Third Party Agreements Clause

Your company has undergon a comprehensive and costly process to analyze and manage third-party risks in order to access the contracting process. One of the fatal mistakes of a contract is the prior agreement of a third party to entrust its responsibilities and commitments to a total stranger that your company may have never heard of, much less appreciated. You may think that you already have strong indemnification and penalty clauses for breakdowns and service outages, but such provisions may not be sufficiently deterrent to prevent the designation of a fourth party that could expose your business to various damages that might not be able to be repaired by financial compensation, such as.B. loss of reputation and administrative penalties. Therefore, you must ensure that a clause prohibits any type of assignment or subcontracting of rights, obligations and liabilities of a third party, in whole or in part, without the valid prior written consent of your company. It should be noted that while you have an absolute termination clause, to what extent you enjoy this right, it is directly related to the fourth step of your risk management plan; Monitoring in progress. In addition to a third party`s obligation to meet its obligations and performance standards, any material change in a relationship with third parties, including its effectiveness, and in particular any change in the organisation and operation of a third party should be assessed and approved directly by your company. It is a common behavior for many companies to be reluctant to perform due diligence at the end of the period and take the simple exit to prefer to trust their historical relationships with their suppliers or business partners. It`s worth noting, however, that you can`t control risks you`re not aware of. Another thing to highlight in the termination clauses is the extension of the contract.

Automatic renewal clauses should be avoided, but you may still want to protect your right to renew the contract at your own request. The economy, politics, technology, benchmarks and rules change as quickly as financial conditions, the economic value of a company, its place in the market and compliance with the rules. At the end of a contract, your due diligence report may no longer reflect a third party`s current situation or display your risks transparently. For this reason, your renewal clause should be designed in such a way that your company has the right to update the due diligence that allows your company to identify and assess new risks before renewing the contract at your request. . . .

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