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Contract Management

5 Key Provisions to Look for in Critical Vendor Contracts

Jan 18, 2017 by Heather Garnett

Whether reviewing a new critical vendor contract or negotiating new terms and conditions of an existing one, there are many elements you need to consider.

Pricing and discounts are often a big factor, but you should also be looking for specific provisions to ensure compliance with industry regulations and standards. Let's go through the five key provisions to look for in your critical vendor contracts.

The 5 Key Provisions

1. Your vendor contract should contain an adequate and measurable Service Level Agreement (SLA).

Your vendor contract should include minimum service level requirements along with any remedies for failure to meet such standards. A well defined SLA should clearly identify expectations and obligations between the parties and should target measuring performance against those objectives. Some things to look for in your vendor's SLA are:

  • Standards by which the service(s) will be measured
  • Functionality and availability the vendor is committed to providing
  • Volume of work accepted and delivered by the vendor
  • Criteria for responsiveness
  • Reporting methods and frequency of such reports
  • Rights and remedies in the event of failure to meet the standards (this should allow for termination of the contract should the vendor fail to meet the standards over a specific period of time)


2. Your vendor contract should have sufficient security and confidentiality provisions that cover Non-Public Personal Information (NPPI) as well as proprietary information.

The contract should clearly identify vendor’s responsibility to maintain policy and procedures to meet the data security objectives of the GLBA and other regulations by addressing safeguards designed to do the following:

  • Ensure security of non-public personal information
  • Protect against anticipated threats
  • Protect against unauthorized access and have mitigation plans in the event of a security breach
  • Proper disposal of confidential information and data
  • Maintain confidentiality of proprietary information


3. Your vendor contract should identify any subcontractors and ensure that these relationships are in accordance with industry guidance. And if any are identified, it's important that they include the following provisions within your contract:

  • They should specify any primary subcontractors and that the vendor remains responsible for all contractual obligations.
  • They will monitor and provide oversight of their subcontractor’s operations in accordance with industry guidance.
  • Subcontractors will be held to standards no less than those established between you and your vendor.
  • Your vendor should specify recovery objectives and testing requirements for any subcontractors. They should also provide disclosure of any such testing results and audits performed.

4. Your vendor should provide appropriate compliance documents on an annual basis.

Contracts should require that vendors provide, at a minimum, the following compliance documents annually:

  • SOC Reports
  • PCI Compliance Certificates
  • Certificate of Insurance
  • Financial Reports
  • Network Penetration and/or Vulnerability Assessment
  • Intrusion Detection and Incident Response Plans
  • Business Continuity and Disaster Recovery Procedures


5. Your vendor contract should include a Business Continuity and Disaster Recovery plan in compliance with Appendix J.

Contracts should include provisions covering compliancy with Appendix J:

  • Accessibility to your vendor’s BCP Policies and Procedures
  • Independent testing requirements that demonstrate the ability to meet sufficient recovery objectives
  • Frequency and availability of such test results 
  • Established recovery times for the return of critical business functions
  • Back up responsibilities
  • Cyber resilience
  • Management of third party/outsourced business continuity

But, There's More

The above are a few major elements to look for within your critical vendor contracts, but these are by no means the only important provisions. Those are major elements regulators and auditors are most likely to call out when not properly addressed within your contracts, so ones you should pay extra attention.

For additional vendor contract management information, check out our Creating an Effective Vendor Contract Management System eBookCreating an Effective Vendor Contract Management System eBook

Heather Garnett

Written by Heather Garnett

Heather Garnett is an on-site paralegal with Venminder. Prior to joining Venminder, Heather spent two and half years working in the Middle East as a Legal Secretary for Edinburgh International and as Senior Contract Compliance Manager for a Alastora Private Security Company. During this time she successfully negotiated multi-million dollar contracts with many international companies within the oil and gas industry. Before traveling overseas, Heather worked for private law firms gaining 11 years legal and contractual experience. She received her Paralegal Certification from Murray State University.

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