Seven TSA cost reduction tactics that actually move the number.

Cut the service catalog to what Newco actually consumes.

The service catalog the seller drafted reflects what the seller used to deliver, not what Newco needs to consume. Reviewing the catalog line by line is the first cost reduction move. Most catalogs contain 15 to 30 percent of services that the carved-out entity does not actually use, has already replaced, or never used in the first place. Each one is a billable line item carrying a mark-up.

The exercise takes four to six weeks. Pull the catalog. Map each service to a current consumer inside Newco. Verify consumption against actual usage data, not against assumptions. Identify the lines where consumption is zero or near zero. Identify the lines where consumption is duplicated by something Newco already owns. Identify the lines where the unit of measure inflates the charge.

Each line then has a clear disposition. Keep, reduce volume, terminate, or replace. Terminations require formal notice under the TSA, usually 30 to 90 days. Volume reductions require written notice that the consumption pattern has shifted and that the rate card no longer reflects what Newco buys. The savings show up on the next invoice cycle.

A disciplined catalog review on a 12 month TSA pays for itself in the first 90 days. The pattern in detail sits in the companion article on TSA service catalog rationalization.

Audit the mark-up against actual cost.

Cost-plus pricing is two numbers, cost and mark-up. The seller controls how cost is calculated. The buyer who does not audit the cost basis is paying mark-up on whatever the seller decides to allocate. Audit rights exist in most TSAs and most buyers do not use them. Using them in the first 90 days resets the relationship.

The audit looks at three things. The allocation methodology, the labor rates, and the overhead loading. Allocation methodology is whether costs are allocated by headcount, by revenue, by transaction volume, or by something the seller designed to inflate the carved-out entity's share. Labor rates are whether the seller is charging fully loaded blended rates that overstate the actual cost of delivery. Overhead loading is whether the indirect cost pool reflects the services actually consumed or whether it absorbs unrelated corporate cost.

A typical audit finds 5 to 15 percent in cost base overstatement. On a $20M annual TSA, that is $1M to $3M in mark-up the buyer was paying on costs that were never actually incurred for the carved-out entity. The audit produces a written finding and a renegotiated rate card. The seller pays back the overstatement and resets the basis.

The benchmarks that anchor what a fair mark-up looks like by industry are covered in TSA mark-up benchmarks.

Verify every pass-through against the underlying invoice.

Pass-through charges are supposed to be at cost. In practice, most pass-through invoices include a hidden mark-up, an allocation factor that inflates the buyer's share, or an entirely fabricated cost the seller cannot document. The audit is straightforward. For every pass-through line on the TSA invoice, request the underlying third-party invoice. Reconcile line by line.

Sellers resist this. The standard objection is that the underlying invoice is confidential or that the buyer is not entitled to it. The TSA's audit clause and the basic legal principle that a buyer cannot be charged for a pass-through cost without documentation defeat this objection in writing. The buyer's procurement leadership or external counsel send a formal request, and the underlying invoices arrive within 30 days.

The reconciliation finds three patterns. Mark-up applied to pass-through, allocation factors that overstate the carved-out entity's share, and charges that have no matching underlying invoice at all. Each pattern produces a credit and a corrected billing methodology going forward.

The full audit method is documented in TSA vendor cost pass-through audit. The result on a typical TSA is 3 to 7 percent of total TSA spend recovered in credits and the same again in avoided future charges.

Break the extension fee curve before it triggers.

Most TSAs include an extension fee curve. 50 percent uplift in the first extension quarter, 100 percent in the second, 150 percent in the third. The curve is designed to force the buyer out. When the exit plan slips, the curve becomes the single largest cost line on the TSA. Breaking the curve is the highest leverage cost reduction move in any TSA over six months old.

The negotiation starts 90 days before the original end date. The buyer presents a documented exit plan, a list of remaining workstreams, and the operational reason the curve cannot apply. The seller's counterargument is that the curve was negotiated and signed. The buyer's counterargument is that the seller's own delays, the seller's own data quality issues, or the seller's failure to deliver a specific service have caused the slip.

The settlement is usually a flat extension at the existing rate for the remaining workstreams that depend on the seller, with the rest of the catalog terminated. The seller accepts because the alternative is a dispute, a service credit claim, or a public posture that the seller obstructed the exit.

The full negotiation script for resetting the extension fee curve is in TSA extension fee renegotiation. Buyers that prepare 90 days in advance avoid the curve. Buyers that wait pay it.

Find the stranded costs and kill them.

Stranded costs are the charges Newco keeps paying after the service has been exited. The seller still bills the licence. The seller still bills the headcount allocation. The seller still bills the data centre footprint. Each one continues until someone reads the invoice line by line and asks why the charge is still there.

The stranded cost sweep happens at four points. 30 days after each workstream exit, at the end of each quarter, at the original TSA end date, and at final termination. Each sweep compares the current invoice against the active service catalog and identifies lines that should have ended. Some are administrative errors the seller corrects. Some are deliberate, where the seller is hoping the buyer does not notice.

A second category of stranded cost lives on the buyer's side. Licences and infrastructure the buyer stood up for Newco that the buyer is still paying for under the seller's contracts. Telecom circuits, software licences, professional services retainers. These are easier to find and easier to kill. They simply require someone to maintain the list and process the terminations.

A 12 month TSA typically carries 5 to 10 percent of its total cost as stranded charges by month nine. The mechanics of finding and eliminating them are in TSA stranded cost elimination.

Claim service credits when the SLA breaks.

Service credits exist in the TSA and most buyers never claim them. The SLA defines a threshold. The seller misses the threshold. The credit is owed. The seller does not volunteer the credit. The buyer has to claim it in writing under the procedure set out in the contract. Buyers that maintain the discipline collect 1 to 3 percent of the TSA value in credits over a 12 month engagement.

The discipline starts with measurement. The buyer instruments its own monitoring against every SLA metric. Availability, response time, ticket resolution, error rates, capacity. The seller's self-reported numbers are not trusted. They are reconciled against the buyer's measurement and any discrepancy is flagged.

Each breach produces a credit claim. The claim is filed in writing within the contractual notice period, usually 10 to 30 days. The seller verifies the breach and applies the credit on the next invoice. Disputed claims are escalated to the governance committee and resolved through the formal dispute process. Buyers that file claims for every breach establish the pattern that the SLA is real.

The credit framework, the claim language, and the dispute path are in TSA credits and remedies.

Manage the true-up on your terms.

The annual true-up is the seller's mechanism to reconcile the year's actual cost against the budgeted rate card. Most true-ups arrive as a single large invoice in month 13 and most buyers pay them without contesting the underlying math. The true-up is negotiable, and the buyer has formal audit rights against the calculation.

The buyer's posture starts mid year. Quarterly reviews of actual cost versus budgeted rate, with a written request for the seller to share its run rate cost trend. By month 10 the buyer has a model of what the true-up will likely demand. By month 12 the buyer has reviewed the underlying cost data and has identified the line items where the true-up overstates the actual cost.

The negotiation that follows reduces the true-up by 20 to 50 percent in most cases. The pattern, the calculation, and the documentary evidence the buyer needs to push back are covered in TSA true-up management. The single largest mistake buyers make on TSAs over twelve months is paying the true-up without contesting it.

Applied together, these seven tactics cut TSA spend by 20 to 40 percent on a typical engagement. They are not theoretical. They are the moves disciplined buyers make every week.

More on TSA cost reduction.