Service credits are contract money. Most buyers leave them uncollected.

The five remedies in a typical TSA.

A typical TSA contains five remedy mechanisms. Service credits for SLA breach. Fee adjustments for scope shortfall. Liquidated damages for specified failures. Refunds for overcharges identified in audit. And the right to terminate without penalty for material breach. Each has its own claim mechanism, evidence requirement, and timing. The buyer needs to understand all five to know what to ask for and when.

Service credits are the most common and the least claimed. The contract specifies a credit amount when the seller fails an SLA threshold. The credit is automatic in theory. In practice the seller does not issue it unless the buyer raises the claim with documentation. Most buyers do not track SLA performance closely enough to know they have earned a credit.

Fee adjustments apply when the seller fails to deliver a scoped service. The seller charged the catalog fee. The service was not provided in full. The fee adjustment reduces the charge proportionally. The claim references the catalog scope, the seller’s actual delivery, and the gap.

The other three remedies, liquidated damages, refunds, and termination rights, apply less often but carry larger dollar amounts. The buyer should know the contract’s position on each one. The detailed mechanics around SLA enforcement sit in TSA service-level clauses.

Service credits and the claim mechanism.

Service credits are structured the same way across most TSAs. Each SLA has a defined target. Missing the target triggers a credit. The credit is usually expressed as a percentage of the monthly service fee for that SLA category. A 99.5 percent uptime SLA missed by 0.5 percentage points might trigger a 5 percent service fee credit for that month. The contract specifies the exact schedule.

The claim flow runs in three steps. First, the buyer documents the SLA breach using the seller’s own reporting where available, supplemented by the buyer’s monitoring where the seller’s reports are incomplete. Second, the buyer submits a written claim within the contractual window, typically 30 to 60 days from the end of the reporting period. Third, the seller either issues the credit or disputes the claim within a stated window.

The credit is applied against future invoices or, less often, paid as a cash refund. Most TSAs default to invoice credit. The mechanism matters because invoice credits assume the TSA continues. Where the TSA is ending, the buyer should request cash settlement of outstanding credits as part of the exit reconciliation.

The aggregate dollar value of unclaimed service credits across a typical TSA runs 1 to 4 percent of total service fees. On a $20M annual TSA, that is $200K to $800K per year. The recovery rate against claimed credits is high. Sellers concede most claims when the documentation is in order.

Fee adjustments for scope shortfall.

A fee adjustment claim arises when the seller charged the catalog fee but delivered less than catalog scope. Common scenarios include a service that was unavailable for part of the month, a service that was partially delivered, or a service where the seller substituted a lower tier offering without authorization. The remedy is a proportional reduction in the catalog fee for the period of shortfall.

The claim documents three things. The catalog scope as agreed. The seller’s actual delivery during the period. The proportional shortfall calculation. The calculation methodology matters. The buyer’s approach is typically based on the percentage of scope that was not delivered. The seller’s default response is to argue that the catalog fee was set with a buffer for normal variation. The negotiation closes at a number that reflects the material shortfall.

Fee adjustments are more contested than service credits because the methodology is less explicit in the contract. Service credits run on a published schedule. Fee adjustments require both parties to agree on the calculation. The buyer’s leverage is the contract scope statement. Where the scope is precisely defined and the seller’s shortfall is documented, the adjustment is hard to dispute.

The discipline that supports fee adjustment claims is the monthly operational review where the buyer’s receiving function tracks delivery against catalog. Gaps are flagged in writing within the billing cycle. The pattern overlaps with the broader TSA overcharge identification framework.

Liquidated damages and specified failures.

Some TSAs include liquidated damages clauses for specified failures. The clause sets a fixed dollar amount payable when a defined event occurs. Common examples include failure to deliver Newco’s payroll on the agreed schedule, failure to provide the data extract by a stated date, or failure to support a defined Day One activity. The amount is set to reflect the cost to the buyer of the failure, capped at a level the seller will accept at signing.

Liquidated damages are negotiated at the pre-signing stage. They are most useful where the buyer can identify specific high impact failures in advance. A payroll failure in month one carries a defined operational cost that the buyer can quantify. The seller resists open ended exposure but accepts a capped figure where the alternative is a general indemnity.

Where the clause exists, the claim mechanism is the same as for service credits. Documented breach. Written claim within the contractual window. Seller acceptance or dispute. The amount is fixed by contract. The dispute typically centers on whether the triggering event meets the contract definition.

Most TSAs as drafted by the seller do not contain liquidated damages clauses. They are negotiated in by buyers who anticipate the high impact failures during the TSA pre-signing leverage window. Once signed without them, the buyer falls back on general breach remedies which carry higher proof requirements.

Refunds from audit and the true up.

Refunds arise from the audit process and the annual true up. They differ from service credits and fee adjustments because they are typically settled as cash rather than as future invoice offsets. The contract should specify the settlement mechanism. Most TSAs provide that refunds owed at the annual true up are settled within 30 days of the agreed reconciliation.

Audit refunds run through the contractual audit right. The buyer engages an independent auditor where the routine reconciliation finds material variance or where the seller has failed to provide adequate documentation. The audit identifies overcharges. The seller refunds them. Where the audit finds variance above a stated threshold, the audit cost shifts to the seller.

True up refunds flow from the annual reconciliation of variable charges, allocations, pass-through, and cost-plus. The mechanics are spelled out in TSA true-up management. The credit calculation is structured. The settlement is on a fixed timeline. The buyer needs to be ready with the queries log to ensure the calculation reflects the contract.

Refunds are the largest remedy category in dollar terms across a typical TSA term. The annual true up plus the terminal true up plus any audit refunds together return 2 to 5 percent of total spend. The buyer that does not enforce them forfeits the largest portion of contract money on the table.

Termination rights as the ultimate remedy.

The fifth remedy is the right to terminate without penalty for material breach. This is the ultimate remedy and rarely invoked in TSAs because the buyer typically needs the services to continue. The threat of termination is more useful than the act of termination. A material breach termination shifts the negotiating posture toward the buyer in any subsequent discussion of fees, scope, or extension.

The contract defines what constitutes material breach. Repeated SLA failures. Failure to remediate after notice. Failure to deliver a critical service. The cure period is specified, typically 30 to 60 days from written notice. Where the seller fails to cure, the buyer has the right to terminate, accelerate exit, and claim damages.

In practice the termination right is used to drive renegotiation. The buyer issues a notice of breach. The seller cures or proposes a commercial settlement. The settlement often includes a fee reduction, extended exit timeline at favorable terms, or both. The clause is most valuable as posture.

A buyer that maintains discipline across all five remedy categories typically recovers 3 to 7 percent of total TSA spend across the contract term. The work is administrative. The recovery is real. The link between credits, remedies, and the exit sequence runs through the TSA dispute resolution process.

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