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AI5.2 - Supplier Contract Management

This topic is intended to enable collaboration and sharing of information to facilitate a better understanding and approach to implementing this COBIT control objective based on the risk, value and guidance provided by its corresponding control practices.

COBIT Control Objective AI5.2 - Supplier Contract Management is contained within Process Popup Procure IT Resources.

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Supplier Contract Management

Set up a procedure for establishing, modifying and terminating contracts for all suppliers. The procedure should cover, at a minimum, legal, financial, organisational, documentary, performance, security, intellectual property, and termination responsibilities and liabilities (including penalty clauses). All contracts and contract changes should be reviewed by legal advisors.

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Value Drivers

  • Defined supplier relationship objectives and goals
  • Efficiently managed procurement of resources
  • High-quality contribution to business and IT processes
  Risk Drivers
  • Lack of cost management
  • Gaps between business expectations and supplier capabilities
  • Undefined service costs incurred
  • Services failing to reflect business requirements
  • Lack of operational support

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  1. Establish supplier contract management policies and procedures in accordance with legal terms and conditions. The policies and procedures should address specific concerns such as:
    • Supplier responsibilities
    • Client responsibilities
    • Supplier SLAs
    • Monitoring and reporting against SLAs
    • Transition arrangements
    • Notification and escalation procedures
    • Security standards, records management and control requirements
    • Required supplier QA practices
    • Right to audit
    • Penalties or incentives relating to agreed-upon service levels
    • Intellectual property rights
    • Provision for independent assurance
    • Technology upgrade clauses
    All contracts and contract changes should be reviewed by legal advisors.
  2. Define and implement a policy and related procedures to establish, change and terminate supplier contracts. Consult the appropriate stakeholders, including legal, purchasing, audit, business and IT representatives.
  3. Perform review of supplier internal controls by management or independent third parties based on contracts with key service suppliers.
  4. Obtain and review contracts for clauses relating to third-party reviews and obtain reports from such reviews.
  5. When defining the contract remedies, consider software escrow agreements and alternative suppliers or standby agreements in the event of supplier failure.
  6. Enquire whether remedies were considered when defining the contract.

 

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