In today’s digital world, data processing agreements (DPAs) are the solid framework holding up relationships between businesses and third-party providers handling personal data on their behalf. As data protection laws like the EU’s General Data Protection Regulation (GDPR) and South Africa’s Protection of Personal Information Act (POPIA) tighten their grip, DPAs help ensure that businesses comply with regulations and avoid data breaches and heavy fines. This article explains why DPAs are essential when required, how to create one, and how to negotiate and manage these critical contracts.

Why DPAs are needed

As companies increasingly rely on third-party processors for handling personal data, having clear, legally binding contracts is more important than ever. There are three main reasons why DPAs are essential.

Data protection laws make DPAs mandatory. Under Article 28 of the GDPR, data controllers (the businesses that decide why and how personal data is processed) must ensure that processors (the third parties who handle the data) comply with strict contractual obligations. POPIA also requires that controllers ensure processors protect personal information. Failing to have a DPA in place can result in massive fines and may leave controllers responsible for any third-party breaches. Besides GDPR and POPIA, laws like the California Consumer Privacy Act (CCPA) and Brazil’s General Data Protection Law (LGPD) also require DPAs.

DPAs clearly define the roles of data controllers and data processors, preventing confusion over who is responsible for what. This is vital for protecting personal data and avoiding mismanagement. With a DPA, both parties know their duties, from keeping data secure to reporting breaches.

A strong DPA gives businesses legal recourse if a processor fails to meet its obligations. If a third party mishandles personal data, the data controller can rely on the DPA to recover losses and protect the business’s reputation. This is critical, as many companies have limited oversight of how third-party providers manage their data.

When is a DPA required?

A DPA is required whenever a business hands over personal data to an external party like a cloud storage provider, marketing firm, or payment processor. GDPR’s Article 28 demands a contract that outlines the scope, purpose, and security measures of the processing. POPIA requires similar protection when sharing personal data. Without a proper DPA, businesses risk heavy fines and severe damage to their reputation.

Creating a DPA: approaches and options to data processing agreement compliance

Businesses have several options for creating DPAs, depending on their size and the complexity of their data processing activities.

Large organisations with significant data needs often seek help from legal professionals to draft custom DPAs. These tailored agreements help strive towards compliance with laws such as GDPR and POPIA and can often be tailored to cover multiple jurisdictions.

Pre-made DPA templates can be adapted to suit a business’s needs, though a legal expert should review them to ensure full compliance with privacy laws. This option suits mid-sized businesses that need a straightforward but legally sound solution.

Some small companies may draft DPAs in-house to save costs. However, this approach requires deep knowledge of data privacy laws, and mistakes can lead to hefty fines. It’s often safer to have a legal expert review the final document.

Critical components for data processing agreement compliance

A compliant DPA must cover several vital areas:

Purpose of data processing

The DPA must clearly state why data is being processed and how the controller’s instructions will be followed. For example, a cloud storage provider should only use the data as directed by the controller, not for any other purpose, like data mining.

Security measures

The agreement should describe the technical and organisational steps the processor will take to protect the data, such as encryption and access controls, to maintain the data’s confidentiality, integrity, and availability.

Audit rights

Controllers need the right to inspect or audit the processor’s activities to ensure compliance. This is especially important for sensitive data, such as health or financial records.

Sub-processors

The DPA must specify if the processor can use sub-processors and under what conditions. Under GDPR, processors need the controller’s approval before engaging another processor.

Incident reporting

DPAs should include procedures for reporting data breaches or security incidents. Under GDPR, controllers must report the incident within a certain period – which means that processors must typically notify the controller within a shorter specific period after becoming aware of a breach.

Risk assessment and DPA scope

A risk-based approach ensures the DPA’s complexity matches the data’s sensitivity.

Organisations should evaluate the risk level of each processor, particularly those handling sensitive data like health records. High-risk processors require more detailed agreements covering everything from security protocols to reporting requirements. Lower-risk processors may only need essential clauses.

The DPA should fit the risk profile of the data being processed. For low-risk activities, POPIA may require only a few provisions, while GDPR mandates more detailed terms, such as breach notifications and rules for transferring data across borders.

Negotiating DPAs and reducing friction in data processing agreement compliance

Negotiating DPAs can be challenging, especially when a business is dealing with large providers.

Smaller businesses may have limited bargaining power when negotiating with larger customers or service providers. In such cases, focus on negotiating terms that align with your business’s key priorities and get legal advice where needed.

For companies operating in multiple regions, standardising DPA terms can simplify compliance. Using consistent terms across all DPAs can help avoid renegotiating each time new regulations arise.

Liability terms are often contentious. A fair approach is having both parties take responsibility for their mistakes. While large processors may resist this, negotiating liability limits may still be possible.

International data transfers and data processing agreement compliance

DPAs must include protections for data entering different jurisdictions when transferring data across borders.

GDPR requires that businesses use Standard Contractual Clauses (SCCs) or anther suitable mechanism when transferring personal data outside the European Economic Area unless the destination country has adequate data protection. SCCs are often included in DPAs to ensure legal compliance when transferring data internationally.

Businesses must ensure their DPAs comply with all relevant data protection laws, including GDPR and POPIA. This requires a careful balance between international frameworks and local regulations.

Contract management and automation

Effectively managing DPAs is crucial for businesses dealing with multiple processors.

Automating the management of DPAs with Contract Lifecycle Management (CLM) systems can reduce the workload, particularly for businesses handling a large volume of contracts. These systems help track agreements’ creation, signing, and renewal, ensuring they stay compliant with changing laws.

Actions you can take next

Data processing agreements are essential for complying with data protection laws and managing risks from third-party processors. Whether using legal services or templates, businesses must create DPAs tailored to their processing risks. Regularly reviewing and updating these agreements helps ensure they remain compliant and effective. You can: