TSA Renegotiation
Cut the catalog. Cut the cost.
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TSA service catalog rationalization is the line by line review that cuts 15 to 30 percent of the catalog within the first 90 days. The seller's draft reflects what the seller used to deliver, not what Newco needs. The mark-up on every catalog line compounds the cost of carrying services no one actually uses. This article maps the review as part of the broader TSA cost reduction framework.
The seller's TSA team builds the catalog by extracting the shared services that supported the carved-out entity in the year before signing. The extraction is comprehensive because the seller's commercial interest is to capture every charge the buyer might owe and because the seller's legal interest is to specify every service the seller is obligated to provide. Both interests push toward over inclusion.
The catalog also reflects the seller's operating model, which is rarely the right model for Newco. Shared services pricing the seller used internally is built around the seller's scale, the seller's overhead structure, and the seller's allocation methodology. Applied to a smaller, simpler, faster moving Newco, the same catalog overcharges for services Newco can stand up cheaper, and overcharges for services Newco does not actually need.
Most catalogs published at signing contain 200 to 600 line items. By the time the buyer maps each line to a current consumer inside Newco, 15 to 30 percent of those lines are revealed as services Newco does not consume, services already replaced, or services where the unit of measure inflates the charge. Each of these is a line carrying a mark-up that should not exist.
The pre-signing review that anchors the catalog at signing is covered in TSA pre-signing leverage. The post close rationalization picks up the lines that survived the pre-signing review and tests them against operational reality.
The review takes four to six weeks. Week one is the catalog extract and the consumer mapping. The catalog is pulled from the TSA. Each line is assigned to a Newco workstream lead who is responsible for confirming or denying consumption. The exercise is deliberately rapid. Slow data collection across many workstreams gives the seller time to introduce friction.
Week two is operational verification. The workstream leads sit with their teams and run each catalog line against actual usage. Some lines map cleanly. Some are duplicated by Newco capabilities that already exist. Some had been replaced by Newco's interim solutions during the deal phase. Some are services that nobody in Newco recognizes.
Week three is the data validation. The seller is asked to provide consumption data for every line where Newco has not confirmed usage. The seller's data is reconciled against Newco's records. Discrepancies are documented. Where the seller cannot evidence consumption, the line moves to the termination list.
Week four is the disposition decision and the formal notice. Each line on the termination list gets a notice issued under the TSA. Each line on the volume restatement list gets a written request for rate card adjustment. Each line on the keep list is acknowledged and signed off. The catalog as adjusted becomes the operating document going forward.
Every catalog line ends in one of four dispositions. The first is terminate, used when Newco does not consume the service at all and never will. Termination notices are issued under the TSA termination clause, typically with 30 to 90 days notice. The line stops appearing on the invoice after the notice period.
The second is reduce volume, used when Newco consumes the service at a lower volume than the catalog assumes. The catalog rate card may have been built on a unit count that has dropped substantially. The volume restatement letter documents the new consumption pattern and requests a corresponding rate adjustment. Some catalogs are priced on actuals and adjust automatically. Others are priced on a fixed allocation and require renegotiation.
The third is replace, used when the buyer plans to substitute the seller's service with a Newco capability before the end of the TSA. The catalog line is kept active but a workstream exit plan is built around it. The exit date is documented and the termination notice is issued ahead of that date.
The fourth is keep, used for services Newco genuinely consumes and cannot replace before the end of the TSA. These are the workstreams that drive the exit plan. They get the program's attention. They are the lines where the buyer optimizes for service quality and where the SLA matters most.
Sellers resist catalog rationalization in three predictable ways. The first is the bundling argument. Lines are bundled in the catalog and the seller claims they cannot be priced separately. The buyer's response is to reference the rate card. If the catalog has line-level pricing, the lines are separable. If the seller bundled the catalog at signing, the buyer's pre-signing review should have unbundled it. Where it was not unbundled, the buyer asks for the cost basis of the bundle and renegotiates accordingly.
The second is the minimum charge argument. The seller claims that even if Newco does not consume a service, the seller has stood up the capability to deliver it and must charge a minimum. This argument is sometimes defensible for capacity that takes months to scale down. It is rarely defensible for services that are administrative rather than capacity bound. The buyer presses on the cost basis. If the seller cannot show a real fixed cost being incurred, the minimum charge is not commercially defensible.
The third is the dependency argument. The seller claims that terminating a line will break another service that Newco does consume. Sometimes this is true. The catalog has structural dependencies that the seller knows and the buyer does not. The buyer's response is to ask the seller to map the dependency explicitly. Once mapped, the dependent service can be rationalized too, or the dependency can be engineered around as part of the exit plan.
In every case the buyer's posture is documented and commercial. The dispute resolution clause is the backstop. Most rationalization disputes settle within 30 days because the seller's commercial calculation favours settlement over formal escalation.
A 15 to 30 percent reduction in the catalog is not a 15 to 30 percent reduction in TSA cost. Some lines carry more cost than others. The terminated lines tend to be smaller. The kept lines tend to be larger. But the cumulative effect on the TSA bill is still material, usually 8 to 18 percent of total TSA spend over the remaining term.
On a $20M annual TSA, an 8 to 18 percent reduction is $1.6M to $3.6M in the first twelve months. The same cut on a multi year TSA compounds. The catalog cuts are also the foundation for further savings. A rationalized catalog is the starting point for extension fee renegotiation, for stranded cost elimination, and for the audit work that follows. Each subsequent cost reduction tactic produces more when the catalog has been rationalized first.
The buyer also gains operational benefit. The remaining catalog is the catalog the workstream leads have signed off as the catalog Newco actually consumes. The governance committee can focus its attention on the lines that matter. The SLA discussions can prioritize the services that are operationally important. The invoice review cycle gets shorter and sharper because the noise has been removed.
The rationalization output becomes a reference document for the rest of the TSA. It is the cleaned baseline against which subsequent invoices are reconciled. It is the input to the TSA stranded cost elimination sweep that runs quarterly. It is the artifact the PE operating partner sees when reviewing the program's cost discipline.
The rationalization has to happen in the first 90 days. By month four the seller's invoicing rhythm is established and changes to the catalog become operationally disruptive on the seller's side. By month six the workstream leads have other priorities. By month nine the exit plan is what they are focused on and the catalog cleanup never happens.
The first 90 days is also when the buyer's commercial leverage is highest. The seller is in stand-up mode, has staff allocated to the TSA, and has commercial incentive to keep the relationship working smoothly. A catalog rationalization request that arrives in month two is treated as a normal part of the program. The same request in month ten is treated as a dispute.
The rationalization also feeds the operational planning. The catalog cuts identify the workstreams that have the simplest exit path. Those workstreams move to the front of the exit plan. The catalog cuts also identify the workstreams that are deeply embedded and will take the full TSA term to exit. Those workstreams get the program's investment in cutover planning, in systems integration capacity, and in change management.
The rationalization is not separate from the exit plan. It is the first analytical move that defines the exit plan. A buyer that has rationalized the catalog has a clearer view of what has to happen, by when, and at what cost. The seven tactic framework in TSA cost reduction tactics starts here.
The seven moves disciplined buyers apply to cut TSA charges by 20 to 40 percent without service degradation.
Read the article →How to break the extension fee curve before it triggers and reset the rate for the remaining workstreams.
Read the article →What fair TSA pricing looks like by sector, by service category, and by mark-up percentage.
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Seven buyer-side moves to exit a Transition Services Agreement on time and below budget. The mark-up, the extension-fee curve, exit sequencing, and the 11-month calendar.
A representative $48M-revenue carve-out lists fourteen services in its TSA. When the catalog is vague — scope by reference, exclusions unstated, exit terms set only at the master-agreement level — the same estate drifts to $6.8M over twelve months. Pinned to the per-service template below, it runs to $5.1M in nine.
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