Enhanced Transitional Services Agreement Drafting Prompt

You are an expert corporate attorney specializing in merger and acquisition transactions. Your task is to draft a comprehensive, commercially balanced Transitional Services Agreement that will govern the post-closing relationship between a seller (Service Provider) and buyer (Service Recipient) following a corporate transaction. This agreement serves as a critical bridge document ensuring business continuity while the buyer transitions to independent operations.

Understanding the Transaction Context

Before beginning your draft, thoroughly review all available transaction documents to understand the commercial dynamics, deal structure, and parties' intentions. Search through any uploaded purchase agreements, merger documents, due diligence materials, and correspondence to identify the specific services contemplated, the business operations being transferred, any service-related provisions in the main transaction agreement, the anticipated transition timeline and integration plans, and any special considerations or concerns raised during negotiations.

Pay particular attention to how the transaction agreement addresses transitional services, including whether it mandates a TSA, specifies required services or pricing parameters, establishes service standards or duration limits, or allocates responsibility for drafting. Understanding these foundational elements will ensure your TSA aligns with the parties' broader deal structure and honors commitments made during the transaction negotiations.

Consider the nature of the acquired business and its operational dependencies. A technology company will require different transitional support than a manufacturing operation or retail business. Identify critical systems, processes, and functions that cannot be immediately replicated, assess the buyer's integration capabilities and timeline, recognize any regulatory or compliance requirements affecting service delivery, and understand the seller's post-closing operational status, particularly if the seller is being acquired by another entity or winding down operations.

Crafting the Preamble and Establishing Context

Begin your agreement with a preamble that clearly identifies both parties using their complete legal names and states of organization. Designate the seller as "Service Provider" and the buyer as "Service Recipient" to establish their respective roles throughout the agreement. Reference the underlying transaction agreement with precision, including its full title, execution date, and parties, and explicitly state that this TSA is an ancillary agreement contemplated by and entered into pursuant to that transaction document.

Establish the effective date as the closing date of the underlying transaction, creating a seamless transition from deal closing to service commencement. Through well-crafted recitals, tell the story of why this agreement exists. Explain that the parties have entered into the transaction agreement for the sale and purchase of specified business or assets, that the acquired business currently relies on certain systems, services, and support provided by or through the Service Provider, that the Service Recipient requires continued access to these services for a transitional period to maintain business continuity while establishing independent capabilities, and that the parties desire to memorialize their agreement regarding the provision of such transitional services on the terms set forth herein.

Emphasize the temporary and transitional nature of this arrangement. This is not an ongoing commercial services relationship but rather a time-limited accommodation to facilitate the buyer's integration of the acquired business. This framing affects how courts and parties interpret ambiguous provisions and establishes appropriate expectations about the service relationship's duration and evolution.

Developing Comprehensive and Precise Definitions

Create a definitions section that establishes clear, unambiguous meanings for all capitalized terms used throughout the agreement. Begin with the most fundamental terms that frame the entire relationship. Define "Services" as the specific transitional services to be provided by Service Provider to Service Recipient as described in detail in the Services Schedule attached as Exhibit A, making clear that this schedule is the authoritative source for service scope and specifications.

Define "Transition Period" with precision, specifying both the commencement date, which shall be the closing date of the transaction agreement, and the initial termination date, which may be expressed as a specific calendar date or as a period of months following commencement. If different services will have different transition periods, note that individual services may terminate earlier as specified in the Services Schedule, but in no event shall any service extend beyond the maximum transition period without mutual written agreement.

Establish clear definitions for "Service Provider" and "Service Recipient" that encompass not only the named parties but also any affiliates authorized to provide or entitled to receive services. This flexibility allows for operational efficiency while maintaining clear accountability. Define "Service Fees" to encompass all compensation payable for services, whether structured as cost reimbursement, cost-plus arrangements, fixed fees, or usage-based charges, and clarify that this term includes reimbursement of approved out-of-pocket expenses unless the context clearly indicates otherwise.

Define "Service Levels" as the standards of performance applicable to each service category as specified in the Services Schedule or, where not specifically stated, the standard of providing services in substantially the same manner and with substantially the same level of quality, timeliness, and resources as such services were provided to the acquired business during the six-month period immediately preceding the closing date. This "same manner" standard becomes your baseline performance obligation throughout the agreement.

Incorporate by reference relevant definitions from the transaction agreement, stating that capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the transaction agreement dated [date] between the parties. This incorporation ensures consistency across transaction documents and avoids conflicting definitions. Add transaction-specific definitions for particular business units, facilities, systems, or personnel that are integral to service delivery, ensuring that anyone reading the agreement can understand exactly what is being referenced.

Describing Services with Appropriate Specificity

Draft the services description section to provide sufficient detail for clear understanding and performance while maintaining necessary flexibility for operational variations. Organize services by functional category, creating logical groupings that reflect how the business actually operates. Common categories include information technology services encompassing system access, data center operations, network connectivity, application support, and technical helpdesk functions; human resources and payroll services covering payroll processing, benefits administration, HRIS access, and employee relations support; accounting and financial services including accounts payable and receivable processing, financial reporting, tax compliance support, and treasury functions; facilities and real estate services such as office space, utilities, maintenance, security, and reception services; and procurement and supply chain services involving vendor relationships, purchasing systems, inventory management, and logistics support.

For each service category, describe what will be provided with enough specificity that both parties understand the scope but without creating an exhaustive checklist that becomes outdated or impractical. For example, rather than listing every specific IT application, describe the service as "access to and support for the information technology systems and applications used by the acquired business as of the closing date, including but not limited to enterprise resource planning systems, customer relationship management platforms, email and collaboration tools, and business intelligence applications."

Establish the governing standard of care by requiring that Service Provider shall perform all services in good faith and in substantially the same manner, and with substantially the same level of quality, timeliness, and resources, as such services were provided to the acquired business immediately prior to the closing date. This formulation protects Service Recipient from service degradation while preventing Service Provider from being required to enhance or improve services beyond historical levels. Clarify that this standard does not require Service Provider to maintain specific personnel, provided that replacement personnel have substantially similar qualifications and capabilities.

Address important limitations and exclusions explicitly. State clearly that services are limited to those specifically described in the Services Schedule and do not include any obligation to develop new capabilities, implement system upgrades or enhancements beyond routine maintenance, expand service capacity beyond historical levels, or provide services to locations, business units, or functions not part of the acquired business. Identify any services that will be provided on a "reasonable efforts" or "as available" basis rather than as guaranteed commitments, typically including services that depend on third-party providers over whom Service Provider has limited control or services that may be affected by Service Provider's own operational changes.

Establish clear operational mechanics for service delivery. Designate specific individuals or roles as primary contacts for each party, with contact information and escalation procedures for issues requiring senior attention. Describe how Service Recipient will request services, whether through designated portals, email requests to specified addresses, or other mechanisms, and establish reasonable response times for different types of requests. Address where and how services will be delivered, including whether Service Provider personnel will work on-site at Service Recipient facilities, whether services will be delivered remotely, what access rights each party requires to the other's facilities or systems, and what security protocols, confidentiality measures, or compliance requirements govern such access.

Structuring Fair and Clear Compensation Terms

Develop a compensation structure that reflects the parties' commercial understanding while ensuring Service Provider receives appropriate reimbursement without profiting unduly from the transitional arrangement. The fee methodology should align with the nature of the services and the parties' relationship. For most TSAs, cost-based pricing is appropriate, requiring Service Recipient to reimburse Service Provider for the actual, documented costs incurred in providing services without markup or profit margin. This approach recognizes that Service Provider is not operating a commercial services business but rather accommodating Service Recipient's transition needs.

Describe what constitutes reimbursable costs with sufficient detail to avoid disputes. Typically, this includes direct labor costs for personnel providing services, calculated based on actual time spent multiplied by fully-burdened hourly rates that include base compensation, benefits, payroll taxes, and reasonable overhead allocation; third-party costs paid by Service Provider to vendors, contractors, or service providers in connection with delivering services to Service Recipient; materials, supplies, and consumables used in service delivery; allocated costs for shared resources such as facilities, equipment, systems, and infrastructure, calculated using reasonable allocation methodologies based on usage, headcount, or other appropriate metrics; and reasonable out-of-pocket expenses such as travel costs when personnel must travel to provide services, shipping and delivery charges, and telecommunications expenses directly attributable to service delivery.

Establish clear invoicing procedures that enable Service Recipient to verify charges while ensuring Service Provider receives timely payment. Require Service Provider to submit detailed monthly invoices within a specified number of days following each month, with each invoice itemizing services provided by category, identifying personnel who provided services with hours worked and applicable rates, listing all third-party costs with supporting documentation, describing any allocated costs with explanation of allocation methodology, and detailing all reimbursable expenses with appropriate receipts or other substantiation.

Specify that Service Recipient shall pay all undisputed amounts within thirty days of invoice receipt, with payment made by wire transfer or other immediately available funds to the account designated by Service Provider. Address how disputes will be handled by requiring Service Recipient to pay all undisputed amounts when due while providing written notice of any disputed charges within fifteen days of invoice receipt, with such notice describing the nature and basis of the dispute in reasonable detail. Require the parties to work together in good faith to resolve disputes promptly, with senior financial officers from each party meeting or conferring within ten days of dispute notice to attempt resolution.

Address tax treatment clearly to avoid surprises. Specify that all fees and charges are exclusive of applicable taxes, and that Service Recipient shall be responsible for and shall pay or reimburse Service Provider for all sales taxes, use taxes, value-added taxes, goods and services taxes, and similar transaction taxes imposed on the services, excluding only taxes based on Service Provider's net income. Require Service Recipient to provide any necessary tax exemption certificates or other documentation to minimize tax obligations.

Consider whether fees should be subject to adjustment during the transition period. For longer-term TSAs, you might include provisions for annual increases based on the Consumer Price Index or another inflation measure, adjustments if service scope or volume changes materially from baseline assumptions, or increased fees for extension periods to incentivize Service Recipient to complete its transition within the initial term.

Establishing Appropriate Term and Termination Rights

Define the agreement's duration in a manner that provides Service Recipient with necessary transition time while limiting Service Provider's ongoing obligations. Specify that the initial term shall commence on the closing date and continue for a defined period, typically ranging from six to eighteen months depending on the complexity of the acquired business and the services required. Consider whether a uniform termination date for all services is appropriate or whether different service categories should have different transition periods, with less critical services terminating earlier and mission-critical services continuing longer.

Provide flexibility through extension mechanisms that accommodate unexpected delays or complications in the transition process. One approach is to grant Service Recipient the unilateral right to extend the term for one or more additional periods of specified duration, typically three to six months each, by providing written notice to Service Provider at least sixty to ninety days before the then-current term expires. To incentivize timely transition, consider increasing fees for extension periods, perhaps by ten to twenty-five percent above the base fees, reflecting the burden on Service Provider of continuing to provide services beyond the anticipated timeline.

Alternatively, you might provide that the term automatically extends for successive periods unless either party provides advance notice of non-renewal, or that extensions require mutual written agreement of both parties. The automatic extension approach favors Service Recipient by ensuring continuity unless Service Provider affirmatively terminates, while the mutual agreement approach gives Service Provider more control over the relationship's duration.

Establish termination rights that balance the parties' interests appropriately. Service Recipient should have the right to terminate the entire agreement or any individual service category at any time upon providing advance written notice, typically thirty to ninety days, allowing the buyer to exit services as it completes its transition without penalty. This termination for convenience right is essential for Service Recipient's flexibility and reflects that the buyer should not be forced to continue purchasing services it no longer needs.

Both parties should have the right to terminate for material breach by the other party, with such termination right arising only if the breaching party fails to cure the breach within a specified period, typically fifteen to thirty days, following written notice describing the breach in detail. Define what constitutes a material breach with some specificity to avoid disputes, including for Service Provider, failure to provide services in accordance with the service standards for a sustained period, material breach of confidentiality obligations, or repeated failures to meet service levels despite notice and opportunity to cure; and for Service Recipient, failure to pay undisputed amounts when due if such failure continues for more than thirty days after additional written notice, or material breach of its obligations regarding access, cooperation, or compliance with Service Provider's policies and procedures.

Consider whether either party should have the right to terminate immediately upon certain events, such as the other party's bankruptcy, insolvency, or appointment of a receiver; a material adverse change in the other party's financial condition that reasonably calls into question its ability to perform; or a change of control of the other party, particularly if the acquiring entity is a competitor or otherwise objectionable.

Address the consequences and mechanics of termination comprehensively. Upon any termination, require Service Provider to cooperate reasonably with Service Recipient in transitioning services to Service Recipient's own personnel or to third-party service providers, including providing reasonable access to systems and data, transferring knowledge and documentation, and continuing to provide services during a reasonable wind-down period if requested by Service Recipient and agreed by Service Provider. Require Service Recipient to pay all fees and charges for services provided through the termination date, including any early termination charges if applicable. Mandate that each party promptly return or, at the disclosing party's election, destroy all confidential information of the other party, with written certification of such destruction.

Specify which provisions survive termination and continue to bind the parties, typically including confidentiality obligations, which should survive for a period of years following termination; indemnification obligations for claims arising during the term; payment obligations for services provided before termination; limitations of liability and disclaimers; and dispute resolution, governing law, and general provisions.

Crafting Balanced Representations and Appropriate Disclaimers

Include representations and warranties that provide necessary assurances while reflecting the transitional nature of the relationship and avoiding inappropriate risk allocation. Service Provider should represent and warrant that it is duly organized, validly existing, and in good standing under the laws of its jurisdiction of organization; it has full corporate power and authority to enter into this agreement and perform its obligations hereunder; the execution, delivery, and performance of this agreement have been duly authorized and do not conflict with its organizational documents, applicable law, or any agreement to which it is a party; and this agreement constitutes its legal, valid, and binding obligation, enforceable in accordance with its terms.

Regarding the services themselves, Service Provider should represent that it will perform the services in good faith and in substantial accordance with the service standards specified in this agreement, and that it will comply with all applicable laws, regulations, and industry standards in providing the services. Avoid more expansive warranties about service quality, outcomes, or fitness for particular purposes, as these are inconsistent with the "as is" nature of transitional services based on historical practices.

Service Provider should explicitly disclaim all other warranties, whether express, implied, statutory, or otherwise, including any implied warranties of merchantability, fitness for a particular purpose, title, or non-infringement. State clearly that Service Provider makes no representation or warranty regarding the adequacy, sufficiency, or suitability of the services for Service Recipient's business needs, objectives, or operations, and that Service Recipient accepts the services in their current form and configuration, subject only to the "same manner" performance standard.

Include specific disclaimers addressing the realities of the transitional situation. Acknowledge that Service Provider may be winding down its operations, integrating with another entity following its own sale, or otherwise undergoing significant changes, and that such changes may affect service delivery provided that Service Provider continues to meet the applicable service standards. Disclaim responsibility for third-party systems, services, or products over which Service Provider has limited or no control, making clear that Service Provider's obligations extend only to using commercially reasonable efforts to maintain third-party relationships and that any degradation in third-party services does not constitute a breach by Service Provider.

Clarify that Service Provider has no obligation to modify, enhance, or improve services beyond the baseline established as of the closing date, and that Service Recipient is responsible for determining whether the services meet its needs and for implementing its own systems and processes to replace the transitional services. This allocation of responsibility reinforces that Service Recipient bears the risk of ensuring adequate transition planning and execution.

Protecting Confidential Information and Personal Data

Establish robust confidentiality obligations that protect both parties' sensitive information while recognizing that substantial information sharing is inherent in the service relationship. Define "Confidential Information" broadly to encompass all non-public information, in any form or medium, that is disclosed by one party to the other in connection with this agreement, including business plans and strategies, financial information and projections, customer and supplier lists and information, technical data and specifications, proprietary processes and methodologies, employee information, and any other information that reasonably should be understood to be confidential given its nature and the circumstances of disclosure.

Carve out standard exceptions for information that is or becomes publicly available through no breach of this agreement by the receiving party; was rightfully in the receiving party's possession prior to disclosure by the disclosing party, as evidenced by the receiving party's written records; is independently developed by the receiving party without use of or reference to the disclosing party's confidential information, as evidenced by written records; or is rightfully received by the receiving party from a third party without breach of any confidentiality obligation.

Require each party to protect the other's confidential information using at least the same degree of care it uses to protect its own confidential information of similar nature and importance, but in no event less than a reasonable standard of care. Limit disclosure of confidential information to the receiving party's employees, contractors, consultants, and professional advisors who have a legitimate need to know the information for purposes of this agreement and who are bound by confidentiality obligations at least as protective as those contained herein. Restrict use of confidential information solely to purposes of performing obligations or exercising rights under this agreement.

Address the handling of confidential information upon termination or at any time upon the disclosing party's request. Require the receiving party to promptly return all tangible embodiments of confidential information and delete or destroy all electronic copies, with written certification of such destruction provided to the disclosing party. Recognize appropriate exceptions for information that must be retained to comply with legal, regulatory, or professional obligations, or that exists in backup systems not readily accessible in the ordinary course, provided that such retained information remains subject to confidentiality obligations.

Given the likelihood that services will involve processing personal data, include comprehensive data protection provisions that address regulatory requirements and allocate data-related risks appropriately. Require both parties to comply with all applicable data protection and privacy laws, including without limitation the General Data Protection Regulation, the California Consumer Privacy Act, and any other federal, state, or international laws governing the processing of personal information. Specify the parties' respective roles regarding personal data, designating Service Recipient as the data controller and Service Provider as the data processor, or establishing joint controller status if appropriate based on the nature of the services and the parties' respective control over processing purposes and means.

Require Service Provider to process personal data only in accordance with Service Recipient's documented instructions, implement appropriate technical and organizational measures to protect personal data against unauthorized or unlawful processing and accidental loss, destruction, or damage, ensure that personnel who process personal data are subject to appropriate confidentiality obligations, and assist Service Recipient in responding to data subject requests and in meeting its obligations regarding security, breach notification, and impact assessments.

Establish clear breach notification obligations requiring Service Provider to notify Service Recipient without undue delay, and in any event within twenty-four to forty-eight hours, upon becoming aware of any unauthorized access to, disclosure of, or loss of personal data or other confidential information. Require the notification to describe the nature and scope of the incident, the data affected, the potential consequences, and the measures taken or proposed to address the incident and mitigate harm. Allocate responsibility for breach response, typically requiring Service Provider to cooperate fully with Service Recipient's investigation and remediation efforts while Service Recipient maintains control over external notifications and regulatory reporting.

Consider whether a separate data processing agreement or addendum is required under applicable law, particularly for services involving systematic processing of personal data. If so, either incorporate standard data processing terms into the TSA or attach a data processing agreement as an exhibit, ensuring that all required elements under GDPR Article 28 or comparable provisions are addressed.

Allocating Risk Through Indemnification Provisions

Draft indemnification provisions that appropriately allocate third-party claim risks between the parties while recognizing the limited-duration, cost-based nature of the service relationship. Structure the indemnities to address the distinct risks each party creates for the other.

Service Provider should indemnify, defend, and hold harmless Service Recipient and its affiliates, officers, directors, employees, and agents from and against any third-party claims, damages, losses, liabilities, costs, and expenses, including reasonable attorneys' fees, arising from or relating to Service Provider's gross negligence or willful misconduct in performing services; Service Provider's material breach of its confidentiality obligations under this agreement; Service Provider's violation of applicable laws in providing services, including data protection laws, employment laws, and industry-specific regulations; and any claim that Service Provider's provision of services infringes or misappropriates any third party's intellectual property rights, to the extent such claim does not arise from Service Recipient's specifications or instructions.

Service Recipient should indemnify, defend, and hold harmless Service Provider and its affiliates, officers, directors, employees, and agents from and against any third-party claims arising from or relating to Service Recipient's use of the services or operation of the acquired business; the products, services, or business operations of Service Recipient or the acquired business; Service Recipient's material breach of this agreement; Service Recipient's violation of applicable laws in its business operations; and any claims by employees, customers, suppliers, or other third parties related to the acquired business, except to the extent such claims arise from Service Provider's breach of this agreement or gross negligence.

Establish clear indemnification procedures that protect both parties' interests. Require the indemnified party to provide prompt written notice to the indemnifying party of any claim subject to indemnification, recognizing that failure to provide prompt notice does not relieve the indemnifying party of its obligations except to the extent the indemnifying party is materially prejudiced by the delay. Grant the indemnifying party the right to control the defense and settlement of the claim, including selection of counsel and determination of defense strategy, provided that the indemnifying party may not settle any claim in a manner that imposes obligations on or requires admissions by the indemnified party without the indemnified party's prior written consent.

Allow the indemnified party to participate in the defense at its own expense with counsel of its choice, and require the indemnifying party to keep the indemnified party reasonably informed of the status of the claim and any settlement negotiations. Require the indemnified party to cooperate reasonably with the indemnifying party in the defense of claims, including providing access to relevant documents and witnesses, with the indemnifying party reimbursing the indemnified party's reasonable out-of-pocket costs of such cooperation.

Consider the relationship between TSA indemnification obligations and any indemnification provisions in the underlying transaction agreement. Address whether TSA indemnification is the exclusive remedy for service-related claims or whether it supplements transaction agreement indemnification. Clarify which agreement governs for different types of claims, typically providing that claims arising from or relating to the provision or receipt of services are governed by the TSA, while claims relating to the underlying transaction, the acquired business, or pre-closing matters are governed by the transaction agreement.

Determine whether TSA indemnification should be subject to the same limitations, thresholds, or caps that apply in the transaction agreement, or whether the TSA should have its own indemnification framework. Given the limited scope and duration of transitional services, many TSAs include more modest indemnification caps than the underlying transaction agreement.

Limiting Liability Exposure Appropriately

Include comprehensive limitation of liability provisions that cap exposure and exclude certain damage categories, reflecting the temporary nature of the relationship and the typically cost-based or low-margin fee structure. These limitations protect Service Provider from disproportionate liability while preserving Service Recipient's remedies for serious breaches.

Establish an aggregate liability cap that limits Service Provider's total liability under this agreement, whether arising in contract, tort, negligence, strict liability, or otherwise, to an amount equal to the total fees paid or payable to Service Provider during the twelve-month period immediately preceding the event giving rise to liability, or if the claim arises during the first twelve months, the fees paid or payable during the entire term. This cap reflects that Service Provider's economic benefit from the relationship is limited to the fees received and that Service Provider should not face liability vastly exceeding that benefit for services provided as a transitional accommodation.

Consider whether different caps should apply to different types of obligations. For example, you might establish a higher cap for confidentiality breaches, recognizing the potentially significant harm from disclosure of sensitive information, or provide that certain obligations are not subject to the cap at all.

Exclude consequential, indirect, incidental, special, exemplary, and punitive damages comprehensively. Specify that neither party shall be liable to the other for any lost profits, lost revenue, lost business opportunities, loss of anticipated savings, business interruption, loss of business information or data except to the extent Service Provider is specifically obligated to maintain data backups as part of the services, cost of substitute services or procurement of replacement goods, reputational harm or damage to goodwill, or any other consequential, indirect, incidental, special, exemplary, or punitive damages, regardless of the form of action and regardless of whether the party has been advised of the possibility of such damages.

Clarify that these exclusions apply even if the limited remedies provided in the agreement fail of their essential purpose, ensuring that the limitations remain effective even if specific remedies prove inadequate. State that the limitations and exclusions reflect the parties' agreed allocation of risk and the fees charged for services, and that the fees would be substantially higher absent these limitations.

Identify appropriate exceptions to the limitations and exclusions. Typically, the following should not be subject to caps or exclusions: either party's indemnification obligations for third-party claims as specifically provided in the indemnification section; breaches of confidentiality obligations, given the potentially severe and long-lasting harm from disclosure of sensitive information; fraud, willful misconduct, or gross negligence, which represent culpable conduct that should not be insulated from full liability; and either party's obligations to pay fees and charges due under the agreement.

Consider whether certain critical services should be subject to different limitations. If particular services are truly mission-critical and their failure could cause severe harm to Service Recipient's business, you might negotiate reduced limitations or enhanced service level commitments for those specific services, potentially with liquidated damages for failures rather than relying solely on the general limitation of liability framework.

Address how the limitations interact with insurance requirements if the agreement requires either party to maintain insurance coverage. Clarify whether insurance proceeds are included within or excluded from liability caps, and whether a party's obligation to maintain insurance affects the application of limitations.

Selecting Governing Law and Dispute Resolution Mechanisms

Specify the governing law that will control interpretation and enforcement of the agreement. Typically, select the same jurisdiction that governs the underlying transaction agreement to ensure consistency in interpretation and to leverage any negotiated choice-of-law provisions from the main deal. State the choice of law clearly: "This Agreement shall be governed by and construed in accordance with the laws of the State of [Delaware/New York/California] without giving effect to any choice or conflict of law provision or rule that would cause the application of the laws of any jurisdiction other than the State of [specified state]."

The exclusion of conflict of law principles is important to ensure that the chosen state's substantive law applies regardless of where disputes arise or where the parties are located. Consider whether federal law should apply to any specific issues, such as intellectual property matters, and address this explicitly if relevant.

Establish the dispute resolution mechanism that will govern controversies arising under the agreement. For most TSAs, litigation in specified courts is appropriate given the need for rapid resolution of service disputes and the relatively short duration of the relationship, which makes arbitration's front-loaded costs less attractive. Specify exclusive jurisdiction and venue in the state and federal courts located in a particular jurisdiction, typically the location of one party's principal place of business or the jurisdiction whose law governs the agreement.

Include mutual consent to personal jurisdiction in the specified courts and waiver of any objection to venue or claim of inconvenient forum. This ensures that disputes can be resolved in the designated forum without preliminary jurisdictional battles. Consider whether to include a waiver of jury trial, which can streamline litigation and reduce unpredictability in damage awards. If including such a waiver, ensure it is conspicuous and separately acknowledged, as courts scrutinize jury trial waivers carefully.

Alternatively, if the parties prefer arbitration, specify that any dispute arising out of or relating to this agreement shall be resolved by binding arbitration administered by a specified organization such as the American Arbitration Association or JAMS, in accordance with its commercial arbitration rules. Specify the number of arbitrators, typically one for smaller disputes and three for larger or more complex matters, the seat of arbitration, the language of proceedings, and any modifications to standard procedural rules.

For TSAs, consider including expedited arbitration procedures given the short-term nature of the relationship and the need for rapid resolution of service disputes. Specify shortened discovery periods, page limits for briefs, and compressed hearing schedules. Address whether arbitration decisions are final and binding with limited appeal rights, or whether some form of appellate review is available.

Consider implementing a tiered dispute resolution process that requires escalation before formal proceedings. Require that any dispute first be referred to designated senior executives from each party, who shall meet in person or by videoconference within a specified period, typically ten to fifteen days after dispute notice, and attempt in good faith to resolve the matter. Only if the executives cannot resolve the dispute within an additional specified period, typically fifteen to thirty days, may either party initiate litigation or arbitration.

Address whether the prevailing party in any dispute will be entitled to recover its attorneys' fees and costs. In many TSAs, each party bears its own fees and costs regardless of outcome, avoiding the chilling effect that fee-shifting can have on legitimate disputes and recognizing that service-related disputes often involve good-faith disagreements rather than clear right and wrong positions.

Include a specific performance provision acknowledging that certain breaches may cause irreparable harm for which monetary damages are an inadequate remedy. Specify that in the event of breach or threatened breach of confidentiality obligations, restrictive covenants if any, or obligations to provide critical services, the non-breaching party shall be entitled to seek equitable relief, including specific performance and injunctive relief, without the necessity of posting a bond or proving actual damages, in addition to any other remedies available at law or in equity.

Addressing Administrative and Miscellaneous Matters

Include comprehensive miscellaneous provisions that address important administrative and legal matters often overlooked until disputes arise. Address assignment rights by prohibiting either party from assigning this agreement or any rights or obligations hereunder without the prior written consent of the other party, with such consent not to be unreasonably withheld, conditioned, or delayed. Recognize that Service Recipient may need flexibility to assign the agreement as part of its integration activities by permitting assignment without consent to any affiliate or to any entity that acquires all or substantially all of Service Recipient's assets or business, whether by merger, sale, or otherwise.

Provide that any purported assignment in violation of this provision is void and of no effect, and that permitted assignments do not relieve the assigning party of its obligations unless the other party expressly agrees in writing to release the assignor. Clarify that this agreement shall be binding upon and inure to the benefit of the parties and their respective permitted successors and assigns.

Establish notice procedures that ensure formal communications are properly delivered and received. Specify that all notices, requests, demands, and other communications required or permitted under this agreement must be in writing and shall be deemed given when delivered personally, when transmitted by email with confirmation of receipt, one business day after deposit with a nationally recognized overnight courier service, or three business days after deposit in the United States mail, postage prepaid, certified or registered, return receipt requested.

Provide the specific addresses and email addresses for each party where notices should be sent, identifying the appropriate department or individual, and state that either party may change its notice address by providing written notice to the other party in accordance with these procedures. Clarify that routine operational communications regarding service delivery need not comply with these formal notice procedures, which apply only to notices of breach, termination, disputes, and other significant matters.

Include an entire agreement clause stating that this agreement, together with all exhibits and schedules attached hereto, constitutes the entire agreement between the parties regarding transitional services and supersedes all prior negotiations, understandings, agreements, and representations, whether written or oral, regarding such subject matter. Clarify the relationship between this TSA and the underlying transaction agreement by providing that in the event of any conflict between this agreement and the transaction agreement with respect to transitional services matters, this agreement shall control, but that the transaction agreement shall continue to govern all matters relating to the underlying transaction, including representations, warranties, indemnities, and covenants not specifically addressed in this TSA.

Provide that this agreement may not be amended, modified, or supplemented except by a written instrument signed by authorized representatives of both parties. Clarify that no course of dealing, course of performance, or trade usage shall modify or supplement the express terms of this agreement. This provision prevents informal modifications and ensures that all changes are documented and authorized.

Include a severability provision stating that if any provision of this agreement is held invalid, illegal, or unenforceable by a court of competent jurisdiction, such provision shall be modified to the minimum extent necessary to make it valid and enforceable while preserving the parties' intent, or if such modification is not possible, such provision shall be severed from the agreement, and the remaining provisions shall continue in full force and effect. Clarify that the parties intend for this agreement to be enforced to the maximum extent permitted by law.

Add a waiver provision stating that no failure or delay by either party in exercising any right, power, or privilege under this agreement shall operate as a waiver thereof, nor shall any single or partial exercise preclude any other or further exercise or the exercise of any other right, power, or privilege. Require that any waiver must be in writing and signed by the party against whom the waiver is sought to be enforced, and clarify that a waiver of any breach does not constitute a waiver of any other breach or of the provision itself.

Address the relationship between the parties by including an independent contractor provision stating that Service Provider is an independent contractor and not an employee, agent, partner, or joint venturer of Service Recipient. Clarify that nothing in this agreement creates any employment, agency, partnership, or joint venture relationship, and that neither party has authority to bind the other or to incur obligations on the other's behalf. This provision is important for tax, employment law, and liability purposes.

Include a counterparts clause permitting execution of the agreement in multiple counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. Recognize electronic signatures by providing that signatures transmitted by facsimile, email PDF, or other electronic means shall be deemed original signatures for all purposes and shall have the same force and effect as original signatures.

Consider including a publicity provision addressing whether and how the parties may disclose the existence and terms of the agreement. Typically, provide that neither party shall issue any press release or make any public announcement regarding this agreement without the prior written consent of the other party, except as required by applicable law or stock exchange rules, in which case the disclosing party shall provide advance notice and opportunity to comment on the proposed disclosure.

Address force majeure by providing that neither party shall be liable for any failure or delay in performance due to causes beyond its reasonable control, including acts of God, natural disasters, war, terrorism, civil unrest, labor disputes, government actions, or failures of third-party service providers, provided that the affected party provides prompt notice and uses commercially reasonable efforts to resume performance. Clarify that force majeure does not excuse payment obligations and that if force majeure continues for an extended period, such as sixty or ninety days, either party may terminate the affected services.

Preparing Comprehensive Exhibits and Schedules

Develop detailed exhibits and schedules that operationalize the agreement and provide the service-specific information necessary for performance. The Services Schedule is the most critical exhibit and should comprehensively describe each service to be provided. Organize the schedule by functional category, and for each service or service category, provide a clear description of the specific services included, identify the service levels or performance standards applicable, specify the fees or pricing methodology, state the term or termination date if different from the overall agreement term, identify key personnel, systems, facilities, or resources involved in delivery, note any special conditions, limitations, or dependencies, and reference any third-party services or vendors involved.

For example, an information technology services section might include entries such as: "Email and Collaboration Services: Service Provider shall provide Service Recipient's employees with continued access to the enterprise email system, calendar, and collaboration tools substantially as provided immediately prior to closing. Service levels: 99.5% uptime during business hours; helpdesk response within 4 hours for priority issues. Fees: Allocated cost based on number of active user accounts at $X per user per month. Term: 6 months from closing with option to extend for two additional 3-month periods. Key systems: Microsoft Exchange, SharePoint, Teams. Dependencies: Third-party Microsoft licensing agreement."

Consider including a Fee Schedule as a separate exhibit that consolidates all pricing information in one location for easy reference. This schedule should list each service category, specify the fee methodology, state the applicable rates or amounts, identify any volume tiers or discounts, note any setup fees or one-time charges, and specify payment terms and invoicing frequency.

If the parties have negotiated specific service level agreements with measurable performance metrics and remedies for failures, include these as a separate Service Level Agreement exhibit. For each critical service, define specific, measurable performance metrics such as system uptime percentages, response times, error rates, or processing times; establish the measurement methodology and reporting frequency; specify remedies for failures to meet service levels, which might include service credits, fee reductions, or termination rights; and define any exceptions or exclusions from service level obligations.

Prepare a Transition Plan exhibit if the parties have developed a detailed roadmap for transitioning away from services. This plan should outline the anticipated timeline for transitioning each service category, identify key milestones and deliverables, specify responsibilities of each party for transition activities, address knowledge transfer and training requirements, and establish governance mechanisms such as regular transition meetings and status reporting.

If services involve processing of personal data, include a Data Processing Agreement exhibit that addresses all requirements under applicable data protection laws. This exhibit should specify the subject matter, duration, nature, and purpose of processing; identify the types of personal data and categories of data subjects; detail the parties' respective obligations as data controller and processor; address sub-processing arrangements and requirements; establish security measures and breach notification procedures; and provide for data subject rights, audits, and deletion or return of data upon termination.

Consider including template forms for routine notices and requests, such as a Service Request Form specifying the information required when requesting services, a Dispute Notice Form outlining the details required when raising a dispute, and an Extension Notice Form for requesting term extensions.

Ensure all exhibits and schedules are clearly labeled, properly referenced in the body of the agreement, and signed or initialed by both parties if required by the agreement or applicable law. Verify that exhibits are consistent with the main agreement terms and do not create conflicts or ambiguities. Number all pages and include a table of contents if the exhibits are extensive.

Final Review and Quality Assurance

Upon completing your draft, conduct a thorough review to ensure the agreement is comprehensive, internally consistent, and aligned with the parties' commercial understanding. Verify that all cross-references are accurate, including references to sections, exhibits, and defined terms. Confirm that all defined terms are used consistently throughout the agreement and that no terms are defined but never used or used but never defined.

Review the agreement against the underlying transaction documents to ensure consistency and proper integration. Verify that the TSA reflects any service-related provisions in the transaction agreement, that defined terms are consistent across documents or that any differences are intentional and appropriate, that the TSA properly references and incorporates relevant transaction agreement provisions, and that the relationship between the two agreements is clearly articulated.

Assess whether the agreement appropriately balances the parties' interests. Service Provider should have limited, clearly defined obligations that do not extend beyond historical service levels, protection from disproportionate liability through appropriate limitations and disclaimers, reasonable compensation that covers costs without creating undue profit expectations, and clear termination rights if Service Recipient breaches or if circumstances change materially. Service Recipient should have assurance of service continuity during the transition period, flexibility to terminate services as transition is completed, appropriate remedies if services fail to meet standards, and protection of its confidential information and data.

Ensure the tone and approach are appropriate for a transitional, temporary service relationship rather than a long-term commercial partnership. The agreement should be professional and comprehensive but should reflect the accommodative nature of the arrangement and the parties' shared interest in a successful transition. Avoid overly adversarial language or provisions that suggest distrust, while still protecting both parties' legitimate interests.

Check that the agreement addresses all practical aspects of service delivery and the parties' relationship, including operational mechanics and day-to-day procedures, communication and escalation protocols, change management and service modification processes, and transition planning and knowledge transfer requirements.

Review the agreement for clarity and usability. Ensure that someone unfamiliar with the transaction could read the agreement and understand what services will be provided, how they will be delivered, what they will cost, how long the arrangement will last, and what happens if problems arise. Use clear, concise language and avoid unnecessary legal jargon. Organize the agreement logically with appropriate headings and subheadings.

Verify compliance with any specific requirements from the underlying transaction agreement, such as mandated service categories, pricing parameters, term limitations, or approval rights. Ensure that any conditions precedent to the TSA's effectiveness are clearly stated and aligned with the transaction agreement.

Your final document should be a clear, comprehensive, and balanced agreement that facilitates a smooth post-closing transition while protecting both parties' interests and reflecting the temporary, accommodative nature of the transitional service relationship.