How do you evaluate and terminate third-party vendor contracts when necessary?

Contractual arrangements should at least cover: - clear, complete description of all functions and services and the respective service levels - rules on subcontracting especially for critical or important functions including BoM for products and services - applicable legal, regulatory, and further compliance rules - countries, where services are provided - change management process - availability, authenticity, integrity, and confidentiality - access, recovery, return of data and assets in case of termination and obligations of the third party to provide assistance - cooperation with competent authorities - termination rights & notice periods - participation tests - audits rights - qualification & authorization - non-disclosure rules - etc

To evaluate a vendor's contract effectively, it's important to first ensure that the goals and objectives are clearly defined and agreed upon by both parties. Additionally, termination clauses should outline the necessary steps if the vendor fails to meet the contract terms. This approach provides measurable criteria to assess the vendor's performance and ensures there’s a plan in place for terminating the contract if needed. This should be backed up by a well-defined termination process which would help protect the company from unnecessary residual risks.

You should set up and contractually agree on an audit program that includes a set of assessments, tests, methodologies, practices and tools to be applied to assess orderly third-party operations and implementation of corrective measures. This includes: - service quality & compliance - preparedness for handling incidents - identification of weaknesses, deficiencies, and gaps in operations - resilience of value chains When conducting a testing program follow a risk-based approach considering the landscape of risks, any specific risks to which you might be exposed, the criticality of assets and services provided, or further appropriate factors. Tests should be performed by independent auditors, free of conflicts of interest at least yearly.

Vendor Due Diligence is a critical process to assess potential risks associated with third-party partnerships. It involves evaluating a vendor's financial health, operational capabilities, security measures, and compliance. A thorough due diligence helps mitigate risks, protect your business, and ensure successful collaborations.

3rd party services for critical functions should be backed by sound exit strategies that cover risks that may typically arise, e.g., failures, deterioration of quality, service disruption, inappropriate or failed provision, noncompliance with contractual arrangements, etc). Ensure being able to exit without: - disruption to your business activities - non-compliance with your legal or regulatory requirements - detriments to continuity and quality of services provided to your clients A good exit plan is documented in detail, well-tested, and reviewed periodically. Be prepared to securely and integrally transfer such services and relevant data to alternative providers or internal IT staff. Keep an eye on data leakage at the former provider!