Who actually performs the service matters.

Section 01

Why subcontracting is a buyer issue.

When the seller subcontracts a TSA service, the buyer still pays the seller, but a third party does the work. That introduces a party the buyer did not diligence, did not price, and cannot directly hold to account. If the subcontractor underperforms, the buyer's recourse runs through the seller, who may have weaker visibility into its own vendor than the buyer assumes. The result is a service the buyer depends on, controlled by a company it never met.

The risk is sharpest where the subcontracted service touches data, regulated processes, or the buyer's customers. A payroll function subcontracted to an offshore processor, a support line handed to an outsourcer, or an application managed by a third party each create exposure that the buyer should understand before signing. The seller's incentive is to keep subcontracting flexible and quiet. The buyer's interest is to know who performs every material service and to keep the seller fully responsible for it.

Subcontracting is not always bad. Sellers routinely use vendors for parts of their own operations, and forbidding it entirely is unrealistic and can raise the cost of the TSA. The buyer's goal is control, not prohibition. The right clause lets the seller subcontract where it already does, while giving the buyer consent over new arrangements, full flow down of obligations, and a single point of accountability that never moves off the seller.

Section 02

The three controls that matter.

The first control is consent. The buyer should require its prior written consent before the seller subcontracts any material service not already disclosed at signing. Consent should not be unreasonably withheld, which protects the seller from obstruction, but the buyer keeps the right to evaluate a new subcontractor before it touches the service. Existing subcontractors disclosed in a schedule at signing can be grandfathered, so the clause governs change rather than the status quo.

The second control is flow down. Every obligation the seller owes the buyer should pass through to the subcontractor by contract. Service levels, data protection, confidentiality, audit rights, and security standards must bind the subcontractor to the same degree they bind the seller. Without flow down, the buyer's protections stop at the seller's door and the subcontractor operates under weaker terms the buyer never sees.

The third control is accountability. The seller remains fully liable for the acts and omissions of its subcontractors as if they were its own. This is the most important sentence in the clause. It means the buyer never has to chase a subcontractor directly and never hears the seller argue that a failure was the vendor's fault rather than its own. The seller chose the subcontractor, so the seller owns the result. How accountability connects to third party consents is covered in TSA third party vendor consents.

Section 03

Disclosure and the subcontractor schedule.

The buyer should require a schedule listing every subcontractor the seller intends to use at signing, the service each performs, and the location where the work is done. This schedule does the diligence work the buyer cannot do alone. It surfaces offshore processing, regulated handlers, and vendors with access to buyer data, all of which carry consequences the buyer needs to price before the TSA starts.

Location matters because it drives data protection and regulatory exposure. A service subcontracted to a vendor outside the buyer's jurisdiction can trigger cross-border data transfer rules, additional contractual safeguards, and regulatory filings the buyer must complete. The schedule lets the buyer map these obligations before Day One rather than discovering them during an audit. Where data crosses borders, the issues compound, as set out in cross-border TSA considerations.

The schedule also creates a baseline for change control. Once the buyer knows the subcontractor population at signing, any addition or substitution becomes a visible event that triggers the consent right. Without the baseline, the seller can rotate vendors quietly and the buyer never knows the service moved. The schedule turns subcontracting from a hidden process into a governed one.

Section 04

Where sellers push back.

The first pushback is on consent. The seller argues that requiring consent for every subcontractor is operationally impractical and slows delivery. The buyer addresses this by limiting the consent right to material services and to subcontractors not already disclosed, and by accepting a reasonable consent standard with a defined response window. That keeps the seller moving while preserving the buyer's veto over new exposure.

The second pushback is on accountability. The seller wants to limit its liability for subcontractor failures, sometimes by passing through only the recovery it can obtain from the vendor. The buyer should refuse. The seller selected and manages the subcontractor and must stand fully behind it. A pass through of liability turns the buyer into the subcontractor's unpaid credit risk, which is not what the buyer agreed to pay the seller for.

The third pushback is on flow down audit rights. Sellers resist letting the buyer audit a subcontractor directly, citing vendor confidentiality. The reasonable middle ground is that the seller audits the subcontractor on the buyer's behalf and shares the results, with the buyer retaining a direct right where a material breach or regulatory requirement demands it. The audit architecture is discussed in TSA audit rights.

Section 05

Setting the rule before Day One.

Subcontracting rights are a pre-signing clause because the leverage to set them disappears once the TSA is live and the seller has already placed the work. The buyer that negotiates consent, flow down, and accountability before signing controls the population of subcontractors from the start. The buyer that leaves the clause loose inherits whatever arrangement the seller prefers and learns the details only when something breaks.

The practical sequence is straightforward. Require the subcontractor schedule during diligence, set the consent right for new and material arrangements, flow every obligation down by contract, and keep the seller fully accountable. Confirm the clause aligns with the data protection, audit, and service level provisions so the protections reinforce rather than contradict each other.

The buyer that gets this right rarely thinks about subcontracting again, which is the point. A well drafted clause makes the question of who performs the service invisible to the buyer because the seller carries the full weight of the answer. That is the difference between a TSA the buyer controls and one the buyer merely signs.

FAQ

Subcontracting questions buyers ask.

Can the seller subcontract a TSA service without telling the buyer?

Only if the clause allows it. A buyer side clause requires prior written consent for material services not disclosed at signing, plus a schedule of existing subcontractors. Without that language, the seller can move the work quietly and the buyer learns about it only when the service fails.

Who is liable if a subcontractor causes a service failure?

The seller should be, fully, as if the failure were its own. The seller chose and manages the subcontractor. Resist any clause that limits the seller's liability to what it can recover from the vendor, because that turns the buyer into the subcontractor's credit risk.

What is flow down in a subcontracting clause?

Flow down means every obligation the seller owes the buyer, including service levels, data protection, confidentiality, and audit rights, passes through to the subcontractor by contract. Without it, the buyer's protections stop at the seller and the subcontractor works under weaker terms.

Should the buyer be able to audit a subcontractor directly?

Ideally the seller audits on the buyer's behalf and shares results, with the buyer keeping a direct right where a material breach or regulatory requirement demands it. That balances the buyer's need for assurance against legitimate vendor confidentiality.

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