Key Takeaways

  • A shared services agreement (SSA) consolidates administrative, operational, or support functions across entities to improve efficiency, reduce costs, and maintain consistent service levels.
  • Effective SSAs clearly define scope, responsibilities, governance, cost-sharing, and performance metrics to ensure transparency and accountability.
  • Drafting an SSA requires attention to legal enforceability, flexibility for future needs, and provisions for dispute resolution, confidentiality, and termination.
  • Including service-level agreements (SLAs), key performance indicators (KPIs), and governance structures strengthens accountability and performance management.
  • Implementation success depends on careful planning, stakeholder alignment, benchmarking, and continuous performance review.

A shared services agreement is a model for delivering corporate support. It works by consolidating and combining services between business units and headquarters into one separate entity that is based on principles similar to the market.

Shared Services

It is important for the shared-services business entity to be able to compete with other outside vendors. Business units must operate under marketplace discipline. They also need to be able to seek support services that meet the same standard. For business units to get a competitive advantage, best practices are in, and the corporate culture is out.

Internal customers then need to specify their own service needs. The providers have to meet their requirements, and the providers will have their performance assessed using specific criteria that is easily measurable. When it is properly executed, the shared-services approach uses the advantages of centralization and combines them with decentralization.

Purpose and Benefits of a Shared Services Agreement

A shared services agreement is designed to streamline operations by centralizing functions that multiple departments, subsidiaries, or organizations require, such as HR, IT, legal, finance, or procurement. The goal is to improve efficiency, reduce duplication, and ensure uniform standards across entities while allowing each unit to focus on its core mission.

Some of the most significant benefits include:

  • Cost efficiency: Shared resources reduce overhead and eliminate redundant expenses.
  • Consistency and quality: Centralized processes ensure that all parties receive services that meet the same standards.
  • Enhanced focus: Business units can concentrate on their primary objectives instead of administrative tasks.
  • Scalability: The structure allows for easy addition of new services or participants without overhauling the agreement.
  • Innovation: Shared platforms and expertise foster innovation across departments or companies.

How to Write a Shared Services Agreement

In the litigious society that we all live in today, it is very important to have a solid agreement. A shared services agreement is most easily approved legally when it is drafted to be short and sweet. A basic, short agreement makes it easier to get other public agencies on the same page. 

1. Use Simple Language While Drafting Your Agreement

Another important tip for drafting a shared services agreement is to use easy-to-understand language. There is no requirement that a drafted agreement contain verbose legalese in order to be upheld in a court of law. Use simple language that could be understood by a fifth grader. As long as the terms and language used in the agreement describe the terms and clauses of the agreement, do not overcomplicate things. Another good example of a well-done shared services agreement can be found in Google's Terms of Service.

2. Include Multiple Parties in a Shared Services Agreement

When you draft a shared services agreement, the best practice is to make the agreement inclusive. Instead of making it a two-way agreement with one other party, make the agreement a many-to-many agreement, or a multi-agency agreement. If you use language such as “this agreement has been reached between the undersigned parties,” then you have the ability to expand the number of jurisdictions that are able to join the agreement.

3. Do Not Include Constraints That are Unnecessary in Your Agreement

It is important to remember that the more flexible you make your agreement, the more versatile the agreement will be. When drafting the agreement, do not make it too narrow and specific. For example, you do not need to narrow down specific types of equipment that will be used or the specific services that you are agreeing to provide. An agreement that is too specific locks you down and corners you to abide by the specific terms. In the event that you want to share services that were not considered when you drafted the agreement, you will be stuck with the already-drafted limitations.

Additionally, do not reinvent the wheel when drafting your agreement. When you are drafting your agreement, use pre-existing templates. There are many options out there to use for your shared services agreement.

Common Mistakes to Avoid in Shared Services Agreements

Many SSAs fail due to poorly drafted terms or a lack of foresight. Avoid these common pitfalls:

  • Vague service descriptions: Ambiguous language leads to disputes over performance and deliverables.
  • Ignoring future scalability: Agreements that don’t account for business growth or technological change quickly become obsolete.
  • Unclear cost-sharing formulas: Disputes over costs are one of the most frequent causes of SSA breakdowns.
  • Insufficient governance mechanisms: Without oversight structures, accountability and communication often break down.
  • Neglecting exit provisions: Failing to plan for how services will be transitioned if the agreement ends can result in operational disruption.

Essential Clauses to Include in a Shared Services Agreement

A comprehensive shared services agreement should include several critical clauses to ensure clarity and prevent future disputes:

  1. Scope of Services: Define exactly what services are included, who will provide them, and to whom.
  2. Roles and Responsibilities: Clearly outline the duties of each party, including any shared obligations or dependencies.
  3. Service Standards and KPIs: Set measurable performance metrics and service-level expectations, such as response times or quality benchmarks.
  4. Cost Allocation and Payment Terms: Specify how costs will be shared and detail payment schedules, invoicing procedures, and any adjustment mechanisms.
  5. Governance and Oversight: Establish a governance body or steering committee to monitor compliance, resolve issues, and update the agreement as needed.
  6. Confidentiality and Data Security: Protect sensitive information shared during the service relationship.
  7. Liability and Indemnification: Clarify how liabilities will be handled and under what circumstances indemnities apply.
  8. Dispute Resolution: Outline the process for resolving disagreements, including escalation paths, mediation, or arbitration.
  9. Termination and Exit Strategies: Define termination rights, notice requirements, and transition assistance to ensure business continuity.

Including these clauses ensures the agreement remains enforceable, transparent, and adaptable to future changes.

Six Principles for Implementation

There are six main principles to guide your company through the implementation process of the shared services agreement.

  1.  Decide which services you want to share. Not every service is alike. Rather, they will differ according to the types of customers services and what interactions are needed.
  2. Create a service-level agreement. The point of shared services is to form a market-based partnership to exist between the staff services and the line.
  3. Choose your staff and your leaders very carefully. Senior and entrepreneurial line managers tend to be the best at implementing a market-oriented shared-services organization.
  4. Benchmark your shared-services organization against any outside vendors.
  5. Establish your governing board to be composed of business unit executives.
  6. Choose an approach for implementation. When companies elect to move forward with using shared services, the burning question to ask is whether the company should reorganize for shared services first and then redesign, or whether the company should redesign first before reorganizing.

Best Practices for Long-Term Success

To ensure the shared services agreement continues to deliver value over time, organizations should:

  • Review and update regularly: Reassess service levels, pricing, and governance structures as business needs evolve.
  • Monitor performance closely: Use regular reporting, KPIs, and feedback sessions to evaluate service effectiveness.
  • Promote transparency: Maintain open communication between parties to resolve issues early and maintain trust.
  • Invest in change management: Cultural alignment and stakeholder buy-in are crucial, particularly when merging different corporate structures.
  • Benchmark against market standards: Compare performance and costs to industry benchmarks to maintain competitiveness.

Frequently Asked Questions

  1. What is a shared services agreement used for?
    It centralizes common services such as HR, IT, finance, or legal across departments or organizations to improve efficiency, reduce costs, and standardize processes.
  2. Who can enter into a shared services agreement?
    Typically, multiple departments within a company, subsidiaries under a parent organization, or separate entities collaborating to share resources can enter into an SSA.
  3. How are costs divided under a shared services agreement?
    Costs are usually allocated based on usage, headcount, revenue proportion, or another agreed-upon formula outlined in the agreement.
  4. Can a shared services agreement be modified after signing?
    Yes. Most agreements include amendment clauses that allow changes with mutual consent, especially as service needs or organizational structures evolve.
  5. What happens if one party breaches the agreement?
    The agreement should include dispute resolution and termination clauses. Remedies may include mediation, arbitration, damages, or early termination depending on the contract terms.

If you need help with a shared services agreement, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.