Contractual Agreement Aspect of Third-party Risk Management in Information Security

Abstract

Third-party risks are those faced by an organization when incorporating external entities into
their ecosystem, infrastructure, or supply chains. These external parties may take the form of
vendors, suppliers, partners, contractors, or service providers, all of whom are granted access to
internal data concerning systems, processes, intellectual property, customer information, or
internal communication. Organizations are reliant on outsourcing, subcontracting, and offshoring
to support their business, this has amplified the need for effective Third-Party Risk Management
(TPRM) frameworks. Although these practices offer operational efficiency, they introduce
inherent risks, necessitating a careful approach to information security (IS). This article explores
the pivotal role of contractual agreements in TPRM, addressing key questions about contract
deficiencies, adaptability to evolving risks, regulatory impacts, and strategies for incentivizing
third-party risk management. Thorough due diligence, collaborative approaches, and
supplementary risk management strategies have been emphasized in the existing literature. The
conceptual framework underscores the detrimental impact of weak contracts, advocating
dynamic risk assessments, adaptable security standards, and communication and collaboration
channels. Addressing variations in laws and regulations is crucial and requires a clear contractual
provisions and language. The study concludes by providing insights into incentivizing third
parties to adapt risk management practices and off-the-shelf tools and services handling, thereby
contributing a comprehensive guide for organizations to manage third-party relationships in the
domain of information security.