How do you calculate an interim payment in costs managed cases?
This question was answered by Deputy Judge Joanna Smith QC in Cleveland Bridge UK Limited v Sarens (UK) Limited  EWHC 827 (TCC).
1. An agreed or approved Costs Budget.
2. Any estimated costs that were never in fact incurred.
3. Any additional recoverable costs that were not included in the budget.
Step one: Take the agreed or approved costs budget and divide this figure into two parts (1) costs incurred and (2) budgeted costs.
Step two: Take the agreed or approved budgeted costs as a starting point. If there are any estimated costs that were never in fact incurred, deduct these from the budgeted costs. This should give you an ‘adjusted figure’ to work with. Put aside no more than 10% of the adjusted figure, leaving the balance to be added to step three.
Step three: Take the incurred costs from the agreed or approved costs budget and add any additional recoverable costs that were not included in the costs budget (e.g. costs of applications). Reduce this total to a sum which seems about right. In doing so, try not to make any complex adjustments to reflect challenges to hourly rates, pre-action costs, etc. as these will be addressed at the detailed assessment. Instead, take a broad view of what is likely to be allowed by a costs officer and award a figure that allows for a reasonable margin for error, say about 70%.
Step four: Combine the totals for steps two and three to produce a payment on account figure that looks about right.