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A Comprehensive Guide to Mitigating Third Party Risks in Procurement

by Global Link Law
Jun 12, 2024
third party risk

One of the keys to effective procurement is mitigating the risks posed by third parties. At Global Link Law, we have the professional skills and proven legal expertise to develop strategies that address and limit risks associated with the procurement process. 

What is Third Party Risk Management (TPRM)?

Broadly explained, Third Party Risk Management (TPRM) is a strategic approach to 1) Identify, 2) Assess, and 3) Mitigate risks associated with outsourcing services to third-party vendors. TPRM ensures that external engagements do not adversely affect a company’s security, compliance, or its operational integrity. The process involves continuous monitoring and managing of third-party relationships to protect against potential threats. 

Why is TPRM So Important for Effective Procurement? 

TPRM helps to ensure that third-party vendors meet security and compliance standards—thereby minimizing operational and reputational risks to your business or organization. Well-structured Third Party Risk Management enables firms to proactively identify and address vulnerabilities within their supply chain. It is a strategic approach that safeguards a business or organization against financial losses and other liability risks.

Key Points to Consider When Evaluating Third Parties

Risk mitigation is a fundamentally proactive process. How do you know if your business or organization is working with the right third-party vendor? A comprehensive assessment is a must. When crafting a procurement strategy, proactive risk assessment—including third-party evaluation—is essential. At Global Link Law, we have deep experience helping our clients proactively evaluate, manage, and mitigate the risks associated with third parties. Here are see points to consider: 

Ability to Meet Quality and Performance Requirements

Quality and performance are non-negotiable when outsourcing any aspect of your business operations. It is essential to assess whether third parties have a proven track record of meeting and exceeding industry standards. The evaluation should include reviewing past performance data, client testimonials, quality certifications, and other material issues. Companies should set clear performance metrics and conduct regular performance reviews. 

Financial Stability

Assessing the financial health of a third party is crucial to ensure they can sustain long-term partnerships and manage obligations effectively. Financial instability can lead to disruptions in service and affect your supply chain. A third party supplier that has financial vulnerabilities could create problems for your procurement process. 

Compliance with Regulations

Third parties must adhere to all relevant local, national, and international regulations that affect your business. Key regulations typically include data protection laws, environmental standards, and other industry-specific regulations. Conducting a thorough compliance audit before engaging with a third party is key. 

Protection of Confidential Information

Protecting sensitive information is paramount in any third-party relationship. Evaluate the third party’s data security measures, including their policies on data handling, storage, and destruction. Assess their history of data breaches or security incidents and review their incident response plans. It is also advisable to include strict confidentiality clauses and well-drafted data protection provisions. 

Supply Chain Security/Response to Disruptions

In today’s global economy, supply chain disruptions can have catastrophic effects on business operations. Indeed, Statista cites data showing that there were more than 11,000 different supply chain disruptions worldwide in 2021 alone. Assessing a third party’s ability to respond to and manage disruptions such as natural disasters, political unrest, or logistical failures is crucial. As part of a third-party mitigation strategy, you may want to review your counterparty’s contingency/business continuity plans to ensure they have a robust system to operate under adverse conditions. 

Avoidance of Unethical Practice

Engaging with a third party that employs unethical practices can significantly harm your business’s reputation and legal standing. It is important to conduct thorough background checks on potential third parties to ensure they adhere to ethical business practices, including labor laws, anti-corruption laws, and fair trade practices. 

At Global Link Law, we are committed to providing solutions-focused guidance and support to our clients. If you have any questions or concerns about mitigating third-party risks in the procurement process, we are here to help. Contact us today


The information provided on this website is for general informational purposes only and should not be considered legal advice. No attorney-client relationship is created by accessing or using this website. Please consult with a qualified attorney before making any legal decisions. Global Link Law is not liable for any reliance on the information provided. Prior results do not guarantee a similar outcome.

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