What Is a Data Processing Agreement (DPA)?

Understanding Data Processing Agreements (DPA)

A data processing agreement (DPA) is the foundation for any business relationship involving the processing of personal data. It's a formal contract that sets clear boundaries and expectations between a data controller (the organization that determines why and how data is processed) and a data processor (the entity that processes data on behalf of the controller).

Having a proper DPA in place is often a legal requirement. These agreements help establish accountability, limit liability, and ensure that all parties understand their responsibilities when handling sensitive information.

Keep reading to learn more about DPAs, including their purpose, key components, and how to create one.

• Understanding Data Processing Agreements (DPA)
• What Is GDPR?
• Purpose of a Data Processing Agreement
• Why Is Having a DPA Important?
• Key Components of a Data Processing Agreement
• Who Needs a Data Processing Agreement?
• How to Create a Data Processing Agreement
• Who Signs a DPA?
• How Icertis Helps Simplify Data Processing Agreements

What Is GDPR?

The General Data Protection Regulation (GDPR) is one of the most significant shifts in data privacy regulation worldwide. This European Union legislation, implemented in 2018, fundamentally changed how businesses approach data protection by establishing requirements for obtaining and using the personal data of EU residents.

GDPR compliance explicitly requires organizations to implement data processing agreements when a controller engages a processor to handle personal data. These agreements must meet specific criteria to establish compliance with the regulation's principles of transparency, purpose limitations, and data security.

Purpose of a Data Processing Agreement

A data processing agreement establishes legal compliance with applicable data protection laws, which often mandate such agreements. Clearly defining roles, responsibilities, and liabilities creates a framework for accountability throughout the data lifecycle.

Beyond regulatory compliance, DPAs are critical security measures. They require processors to implement appropriate safeguards to protect personal data.

Additionally, these agreements build trust by demonstrating to customers and partners that their data will be handled responsibly and in accordance with agreed-upon terms.

Why Is Having a DPA Important?

The absence of a proper data processing contract can expose organizations to many legal and financial risks. Without clearly defined responsibilities, companies might face regulatory penalties, damage claims from affected individuals, and breach of contract litigation if personal data is mishandled.

Reputation management is another compelling reason for implementing data processing agreements. Data breaches often make headlines, and consumers are increasingly considering a company's data protection practices when choosing service providers.

Key Components of a Data Processing Agreement

A complete data processing contract includes several essential elements, including:

• Subject matter and duration: This component clearly defines what personal data the service provider processes. It specifies the types of information involved and establishes the exact duration of the agreement. This timeframe may be linked to the duration of the underlying service contract or may have independent termination provisions.
• Types of data and categories of data subjects: Every agreement should identify the specific personal information being handled and which groups of individuals it pertains to. Companies need to document whether they are processing basic contact details or more sensitive information, such as health records, financial data, or biometric identifiers.
• Rights and obligations: Comprehensive agreements outline the responsibilities of both the controller and processor throughout the relationship. Each party must understand its security requirements, confidentiality obligations, and responsibilities for responding to data subject requests or regulatory inquiries.
• Data breach procedures: Effective agreements detail notification timelines and response protocols for security incidents. Processors are typically required to alert controllers within 24 to 72 hours of discovering a potential breach, allowing for timely notification to affected individuals and authorities.
• Audit rights: Strong DPAs provide controllers with the ability to verify compliance through inspections or assessments. Regular audits help ensure processors are adhering to agreed-upon security measures and give controllers visibility into how their data is being handled in practice.

These components provide the framework for a comprehensive agreement that protects all parties and ensures regulatory compliance.

Who Needs a Data Processing Agreement?

Any business that collects personal data and uses third-party services to process that information needs a data protection agreement (DPA).

Common scenarios requiring a DPA include:

• Cloud service usage, where customer data is stored on third-party servers
• Marketing activities involving customer databases managed by external agencies
• Payroll processing handled by specialized service providers
• Customer support functions outsourced to call centers or help desk services
• Data analysis conducted by external consultants or software providers

When personal data flows from your organization to another entity that will process it on your behalf, a DPA should be in place to govern that relationship.

How to Create a Data Processing Agreement

To create an effective agreement, you need to identify all relevant data flows between your organization and third-party processors. Companies should prepare a detailed inventory of the personal data they share, including who they share it with and why. Most organizations benefit from using industry-standard templates that they can customize to their specific circumstances.

Legal counsel with expertise in data protection should review all agreements before implementation to ensure compliance with regional regulations. Regular updates and reviews help maintain relevance as regulations evolve and business relationships change. Many organizations now integrate DPA management into their contract management software systems.

Identify the Parties Involved

The agreement must designate which organization serves as the data controller, responsible for determining why and how data is processed, and which acts as the processor, following instructions from the controller. Roles should be assigned based on actual operational control rather than simply contractual designations.

All entities handling the personal data must be properly documented in the agreement, including any subprocessors that may be engaged. The contract should establish clear reporting lines and points of contact for data protection matters at each organization.

Define the Scope and Purpose

The agreement should explicitly state what categories of personal data will be processed, the specific purposes for processing, and any conditions or limitations that apply. Organizations must avoid overly broad descriptions that could permit processing beyond what is necessary for the stated purpose.

Proper agreements establish strict boundaries around data use to prevent unauthorized processing. The contract should explicitly prohibit using the data for purposes not specified in the agreement, such as marketing the processor's own services or developing analytics products from client data.

Outline Security Measures and Compliance Requirements

The agreement must specify security controls tailored to the sensitivity of the data involved, including encryption requirements, access management protocols, and vulnerability testing schedules. Organizations should require processors to maintain industry-standard security certifications relevant to their operations.

Comprehensive DPAs ensure alignment with applicable data privacy laws, including the GDPR and other regional regulations, such as the CCPA. The agreement should establish processes for adapting to regulatory changes and maintaining continuous compliance throughout the relationship.

Establish Procedures for Data Incidents and Subject Rights

Effective agreements include detailed procedures for identifying, containing, and reporting security incidents that may affect personal data. The contract should specify required notification timelines, documentation standards, and the division of responsibilities between parties during incident response.

The agreement must specify how the processor will help the controller respond to individuals exercising their privacy rights. Clear procedures for handling requests for access, correction, deletion, or data portability help ensure timely compliance with regulatory requirements.

Specify Subprocessor Rules and Liability Terms

The DPA should clearly state whether and under what conditions the processor may engage additional third parties to handle the personal data. Many agreements require prior written authorization for each subprocessor to ensure that the same data protection standards apply throughout the processing chain.

Comprehensive agreements include clear liability allocations and consequences for non-compliance with the terms. Indemnification clauses and insurance requirements help manage risk and establish expectations regarding responsibility for potential data protection failures.

Who Signs a DPA?

Authorized representatives from both the controller and processor organizations must execute data processing agreements. These individuals should have the proper authority to commit their organizations to the contractual obligations outlined in the document.

Signatories must understand that they're committing their organizations to specific data handling practices and security standards. The agreement creates binding legal obligations that can form the basis for regulatory enforcement actions or private litigation if violated.

Signing as the Customer (Controller)

Before executing the agreement, controllers should carefully review the processor's security measures and compliance capabilities. Organizations should verify that the processor can deliver the level of protection required for the specific data types involved and has a demonstrated track record of responsible data handling.

Controllers must pay particular attention to provisions regarding breach notification, subprocessor management, and international data transfers. These areas often present the greatest compliance risks and should align with the controller's data protection policies and risk tolerance.

Signing as the Service Provider (Processor)

Service providers must ensure they can implement all security measures and compliance capabilities described in the agreement. Organizations should maintain documented evidence of their data protection practices to demonstrate compliance when requested by controllers or regulators.

Processors must recognize the importance of adhering to security and privacy requirements throughout the relationship. The agreement establishes not only contractual obligations to the controller but also regulatory obligations that expose the processor to potential enforcement actions.

How Icertis Helps Simplify Data Processing Agreements

Managing data processing agreements doesn't have to be complicated. The Icertis Contract Intelligence platform streamlines the entire process, from creation through negotiation, execution, and ongoing management. By leveraging contract AI capabilities, organizations can quickly generate DPAs that align with their policies and risk tolerance, while maintaining visibility into existing agreements and ensuring the consistent application of data protection standards across all vendor relationships.

For businesses navigating complex data protection requirements across multiple jurisdictions, contract lifecycle management provides the structure and oversight needed to maintain compliance while operating efficiently. Our contract intelligence platform's compliance features automatically flag potential issues, alert teams when regulatory changes require updates, and help prevent breach of contract situations through proactive monitoring and management. This gives organizations confidence that their data processing practices align with both legal requirements and customer expectations.

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