A liability cap is a budgeting tool. Vendors set pricing assuming a ceiling on damages if something goes wrong, and buyers accept that ceiling in exchange for predictable cost and willingness of the vendor to sign. Without a cap, vendors price in catastrophic scenarios or refuse the work entirely.
Caps often tie to fees paid or payable over a period (12–24 months for subscriptions, total project fees for fixed-fee work). This anchors exposure to the economics of the deal. Exceptions exist, but the default cap sets the baseline for most claims.
When you see a cap, ask whether it matches the commercial value at risk: is it too low to be credible, or too high to be insurable? Right-sizing it prevents surprises and eases internal approvals on both sides.
THIS IS NOT LEGAL ADVICE.