Costs Budgeting and Precedent H: A Practical Guide
Practice Guides — 2026-03-24
How costs budgeting works and how to get your Precedent H right: phases, assumptions, hourly rates and the costs management conference explained.
Costs budgeting is one of the most important procedural requirements in civil litigation. Getting it right can protect your client's costs recovery. Getting it wrong can leave thousands of pounds on the table, or worse, result in an automatic budget being imposed by the court.
This guide explains how costs budgeting works, how to complete Precedent H, and what to expect at a costs management conference. It is written from the perspective of a specialist costs practice that prepares budgets and provides advocacy at CMCs for law firms across England and Wales.
What Is Costs Budgeting?
Costs budgeting is the process by which the court manages the costs of litigation prospectively, rather than waiting until the end of a case and assessing costs retrospectively. The court considers the parties' budgets, approves or sets figures for each phase of the litigation, and then holds the parties to those figures.
The system was introduced following Lord Justice Jackson's Review of Civil Litigation Costs (2010). The Jackson reforms identified that the traditional approach, where costs were only considered at the end of proceedings, gave neither the parties nor the court sufficient control over the costs being incurred during litigation. Costs budgeting was designed to address this by requiring parties to plan their costs in advance and giving the court the power to manage those costs throughout the life of the case.
The costs budgeting regime is governed by CPR Part 3, Section II (rules 3.12 to 3.18) and Practice Direction 3E.
When Is Costs Budgeting Required?
Under CPR 3.12, costs management applies to all multi-track cases except:
- Cases where the claim is valued at £10 million or more
- Cases commenced before 1 April 2013 (though few of these remain active)
- Cases in the Admiralty and Commercial Court
- Cases where the court otherwise orders that costs management should not apply
The court can also order costs management in cases that would not otherwise be subject to it. Remember that costs budgeting applies to all parties, not just claimants. Defendants must file and exchange budgets on the same timetable. Litigants in person are not required to file costs budgets, but if a litigant in person later instructs a solicitor, a budget may need to be filed from that point.
Precedent H: The Budget Format
Precedent H is the prescribed format for costs budgets, set out in PD 3E. It is an Excel spreadsheet divided into phases that mirror the stages of litigation.
The budget records both incurred costs (costs already spent before the budget is filed) and estimated costs (costs anticipated for the remainder of the case). It is important to understand this distinction: the court can comment on incurred costs and take them into account, but it only approves or sets the estimated costs. Incurred costs are not formally approved by the court and remain subject to detailed assessment in the usual way.
Each phase of Precedent H is broken down into:
- Disbursements (counsel's fees, expert fees, court fees, etc.)
- Solicitor's time (by grade of fee earner, with hours and hourly rates)
- Assumptions (a narrative explaining the work anticipated in each phase)
The assumptions column is critically important. It is the justification for the figures. A budget without proper assumptions is a budget the court will struggle to approve.
Completing Each Phase of Precedent H
Pre-Action Costs
This covers all work done before proceedings are issued: initial investigations, pre-action protocol correspondence, early expert evidence, and settlement discussions. For many cases, particularly personal injury, a significant proportion of costs are incurred at this stage. If the budget is filed after proceedings are issued, all pre-action costs will be incurred rather than estimated.
Issue and Statements of Case
This covers preparation and service of the claim form, particulars of claim, defence, and any reply or counterclaim. Include time spent reviewing and advising on the opponent's statements of case. Assumptions should specify the number of statements of case anticipated and their estimated length.
CMC (Case and Costs Management Conference)
The costs of preparing for and attending the CMC fall into this phase, including reviewing the opponent's budget, preparing the Precedent R, and counsel's fees if counsel is instructed. Firms often underestimate this phase, particularly where the CMC is likely to be contested or there are multiple parties.
Disclosure
Disclosure can be one of the most expensive phases, particularly in commercial litigation. The costs depend on the volume of documents, whether electronic disclosure is required, and the approach taken under CPR 31 (or the Disclosure Pilot under PD 51U in the Business and Property Courts). Assumptions should specify the estimated number of documents and whether e-disclosure platforms will be used.
Witness Statements
This covers the preparation, exchange, and service of witness evidence: taking instructions, drafting statements, and reviewing the opponent's statements. Assumptions should identify the number of witnesses, estimated length of statements, and any special requirements such as interpreters.
Expert Reports
Expert evidence is often one of the largest cost items, covering the instruction of experts, review of reports, Part 35 questions, and joint discussions. Assumptions should state the number of experts, their disciplines, and whether a single joint expert or party experts are to be instructed.
PTR (Pre-Trial Review)
Not all cases have a PTR, so this phase may be left at nil. If a PTR is likely, include the costs of preparation and attendance, including counsel's fees.
Trial Preparation and Trial
Trial preparation covers preparation of trial bundles, skeleton arguments, chronologies, and counsel's brief fee. The trial phase itself covers attendance at trial, counsel's refresher fees for each day beyond the first, and post-trial submissions. Assumptions should state the anticipated trial length and the number of advocates and solicitors attending each day.
Settlement/ADR
This covers the costs of settlement negotiations and ADR, including mediation fees, preparation of position statements, and attendance. Firms sometimes omit this phase or estimate it at nil, which is a mistake. The court expects parties to engage with ADR, and the costs of doing so should be budgeted.
Contingencies
Contingent costs are costs that may or may not arise depending on developments in the case. Common contingencies include applications for specific disclosure, applications to amend, applications relating to expert evidence, and interim applications such as summary judgment or injunctions. Each contingency should be separately identified with a brief description and estimated cost. The court will not approve contingencies automatically; they are noted and, if the contingency materialises, the party can apply for a variation.
Common Mistakes When Completing Precedent H
1. Underestimating Costs
The most common mistake, and the most damaging, is underestimating the costs of each phase. Once a budget is approved, the party is held to it. If the actual costs significantly exceed the budgeted costs, the party will either need to absorb the excess or apply for a variation, which is not guaranteed to succeed.
It is far better to budget realistically from the outset. The court will reduce figures it considers unreasonable or disproportionate, but you cannot go back and increase a budget simply because you underestimated.
2. Failing to Include Contingencies
Contingencies are not speculative padding. They are a legitimate part of the budget that reflects the reality of litigation: not everything can be predicted at the CMC stage. Omitting contingencies leaves you with no mechanism to recover costs for unforeseen but entirely foreseeable applications.
3. Inadequate Assumptions
The assumptions column is not optional. It is the single most important part of the budget after the figures themselves. The court will not approve a phase if it cannot understand the basis for the estimate. Assumptions should be specific, not generic. "Preparation for trial" is not a useful assumption. "Preparation of trial bundle of approximately 500 pages, preparation of skeleton argument, preparation of chronology and dramatis personae, and briefing of counsel for a 3-day trial" gives the court something to work with.
4. Mathematical Errors
Precedent H is a spreadsheet, and the formulae should calculate automatically. However, errors arise when the spreadsheet is manually overridden, when rows are inserted incorrectly, or when VAT is not properly accounted for. Always check the totals manually before filing.
5. Including Irrecoverable Costs
Do not include costs that are not recoverable between the parties, such as after-the-event insurance premiums (in most cases), success fees under CFAs (which are no longer recoverable inter partes for post-LASPO cases), or costs that relate to matters outside the scope of the proceedings.
Filing and Exchange Requirements
Timing
Under CPR 3.13, the costs budget must be filed and exchanged no later than 21 days before the first case management conference. The court will usually give directions for costs budgeting at the same time as listing the CMC.
If proceedings are commenced under Part 7, the budget is filed and exchanged with the directions questionnaire. If there is no directions questionnaire (for example, in Part 8 proceedings), the budget must be filed and served as directed by the court.
The Consequences of Filing Late
The consequences of filing a costs budget late are severe. Under CPR 3.14, if a party fails to file a budget by the deadline, the party will be treated as having filed a budget comprising only the applicable court fees.
This is, in effect, an automatic sanction. The court's power to grant relief under CPR 3.9 applies, but following Mitchell v News Group Newspapers Ltd [2013] EWCA Civ 1537, relief will only be granted in limited circumstances. In Mitchell, the budget was filed six days late, and relief was refused. The subsequent decision in Denton v TH White Ltd [2014] EWCA Civ 906 introduced a three-stage test that softened the approach slightly, but the underlying message remains: file on time or face the consequences. Diarise the deadline as soon as the CMC is listed.
The Costs Management Conference
The costs management conference (CMC) is the hearing at which the court considers the parties' budgets and either approves or sets figures for each phase.
What to Expect
The court will have read the budgets and the Precedent R reports. The judge will work through each phase of each party's budget, considering the figures, the assumptions, and any objections from the opponent. The court will either approve the budgeted costs (if satisfied they are reasonable and proportionate) or set different figures. Proportionality is a key consideration: the court will weigh the value of the claim, the complexity of the issues, the importance of the case, and the financial position of the parties.
How to Prepare
Effective preparation for a CMC involves:
1. Review the opponent's budget carefully. Identify any phases where the opponent's estimated costs appear unreasonable and prepare specific objections. Generic challenges ("the costs are too high") carry little weight. Specific challenges ("the estimate of 40 hours for disclosure is excessive given that the documents are limited to a single lever arch file") are far more persuasive.
2. Prepare the Precedent R (budget discussion report) thoroughly. This is the document that tells the court where the parties agree and where they disagree. It should be filed no later than 7 days before the CMC.
3. Be ready to justify every figure. The court may ask questions about specific phases. Be prepared to explain the basis for each estimate and to point to the assumptions that support it.
4. Consider what you are willing to concede. If the opponent challenges a figure and you know it is on the high side, it may be tactically sensible to offer a modest reduction rather than have a larger one imposed by the court.
5. Bring a copy of the budget in a format that allows amendments. If the court adjusts figures, you will need to produce a revised Precedent H reflecting the approved or set figures.
Precedent R: The Budget Discussion Report
Precedent R is the budget discussion report that parties must file before the CMC. It records the areas of agreement and disagreement between the parties on each other's budgets.
The parties should attempt to reach agreement on as many phases as possible before the CMC. In practice, full agreement is rare, but partial agreement narrows the issues the court needs to decide and makes the CMC more efficient.
In practice, one party sends comments on the other's budget and the other responds. The final document should clearly identify phases where figures are agreed, phases where figures are disputed (with brief reasons), and any specific items of concern. The Precedent R must be filed no later than 7 days before the CMC.
After the Budget Is Set: Staying Within Budget
Once the court has approved or set a costs budget, the parties are expected to stay within it. The budgeted figures are not a target to be hit; they are a cap. If costs can be incurred below budget, so much the better.
Monitoring Costs Against Budget
Good practice is to track costs incurred in each phase against the budgeted figure on an ongoing basis. If it becomes clear that a phase will be significantly exceeded, apply for a variation promptly. The court is more receptive to variation applications made before the costs have been incurred than to retrospective justifications.
Applying for a Variation: Precedent T
If there is a significant development in the litigation that means the budget needs to be revised, the party can apply for a variation under CPR 3.15A. The application is made using Precedent T.
Precedent T sets out:
- The phase(s) to be varied
- The current budgeted figure for each phase
- The proposed revised figure
- The reason for the variation (the significant development)
A "significant development" is one that was not anticipated when the budget was approved. Examples include:
- A major amendment to the statements of case
- A significant increase in the number of witnesses or experts
- An unforeseen interlocutory application
- A material change in the complexity or scope of the case
The court will only grant a variation if satisfied that there has been a significant development and that the revised figures are reasonable and proportionate.
The key lesson is this: do not wait until assessment to argue that the budget was inadequate. If the case changes, apply for a variation at the time.
The "Good Reason" Test at Assessment
When a case concludes and costs are assessed, the approved or set budget plays a central role. Under CPR 3.18, the court assessing costs will not depart from the approved or agreed budget unless satisfied that there is good reason to do so.
This applies in both directions. If costs incurred are higher than the budget, the receiving party must show good reason before those costs will be allowed. If costs are lower, the paying party may argue the full budgeted figure should not be awarded, though the court has confirmed in several cases that a budget is not a costs cap in reverse.
What constitutes "good reason" is fact-specific, but the court has indicated it requires something more than simply having spent more than was budgeted. Examples might include a significant development for which no Precedent T application was made, errors in the budget apparent at the time of the CMC, or changes in hourly rates due to a change of solicitor.
The practical effect is that the budget operates as a strong presumption. If costs are within budget, they are likely to be allowed. If costs exceed the budget without a variation having been sought, they are likely to be disallowed.
Practical Tips for Getting the Most Out of Your Costs Budget
1. Prepare the budget early. Do not leave it until the filing deadline. A well-prepared budget requires careful thought about the likely trajectory of the case, and that takes time. Allow at least two to three weeks for preparation, review, and internal sign-off.
2. Get the assumptions right. The assumptions drive the figures. Start with the assumptions for each phase and work backwards to the costs. If the assumptions are specific and well-reasoned, the figures that flow from them are much easier to justify.
3. Budget realistically, not optimistically. The temptation is to keep figures low to avoid the opponent's criticism or the court's scrutiny. Resist this temptation. A budget that is too low is worse than a budget that is too high, because a low budget cannot easily be increased, while a high budget can be reduced by the court.
4. Do not ignore contingencies. Think carefully about what applications might be needed during the case and include them as contingencies. If they do not arise, no cost is incurred. If they do arise, you have a mechanism to recover.
5. Review the opponent's budget critically. The CMC is not just about your budget. If the opponent's budget is unreasonably high, challenging it can reduce the costs you may have to pay if the case is lost. Every pound removed from the opponent's budget is a pound you will not have to pay on assessment.
6. Keep records from day one. Accurate time recording throughout the case makes it far easier to prepare the budget, to monitor costs against the budget, and to justify the figures at assessment.
7. Instruct a costs specialist. Costs budgeting is a technical exercise that benefits from specialist input. A costs lawyer can prepare the budget, draft the assumptions, attend the CMC, and monitor costs throughout the case.
8. File on time. The consequences of late filing under CPR 3.14 are draconian, and relief from sanctions is not readily granted. Treat the filing deadline as immovable.
9. Use the CMC strategically. The CMC is an opportunity to set the costs framework for the entire case, securing a realistic budget for yourself while constraining the opponent's costs.
10. Apply for variations promptly. If the case develops in a way that was not anticipated, apply for a Precedent T variation as soon as the development becomes apparent. Do not wait until assessment.
How Mackenzie Costs Can Help
Costs budgeting requires specialist knowledge to get right. Mackenzie Costs prepares Precedent H budgets and provides advocacy at costs management conferences for law firms across England and Wales. Contact us for support with your next budget.
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