Piggyback expenses: Overview, definition, and example
What are piggyback expenses?
Piggyback expenses refer to additional costs incurred by one party that are covered or reimbursed by another party. In the context of contracts or business agreements, this often refers to expenses that are added to the overall cost of a service or project. For example, one company may incur expenses while performing a service, and these expenses are then passed on to a client or another party as part of the total cost. These expenses are typically pre-agreed upon or outlined in the contract.
For example, if a contractor needs to rent equipment to complete a job, the cost of that rental might be considered a piggyback expense and added to the final invoice for the client to cover.
Why are piggyback expenses important?
Piggyback expenses are important because they ensure that the party incurring additional costs is reimbursed or compensated for those expenses. This helps prevent one party from bearing the burden of costs that were not originally anticipated. For businesses, including piggyback expenses in a contract can provide clarity and prevent disputes regarding who is responsible for additional charges.
For clients, understanding piggyback expenses in advance can help manage expectations and budget for any additional costs that may arise during the course of a project or service.
Understanding piggyback expenses through an example
Imagine a marketing agency hired to run a campaign for a client. The agency needs to purchase advertising space, and the cost of that space is a piggyback expense that will be added to the final invoice for the client. The client, in this case, agreed beforehand to cover these types of additional costs, ensuring that the agency is reimbursed for the expenses it incurs while executing the campaign.
Another example could involve a construction project where a subcontractor is hired to perform specific tasks. The subcontractor may incur costs for materials or specialized tools needed for the job, and these piggyback expenses are passed on to the main contractor, who in turn invoices the property owner for the full amount.
An example of a piggyback expenses clause
Here’s how a piggyback expenses clause might look in a contract:
“In addition to the agreed-upon fees, the Client agrees to reimburse the Contractor for any piggyback expenses incurred during the performance of the services, including but not limited to travel costs, materials, and equipment rentals, as outlined in Section [X]. The Contractor shall provide documentation for all such expenses.”
Conclusion
Piggyback expenses are additional costs incurred by one party and covered or reimbursed by another party, often outlined in contracts to ensure clarity and fairness. These expenses are particularly important in business agreements where unforeseen costs may arise. By clearly addressing piggyback expenses in contracts, both parties can manage expectations and avoid disputes over who is responsible for covering these additional charges.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.