Costs Budget: What Is Costs Budgeting and When Is It Required?

A costs budget sets out the legal costs already incurred and the estimated costs of the remaining stages of litigation. Costs budgeting allows the parties and the court to consider whether the proposed work, and its expense, are appropriate for the dispute.

For solicitors, a realistic budget helps explain likely expenditure to the client and supports eventual costs recovery. An incomplete budget can leave necessary work inadequately funded, while unsupported estimates may be reduced. The starting point is understanding which rules apply, when the budget must be filed and what the case will actually require.

What is the difference between a costs budget and costs budgeting?

A costs budget is the document recording expenditure by litigation phase. Costs budgeting is the wider process of preparing that document, discussing it with opponents, obtaining approval where required and monitoring expenditure as proceedings develop.

It forms part of the court’s costs management powers under the Civil Procedure Rules. Effective cost management connects the litigation timetable with the resources needed to complete it, rather than treating the figures as a separate administrative exercise.

A budget is not the same as a bill of costs. The budget forecasts expenditure; the bill records the costs claimed once the relevant work has been undertaken.

When is costs budgeting required?

The ordinary regime under CPR 3.12 applies to Part 7 multi-track proceedings, subject to exceptions. These include certain claims valued at £10 million or more, claims brought by or on behalf of children, and proceedings subject to fixed or scale costs.

The court can also order budgeting in proceedings outside the ordinary regime. Practice Direction 3D states that the court will ordinarily disapply cost management where the claimant has a limited or severely impaired life expectancy of five years or less.

Check applicable court orders and practice directions before assuming that a multi-track claim requires a standard budget.

Check whether a simplified budgeting pilot applies

The pilots under Practice Directions 51ZG1, 51ZG2 and 51ZG3 apply to specified proceedings issued from 6 April 2025 to before 6 April 2028. Depending on the claim and court, these can require simplified Precedent Z budgets and different procedures. The usual Precedent H approach should not be applied automatically.

When must you file a costs budget?

Under the ordinary CPR 3.13 regime, unless the court orders otherwise, represented parties must ensure budgets are filed and exchanged:

• With their directions questionnaires where the stated claim value is below £50,000.
• No later than 21 days before the first case management conference in other cases.

Litigants in person are generally exempt from preparing budgets under this rule, but represented opponents must provide them with copies.

Preparation should begin well before the deadline. Solicitors need time to obtain counsel’s estimates, expert quotations and instructions about the proposed evidence. Waiting for every detail to become certain can leave insufficient time to prepare a defensible forecast.

Costs budgets: Precedent H and what to include

Precedent H separates incurred costs from estimated future costs across phases such as statements of case, disclosure, witness statements, expert reports, trial preparation and trial.

Under Practice Direction 3D, only the first page is required where total incurred and estimated costs do not exceed £25,000, or the stated claim value is below £50,000, unless otherwise ordered.

Useful preparation involves checking the pleadings, proposed directions, time records, fee earner allocation, counsel’s involvement and anticipated disbursements. Estimates should reflect the work required in this case, rather than copying allowances from a previous matter.

For example, disclosure involving a small collection of documents requires different resources from reviewing thousands of electronic records. The assumptions supporting the budget should make that distinction clear.

How should expert evidence be budgeted?

Expert evidence can materially affect both expenditure and the timetable. Budgeting should consider report preparation, questions, expert discussions, joint statements and attendance at trial where appropriate.

A quotation covering only the initial report may underestimate the overall requirement. Clarify what each expert’s estimate includes and how it fits the proposed directions.

Allowing money in a budget does not itself grant permission to rely on an expert. Evidence requirements and the corresponding costs need to be considered together. Equally, avoid duplicating expert fees or solicitors’ work across different phases.

What is a budget discussion report?

After exchanging budgets, parties should identify which phase totals can be agreed and which remain disputed. Under the ordinary regime, the budget discussion report must be filed no later than seven days before the first case management conference.

Precedent R records agreed figures, disputed figures and brief reasons for disagreement. An agreed budget, or agreement on individual phases, can narrow the issues requiring judicial consideration.

Useful objections explain the problem: excessive estimated hours, duplicated work or assumptions inconsistent with the proposed directions. A competing total without supporting reasons offers little assistance.

What happens at a budget hearing?

Budgets may be considered at a costs and case management conference or a separate budget hearing. The court considers whether the phase totals represent reasonable and proportionate costs, rather than conducting a detailed assessment in advance.

A costs management order records the extent of agreement and the approval of disputed budgeted costs, with any revisions. Future costs may therefore be agreed between the parties or approved by the court. The hearing does not fix the recoverable hourly rates.

Costs incurred before the budgeting stage are not approved in the same way. They may attract judicial comments and remain subject to assessment unless agreed. Following approval or agreement, the budget must be re-filed and re-served in the required form.

What happens if you fail to file a costs budget?

Under CPR 3.14, if you fail to file a budget when required, you are treated as having filed one comprising only applicable court fees, unless the court otherwise orders.

Relief from sanctions may be needed. Act promptly and obtain advice rather than assuming the opponent’s agreement resolves the default. The simplified pilots have their own sanctions provisions, so identify the applicable procedure first.

Can an approved costs budget be changed?

CPR 3.15A requires upward or downward revisions where significant developments warrant them. Proposed changes must be addressed promptly, using Precedent T under the ordinary regime.

A substantial expansion of the issues or evidence may justify revision. Simply spending more than anticipated does not automatically establish a significant development. Monitor expenditure by phase and investigate departures while there is time to respond.

How does a costs budget affect detailed assessment?

Where a costs management order exists, CPR 3.18 requires the court, on standard basis assessment, to have regard to the last approved or agreed budget for each phase and not depart from it without good reason.

Approval does not guarantee payment of the entire budget. Entitlement to costs, the work actually undertaken and the treatment of incurred costs still matter. Keeping accurate phase-based records helps connect the eventual claim with the budget.

How ARC Costs can help

ARC Costs assists with preparing Precedent H budgets, reviewing opponents’ figures, budget discussion reports and representation at budgeting hearings. Early specialist input helps connect estimates with the evidence, proposed directions and practical demands of the litigation.

Contact ARC Costs on 01204 397302 or info@arccosts.co.uk to discuss costs budgeting support.