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Third-Party Risk Management

What is vendor due diligence?

It involves verifying a vendor's legitimacy, financial health, and compliance history before signing a contract to ensure they can meet their obligations without introducing risks.

How often should I audit my third parties?

High-risk vendors (like those handling sensitive data) should be audited annually or bi-annually. Low-risk vendors may only need periodic performance reviews.

Am I liable for my subcontractor's labor violations?

In many cases, yes. Georgian labor law and health safety regulations can hold the primary contractor jointly liable for safety breaches on their worksite.

What clauses protect me from third-party risks?

Essential clauses include "Right to Audit," "Indemnification," "Data Protection Obligations," and termination rights for material breach of compliance.

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Third-Party Risk Management: Securing Partner Relationships

In the modern business ecosystem, no company operates in isolation. Organizations depend on suppliers, contractors, outsourcing providers, and other partners. Third-Party Risk Management (TPRM) is a critical process aimed at identifying, assessing, and controlling threats arising from relationships with external entities. In Georgia, where the business environment is evolving rapidly and regulations are tightening (especially in financial and tech sectors), an unreliable partner can cause not only financial loss but also serious legal liability and reputational damage. For example, if your subcontractor violates occupational safety norms or personal data protection laws, liability often extends to the hiring company. Third-party risk management services ensure that your business connections are transparent, legal, and secure, allowing you to develop strategic partnerships with peace of mind.

What Does This Service Cover?

Third-party risk management is a complex service encompassing legal, financial, and operational aspects:

  • Due Diligence: Detailed study of a potential partner before signing a contract. This includes checking their legal status, financial stability, litigation history, and reputation.
  • Contract Risk Management: Embedding special protective mechanisms in contracts, such as audit rights, strict indemnification clauses, confidentiality guarantees, and Service Level Agreements (SLAs).
  • Compliance Monitoring: Periodic checks of partners' adherence to Georgian legislation (e.g., Labor Code, environmental regulations).
  • Data Protection Audit: Verifying partners to whom you transfer personal data of clients or employees to ensure they adhere to security standards.
  • Conflict of Interest Management: Detecting hidden connections between partners and company employees during the procurement process.
  • Offboarding Strategy: Mitigating risks when terminating a partnership, involving data return, revoking access, and legally securing final settlements.

Common Scenarios When You Need This Service

Third-party risk management is essential in the following typical situations:

  • IT Outsourcing: When hiring an external company to manage servers or develop software. Insuring against cybersecurity and intellectual property risks is critical here.
  • Supply Chain Management: When the supply of raw materials depends on a single specific supplier. Their bankruptcy or sanctioning (e.g., international sanctions) threatens your production.
  • Mergers and Acquisitions (M&A): When buying another company, it is necessary to audit its existing contracts and partner obligations.
  • Use of Financial Intermediaries: Working with agents or distributors where there is a risk of corrupt deals or money laundering, for which you could be held liable.

Georgian Legal Framework

Third-party risk management relies on several Georgian legislative acts. The Civil Code of Georgia regulates contractual relations and liability of parties. The Law of Georgia on Entrepreneurs defines the fiduciary duty of care for managers, which implies careful selection of partners. For the financial sector, the Law of Georgia on Facilitating the Prevention of Money Laundering and Terrorism Financing is crucial, obliging entities to study their business partners (KYC/KYB). Additionally, the Law of Georgia on Personal Data Protection imposes liability on the data controller if their contractor (processor) violates the law.

Process of Service Delivery

The process begins with risk segmentation: all suppliers are divided into low, medium, and high-risk groups. Enhanced Due Diligence is conducted for high-risk partners. Lawyers check data from the Public Registry, litigation history, and sanctions lists. In the next stage, contracts are modified to mitigate risks. Periodic monitoring and audits are carried out throughout the collaboration. If a problem is detected, lawyers ensure contract termination or claim for damages.

Why Legal.ge?

Legal.ge gives you access to risk managers and lawyers with experience in both local and international markets. The specialists on our platform will help you create an effective supplier management system that protects you from unexpected "surprises." Do not rely on words alone; trust verified facts and sound legal documents prepared by Legal.ge experts.

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Specialists for this service

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