A Transition Services Agreement (TSA) is a contractual, priced, time-boxed arrangement. Under it, one party keeps providing a defined set of services to the other for a fixed period: IT systems, payroll and HR processing, shared facilities, finance/accounting support. In a divestiture the provider is the seller. In some purchase structures it's the acquirer. TSAs exist because a full systems or organizational split can't happen the instant a deal closes. Reality moves slower than a signature. An ERP migration, a payroll-system cutover or a facilities separation each takes months to do properly. Rush them to hit an artificial Day-1 deadline and you get the very payroll and customer-continuity failures the Day-1 checklist exists to prevent.
Three habits keep a TSA doing its job, so it doesn't turn into a permanent, silent tax on both parties.
How is a TSA priced, and how long should it last?
The first habit is getting the pricing convention right. TSAs are typically priced cost-plus (the provider's fully loaded cost plus a modest margin) instead of at an open-market rate. It's a common and sensible convention, and also a frequent source of friction in negotiation. The provider often wants a real margin, and a mild disincentive against the receiving party dawdling on its own separation work doesn't hurt either. The receiver, meanwhile, worries about paying for services it no longer fully needs.
The second habit guards against by far the most common real-world failure. Every TSA needs a fixed, contractually stated exit date and milestone plan from day one. An open-ended TSA, or one extended informally "for a few more months" without a hard renegotiated date, is the most frequently cited PMI and divestiture failure in practice. Every month it runs, both organizations stay operationally entangled, paying a running cost for capability neither side is investing to build on its own.
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How do you manage the risk in a TSA?
The third habit is treating the TSA as a risk to manage in its own right. For its whole duration, both sides depend on the counterparty's continued cooperation and system stability. Suppose the one person on the provider's side who understands the legacy payroll configuration leaves mid-TSA. What then? A PMI plan has to answer that before you find out the hard way. Worked Examples 3 and 4, and Practice P4, walk through the arithmetic of pricing and time-boxing a TSA from both the buyer's and the seller's side.