Protecting Your Data When Your Subcontractor Hires a Subcontractor

by Pillsbury Global Sourcing Practice
Contact

[author: Benjamin M. Dean]

When customers sign a contract with a service provider that will be holding the customer's confidential data (for example, the customer's business records, human resources data, personally identifiable information, protected health information, payroll data), in addition to laying out the service provider's responsibility for protecting the data, customers focus on restrictions allowing the customer to audit and confirm over the life of the contact that its data is being stored and maintained securely and appropriately by the service provider.

However, everyone (including service providers) seems to be outsourcing or subcontracting today. Customers must be vigilant about ensuring that their service contracts allow them not only to review, audit and confirm that their service provider is maintaining their data appropriately, but also that the customer can track and audit any customer data held by their service providers' subcontractors (and those subcontractors' subcontractors, and so on).

Service providers today frequently partner with subcontractors to provide discrete portions of their suite of services - sometimes those subcontracted services are (arguably) "not material" to the overall scope of the services provided, while sometimes those subcontracted services are mission-critical.

Examples include:

  • the service provider that partners with a disaster recovery subcontractor, rather than provide disaster recovery services itself;
  • the data hosting provider that elects not to store backup tapes itself, but to utilize an off-site records management and storage subcontractor; and
  • the service provider that hosts and utilizes mission critical third party software to provide services to a customer, but decides to utilize a data center or hosting subcontractor (rather than host the software itself).

In all of the examples above, the customer's data (disaster recovery tapes, back-up tapes or data, or data stored within third party software) could be held by the downstream subcontractor, but the customer would have no direct contract with the subcontractor.

What if the data is held by the third party subcontractor, and the customer's auditors wish to confirm the security of the data? What if government inspectors or regulators ask to review the data? What if one of the customer's clients exercises its contractual rights to audit the systems used to keep that data secure? In all of these cases, the specific right to audit that data (and the security of the data) does not lie within the contract terms of the customer's agreement with its primary subcontractor, but instead within the terms of a downstream contract between the service provider and its subcontractor.

How does a customer ensure that it has the ability to maintain control over that data? In some ways, this can be as easy as adding language into a customer contract prohibiting service providers from subcontracting without the customer's prior permission. But as we noted above, service providers are frequently partnering with subcontractors to provide portions of a suite of services that are not within their skills sets (or outside of their "sweet spot"). A blanket prohibition on subcontracting may not be realistic, if a customer desires to contract with a particular service provider that must subcontract a portion of the services.

There are several protections a customer can consider including in its service provider contracts to address these issues:

  • the right for the customer to audit or assess the security provided by a proposed downstream subcontractor, before the service provider is allowed to send the customer's data or information to that subcontractor (i.e., a site assessment);
  • contractual guarantees that the service provider will include, within its downstream contracts with its subcontractors, protections allowing the customer to access and audit any of the customer's data and information held by the subcontractor (and remediate any deficiencies identified during an audit);
  • the right to force the service provider to no longer use a subcontractor, if problems or deficiencies are later identified with respect to the subcontractor; and
  • express language making clear that these protections apply to all further downstream subcontracts: not just the subcontractors of the customer's service provider (which is, thus, 2 rungs removed from the customer) but also the subcontractors of those subcontractors (3 rungs removed from the customer), and so on.

Customers may want to bulk up the contractual guarantees described in the second bullet directly above, including requiring service providers to represent and warrant that they will have such protections in their subcontractor agreements. And customers also may want to think about what the consequences would be if the customer exercises its rights described in the third bulleted item above, to have the service provider quit using a particular subcontractor: (i) who pays for identifying and contracting with the replacement subcontractor? (ii) how quickly must the alternate subcontractor be identified and put into place? (iii) what if an alternate subcontractor cannot be identified in a timely basis? One final consideration. There are numerous customers who have contractual protections prohibiting their service provider from subcontracting (or allowing subcontracts only with the customer's permission), who discover several years into their relationship that the service provider has indeed subcontracted a portion of the services in violation of the agreement. It might not be an intentional breach of the contract restrictions - the service provider may not have remembered that it was required to seek the customer's permission, or perhaps the service provider is required to seek permission only for "material" subcontracts and there is disagreement as to whether or not a particular subcontract was or was not material. Given that a customer could look up one day and realize that an unexpected subcontractor is supporting the delivery of the services, customers should make sure that the contractual protections discussed above apply to any of the service provider's subcontractors that provides services that affect the customer's data or information, not simply subcontractors that have been approved by the customer.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Pillsbury Global Sourcing Practice | Attorney Advertising

Written by:

Pillsbury Global Sourcing Practice
Contact
more
less

Pillsbury Global Sourcing Practice on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.