TSA Pre-Signing Review
Strip the margin off the lines that deserve none. Before you sign.
Fixed-fee proposal in 48 hours. Senior team on day one. The first conversation is always free.
Pass-through TSA pricing means the seller charges the buyer exactly what a third party charges the seller to provide a service, with no margin added. For services the seller merely resells, such as software licenses or external vendor support, pass-through is usually the fairest structure for a buyer. Knowing which service lines belong on pass-through, and writing that into the agreement, is buyer-side work that starts in the TSA exit strategy before signing.
Pass-through pricing applies when the seller is not really delivering a service with its own people but is reselling something it buys from a third party. The classic example is software: the carved out business uses an application licensed to the seller, and during the transition the seller keeps paying the license and bills the cost straight through to the NewCo. The seller adds nothing, so it charges nothing extra.
The structure is simple by design. The buyer pays the seller's documented external cost, and the seller passes it on. There is no cost base to argue over the way there is in cost-plus, because the cost is whatever the third party invoices. The negotiation is mostly about confirming that the charge really is a clean pass-through and that no hidden margin or handling fee has crept in.
Pass-through suits any service where the seller's role is administrative rather than operational: third-party software, external hosting, vendor maintenance contracts, and similar resold items. For these, the buyer should resist any attempt to apply cost-plus, because there is little seller effort to compensate and a margin would simply tax the buyer for a payment the seller is forwarding.
Pass-through is buyer friendly because it removes the seller's margin entirely on the services it covers. Where cost-plus invites a debate about what counts as cost and how large the margin should be, pass-through ties the charge to a verifiable external invoice. The buyer pays the market price for the underlying item, not the seller's cost plus an uplift.
It also reduces the surface area for disputes. A cost-plus service can drift as the seller revises allocations or argues for a higher margin on extension. A true pass-through service has a fixed reference point, the third party's bill, that both sides can check. That transparency makes pass-through charges easy to validate against the seller's own vendor invoices.
The practical effect across a service catalog can be material. Sellers sometimes default to cost-plus on everything, including resold items that deserve pass-through. Reclassifying those lines to pass-through strips out margin the buyer should never have been paying. Identifying them is a routine part of a buyer-side pricing review.
The risk in pass-through is that it is not always as clean as the label suggests. A seller may add an administrative or handling fee on top of the third-party cost, effectively reintroducing a margin under another name. Or it may pass through an internal allocation rather than a genuine external invoice, blurring the line between pass-through and cost-plus.
Buyers should require that pass-through means the documented third-party cost and nothing else. If the seller wants compensation for the effort of administering the vendor relationship, that should be a small, explicit, separately stated line, not a percentage buried in the pass-through charge. The principle is that the buyer can see exactly what the third party charges and confirm the seller is forwarding it unchanged.
Another blur is volume and discount handling. If the seller buys the underlying service at a volume discount, the buyer should receive the discounted rate, not a list price that lets the seller keep the spread. Conversely, if separating the NewCo's volume from the seller's raises the unit cost, the agreement should address who bears that. These details decide whether pass-through is genuinely cost only.
The choice between pass-through and cost-plus comes down to who is doing the work. When the seller delivers a service with its own labor and systems, such as running payroll or finance operations, cost-plus is reasonable because there is real effort to compensate. When the seller merely buys something outside and forwards it, pass-through is fairer because there is little to reward.
Problems arise when one structure is applied across the board. A catalog priced entirely on cost-plus overcharges the buyer on resold items. A catalog priced entirely on pass-through undercompensates the seller on services it genuinely staffs, which can make the seller a reluctant or slow provider. Matching structure to service keeps both the price and the relationship sound.
For the buyer, the action is to go through the service catalog and label each line by the right structure: pass-through for resold third-party items, cost-plus for operations the seller delivers, and a fixed fee where certainty matters more than precision. A catalog that mixes structures deliberately, line by line, is a sign the pricing was actually examined rather than rubber stamped.
Before signing, a buyer should identify every service line that is really a resold third-party cost and confirm it is priced as a clean pass-through. That means asking to see, or to be entitled to see, the underlying vendor invoices, and writing an audit right into the agreement so the buyer can validate charges during the transition rather than taking them on trust.
The agreement should state that pass-through equals documented third-party cost, exclude hidden handling fees, address volume and discount treatment, and give the buyer the right to inspect supporting invoices. These terms are straightforward to secure before signing and difficult to add afterward, when the seller has no incentive to open its books.
Done well, pass-through becomes the part of the TSA the buyer worries about least, because it is verifiable and margin free. Done carelessly, it becomes a quiet channel for margin the buyer never agreed to. The difference is a short list of provisions secured while the deal is still live, which is exactly what a pre signing review is built to deliver.
When the seller is reselling something it buys from a third party rather than delivering the service with its own people. Software licenses, external hosting, and vendor maintenance contracts are typical examples. For these, pass-through is usually fairer to the buyer than cost-plus because there is little seller effort to compensate.
A true pass-through charges the seller's documented third-party cost with no margin. Buyers should resist hidden handling fees that reintroduce margin under another name. If the seller wants compensation for administering the vendor relationship, that should be a small, explicit, separately stated line rather than a percentage buried in the charge.
By securing the right to inspect the underlying vendor invoices and writing that audit right into the TSA before signing. With access to the third-party bills, the buyer can confirm the seller is forwarding the cost unchanged and that any volume discounts are passed on rather than kept as spread.
Because cost-plus lets them add a margin and recover overhead, which raises their recovery on items they merely forward. Buyers should review the service catalog for resold third-party items priced as cost-plus and push to reclassify them as pass-through, which removes margin the buyer should not be paying.
The seller's cost plus a margin. When it fits and how to keep the cost base tight.
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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 benchmark report on where TSA cost-plus mark-up belongs by service category, how to validate pass-throughs, and where the extension-fee curve becomes a penalty. On a representative $48M-revenue carve-out, reading the price stack the way the seller built it recovers $0.7M the headline discount never touches.
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