What are the key elements of a vendor data security agreement or contract?

With most vendor relationships revolving around the exchange of sensitive data, the data security agreement addendum has become increasingly important. The purpose of a data security agreement addendum is to level set expectations around data use and safety, clarify the responsibilities of both parties, and limit liability. While a generic DSAA is great for many vendor relationships, it should be tailored to the specific relationship when they are deemed critical due to their purpose or the type of data being handled.

Confidentiality: Defines what data is confidential and how vendors must secure it (e.g., encryption). Permitted Use: Specifies how vendors can use your data and for what purposes. Security Controls: Outlines specific security measures vendors must implement (e.g., access controls). Breach Notification: Requires vendors to notify you promptly of a data breach. Data Return/Disposal: Details how vendors must return or securely dispose of your data at contract end. Third-Party Audits: Allows you to conduct security audits of the vendor's data practices.

It's best to shy away from prescriptive requirements in vendor security agreements. Stick to enforcing a standards-based approach with vendors so they have the latitude to solve problems in a way that works best for them. A side benefit to a standards-based requirement is that the vendor can more easily have an outside auditor verify the requirement with no extra work on the buyer's side.

Two important inputs to the contractual process, with the intent to protect the parties re personal data processing, need to be considered. The 1st is dataflow mapping. The focus here is to assess the categories of data to be processed, whether any cross-border data transfer is in play, the grounds for lawfull processing, etc. The 2nd, as part of vendor due diligence, is to focus on data security by assessing privacy, access, third party processing, the data server environment, patch protocols, jurisdictional location with ref. to processing and storage, industry certification, etc. The aggregate outcome can then act as context for the contract's content, and furthermore adequately inform liability clause negotiation.

It is imperative to incorporate dispute resolution clauses in contracts. Based on my experience, vendors often disengage from the company immediately upon the conclusion of the service period, neglecting any agreed-upon termination clauses. For major multinational corporations that routinely monitor vendor compliance, this oversight represents an incomplete action and can precipitate further legal complications.

Key elements of vendor data security agreements that are often overlooked include audit clauses and enforceable exit strategies for non-compliance, which are crucial for maintaining accountability. Additionally, specific security mandates like annual penetration tests and pre-delivery code scanning are frequently underestimated in their importance. Another critical, yet often neglected aspect is the use of fourth-parties - which can introduce significant risk with limited recourse if discovered too late.