Cost Recovery Agreement Definition

A cost recovery agreement, also known as a cost sharing agreement, is a contractual arrangement between two or more parties where they agree to share the costs of a particular project or venture. The agreement outlines the specific expenses that the parties will share and the percentage each party will contribute.

Cost recovery agreements are commonly used in industries such as oil and gas, where multiple parties may invest in exploration and development of a particular oil field. In this type of situation, a cost sharing agreement helps to manage the costs of the project and ensures that all parties involved are contributing equally.

In addition to outlining the costs that will be shared, a cost recovery agreement also typically includes provisions for how the project will be managed, how any profits will be distributed, and how disputes will be resolved.

One important aspect to consider when entering into a cost recovery agreement is the allocation of risk. Parties may agree to allocate risk based on the percentage of costs they are responsible for. For example, if one party is responsible for 80% of the costs, they may also bear 80% of the risk associated with the project.

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In conclusion, a cost recovery agreement is a contractual arrangement between parties where they agree to share the costs of a particular project or venture. It is essential to ensure that the agreement outlines the specific costs that will be shared, how they will be managed, and how profits and risks will be allocated. For businesses and legal professionals, understanding the definition of a cost recovery agreement can help ensure they are able to effectively negotiate and manage these types of contracts.

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