client pays for the hours actually worked at the agreed rates, up to the cap. If the work reaches the cap, the firm stops or asks the client to raise it. It is one of the most common fee bases in engineering, IT consulting and construction consulting.
How it differs from a fixed fee
Under a fixed fee the client pays the stated amount whether the work takes more or less effort than planned. Under a not to exceed fee the client pays only for actual effort, and the cap is a maximum, not a price. If the work comes in under the cap, the client pays less.
| Fixed fee | Hourly estimate | Not to exceed | |
|---|---|---|---|
| What the client pays | The stated fee | Actual hours at the rates | Actual hours at the rates, up to the cap |
| Who carries the overrun risk | The firm | The client | Shared: the firm up to the cap, the client only if the cap is raised |
| Best for | Defined scope | Open scope | Work with a knowable range but an uncertain finish, such as construction administration |
How to word it
State three things: the rates that apply, the estimated hours or fee, and the cap. Then say what happens at the cap. A common form: "Construction administration services will be provided on an hourly basis at the rates in the attached schedule, for an estimated fee of $34,000, not to exceed $38,000 without the client's prior written authorization."
Setting the cap
Firms usually set the cap 10 to 20 percent above the estimate. Too tight and the firm is back to the client for authorization early; too loose and the cap stops meaning anything. The right margin depends on how much of the schedule is outside the firm's control.
Showing it in a fee table
Give the row a basis of "Hourly, not to exceed" and show the cap, either in the amount column or in the basis text. If the table has a total, say in a note whether the total uses the estimate or the cap for not to exceed rows. Clients read the total first, so the note matters.
Common mistakes
- Treating the cap as the fee and invoicing it regardless of hours, which clients see as a fixed fee in disguise.
- No rate schedule, so the client cannot check invoices against the proposal.
- Not saying what happens at the cap, so work stops without warning or continues without authorization.
- A cap on a scope that is still open, which is a fixed fee risk with hourly reporting overhead.
Feebeaver: A not to exceed cap is part of an hourly fee structure in Feebeaver, so the cap appears on the fee table row every time and reviewers see it before approving.