"During months where no time on site is required, time spent on this project will be capped at 20 hours".
in English means:
During months where no time on site is required, time spent on this project will have a top limit in terms of hours of 20 hours.
to cap=to set a maximum limit to something
You can work off-site when on-site work is not needed, but no more than the maximum limit of 20 hours.
There may be a legal interpretation of this sentence but it is not relevant to understanding what it means in English.
For example, some country or part of a country (state or region) may have special rules regarding working hours, but that does not change what the sentence says in non-legal terms.
: an upper limit (as on expenditures) : CEILING
a cap on military spending
I can't see whether this is per month or per week.