Service Level Agreements and Transition Services

Core Objectives

• Guarantee uninterrupted delivery of critical services (IT, payroll, finance).
• Provide cost transparency and charge-back discipline.
• Define measurable performance standards and escalation paths.
• Establish clear timelines and conditions for service termination.

Key Elements of Every SLA

• Service Scope – Precise description of activities included and excluded.
• Performance Metrics – Quantitative targets (e.g., system uptime 99.8 %, payroll accuracy 99.9 %).
• Response and Resolution Times – Maximum hours for incident acknowledgment and fix.
• Reporting Cadence – Weekly or monthly scorecards delivered to both parties.
• Pricing Model – Fixed fee, consumption-based, or hybrid; include true-up mechanics.
• Governance – Roles, decision rights, and regular review meetings.
• Exit Criteria – Target sunset date, notice period, and knowledge-transfer obligations.
• Penalties/Incentives – Credits for missed SLAs or bonuses for superior performance.

Five-Step Approach to Building Effective TSAs

• Inventory Services Needed
  Compile a list of all parent-provided capabilities that the carve-out cannot stand up before Day 1.
• Assess Duration and Complexity
  Categorize each service as short (<6 months), medium (6–12 months), or long (>12 months).
• Draft SLA Templates
  Use standardized language for scope, metrics, and governance to accelerate negotiations.
• Set Market-Based Pricing
  Benchmark internal cost plus margin or compare with third-party quotes to ensure fairness.
• Negotiate Exit Roadmap
  Align on milestone dates, resource hand-offs, and cutover testing well before each service ends.

Governance Framework

• Monthly TSA Review Board chaired by the PMO TSA Lead.
• KPI dashboard tracking performance, incidents, and upcoming exits.
• 30-day escalation window: unresolved breaches escalate to the Steering Committee.

Deliverables Checklist

• Master TSA agreement with schedules per service line.
• SLA schedule for each service, signed by functional owners.
• Pricing workbook with cost drivers and true-up logic.
• Exit-readiness tracker showing progress against agreed sunset dates.
• Knowledge-transfer plan detailing documentation, training sessions, and system hand-offs.

Common Pitfalls

• Vague scope leading to “scope creep” and billing disputes.
• Overly lenient SLAs that provide no incentive to meet Day 1 quality standards.
• Failure to budget TSA exit costs (e.g., data-migration, dual-run expenses).
• Inadequate knowledge transfer, causing service disruption when TSA ends.

Well-structured SLAs and a disciplined TSA framework give both seller and buyer clarity, reduce post-close friction, and accelerate the carve-out’s journey to full independence.