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What is DPA in Software Development Outsourcing — QIT

Apr 19, 2023 12 min read
"What is DPA in Software Development Outsourcing — QIT"

Learn what a data processing agreement (DPA) is, how it works, and why startups that outsource the processing of personal data must have one in place with each provider. Discover the importance of a DPA in ensuring GDPR compliance and protecting sensitive customer information from potential data breaches involving third-party vendors. Read on for everything you need to know about DPAs for your startup’s data security.

  • Startups typically outsource software development to third-party vendors.
  • Third parties frequently process customer information. There have been cases where contractors intentionally or unintentionally exposed that information.
  • A data processing agreement with a contractor can assist in limiting the effects of a possible breach.
  • Startups that outsource the processing of personal data must have a data processing agreement in place with each provider.

True, contractors and partners may help you set yourself up for success. They can, however, expose you to data breaches involving your client’s personal information and all of the potential implications that come with that nightmare. That is why there is a data processing agreement.

The Internet has simplified the process of selling products and services online. However, this includes the processing of people’s personal information, which is frequently carried out by third parties.

Security researchers found a security problem at QuickBit, a Swedish cryptocurrency exchange, in 2021. The contractor for the exchange had exposed information about over 300,000 transactions, which thieves might possibly use to steal users’ identities.

You may now use a variety of technological and organizational safeguards to prevent your contractors and partners from leaking sensitive information. The nature of such measures will be determined by the technological characteristics of your platform or product. However, no matter what measures you take, there is no 100% assurance of information security.

That implies you must identify who is responsible for what. And a data processing agreement allows you to do this. Continue reading to learn what it is, how it works, and what points it must include.

What is a data processing agreement (DPA)?

A data processing agreement (DPA) is a contract that exists between a data controller (such as a company) and a data processor (such as a third-party service provider). It governs the processing of personal data for commercial purposes. A DPA is additionally known as a GDPR data processing agreement. It’s also referred to as:

  • A DPA as a data protection agreement
  • A personal data processing agreement
  • A DPA as a data privacy agreement
  • A DPA as a data processing addendum.

So, when should you implement a data processing agreement? It should be used at the early stages of startup development before a third party deals with customer information.

Consider the following imaginary case:

Ukash, a fictitious Czech startup, intends to provide hookah delivery services via its website and mobile app. And to construct those, the startup employs Desoft (another fictitious software development company).

To place a purchase, customers must give their name and phone number to Ukash. However, this is personal information, and as an EU-based company, the startup must follow the General Data Protection Regulation (GDPR).

Furthermore, consumer information is sent through Desoft’s website and mobile app. As a result, Ukash must ensure that Desoft, as the contracted developer, is held liable if any personal information is compromised.

That is why Ukash agrees to a DPA with Desoft. The developer assures that it will handle client information in accordance with the conditions of the agreement.

A breach may still occur as a result of Desoft, and Ukash may be taken to court. In this scenario, the DPA is a legal agreement demonstrating that the startup took all necessary steps to protect client privacy.

Any action in which data is gathered, processed, communicated, and/or categorized to generate useful information is referred to as data processing. Companies frequently use third parties to collect and analyze their customers’ personal data, which mandates using a DPA.

Who Is a Data Processor and a Data Controller?

You may have heard of data controllers and processors as DPA parties. Here is an overview of who they are and what they do.

A controller, according to the GDPR, “determines the purposes and means of processing personal data.” It might be “any legal or natural person, agency, public authority, or other body.”

In contrast, a processor “processes personal data on behalf of a data controller.” It might also be any person or organization you’ve chosen.

In our case, Ukash becomes a DPA data controller, while Desoft becomes its processor. As a result, the startup must “actively demonstrate full compliance with all data protection principles.”

Desoft may now leverage the services of a cloud storage company (for example, Amazon Web Services, or AWS). AWS will then have access to customers’ personal information and will be classified as a sub-processor.

To be GDPR compliant, Desoft must obtain written consent from Ukash before utilizing AWS. This authorization will allow Desoft to establish a “back-to-back contract” with AWS, which will have the same processor requirements as the original DPA.

The initial DPA will still be legally binding for Desoft as the processor after the contract is signed.

The objective of a DPA

A data processing agreement specifies the technical standards that the controller and processor must adhere to while processing data. This involves defining the conditions under which data is kept, protected, processed, accessed, and used. The agreement also defines what a processor is and what they are not allowed to do with data.

The DPA is a vital component of GDPR compliance.

What is GDPR?

GDPR is an abbreviation for the General Data Protection Regulation. The European Union (EU) enacted it as a privacy and security regulation. Despite its origins in the EU, the GDPR applies to any entity that targets or gathers data on EU citizens.

The GDPR is primarily concerned with personal data and data processing, as well as subjects, controllers, and processors. It requires the execution of a DPA with third-party data processors. If your company collects information on EU citizens, you must be GDPR compliant and utilize DPAs. Failure to do so might result in significant fines and penalties.

What Is the Function of a Data Processing Agreement in Software Development Outsourcing?

A DPA alone will not prevent processor issues. Returning again to our example, in the event that Desoft leaks customer information without a valid DPA signed by both parties, Ukash will suffer serious consequences.

The GDPR requires that “if your organization is subject to the GDPR, you must have a written data processing agreement in place with all your data processors.”

Startups often outsource software development to developers around the world. Using our imaginary companies again, let’s imagine Desoft is located in India. Does this exempt the developer or Ukash from GDPR compliance? Quite the contrary.

Ukash must comply with the GDPR as long as it deals with the personal information of EU citizens. It makes no difference where their contractors are situated.

If the India-based Desoft makes a mistake and there is no DPA, Ukash will carry full legal and public responsibility. However, if the parties reach an agreement, Ukash will be entitled to seek financial compensation from Desoft. In addition, the startup will be allowed to defend itself in public.

How a DPA Should Look

Having answered the question “What is DPA? ” Let’s examine the basic elements commonly mentioned in DPAs. They may be supplemented by others, depending on the parties’ concerns, needs, and goals. Before signing a Data Processing Agreement with an outsourcing company, be sure it includes the following clauses:

General Provisions

Your DPA should identify:

  • Data controller. Stakeholders that commit their data to a third party are known as data controllers;
  • Data processor. So, what is a data processor? Data processors are individuals or businesses that process data on behalf of the data controller.

In addition, the first section describes the following:

  • DPA data types (data that will be accessed by a third party);
  • Data subjects.

The latter may comprise a variety of persons or companies whose data will be handled. These might be your clients or collaborators, for example.

In addition, general provisions should provide a description of:

  • Data processing objectives;
  • Customer data scope;
  • DPA software (data processing systems, tools, or software solutions);
  • Processing time for personal data (or business data consumption);
  • Description of data storage.

What about the time frame of the DPA (data privacy agreement)? Describe the following:

  • The agreement’s duration;
  • Agreement termination’s conditions.

Remember that once the DPA is terminated, the personal data processor is required to erase your data from their storage. In this situation, data sent to their systems must be permanently destroyed.

Stakeholders’ Rights and Obligations

This section includes the following items:

  • A data controller’s rights and duties. Your rights and obligations as a data controller will be discussed in this section. Why are we discussing responsibilities? Because the DPA requires you to respect data subjects’ rights and ensure that a processor manages data in accordance with terms, processing instructions, and legislation. So you, too, have obligations.
  • A data processor’s rights and duties. This section of the agreement explains data processors’ rights and duties. What exactly does a data processor do? Their primary responsibility is to guarantee continuous data security and to mitigate the dangers of a data breach. A data processor must provide you with an effective reaction if a breach happens. Data processing companies are also required to respect the rights of data subjects.

A data processor must retain a record of all data-related activities and allow you to undertake a DPA compliance audit. They are not permitted to use any third-party service provider in data processing without your permission.

Description of procedures and processes

The third section focuses on the steps that all parties are taking to ensure data protection and safe data processing in outsourcing. It is best to include both of the following:

  • Data protection and agreement compliance from an organizational standpoint.
  • The technical side of the same issue.

Final Provisions

Companies typically mention:

  • Conditions under which the agreement can or cannot be modified.
  • The advantages of the Data Processing Agreement above other documents.


Annexes contain any extra documents required for the implementation of Data Processing Agreements. As an example:

  • Tables providing detailed process explanations.
  • The findings of the audit.
  • Lists of GDPR portions that are especially important.

That’s all. Of course, there are several DPA contract templates available on the internet. Make certain that all necessary aspects are covered when selecting a data processor agreement template. It will assist you in avoiding misunderstandings and risks.

Remember that investing time in customizing a template is safer than ignoring critical elements of the agreement.

Choosing a Secure Data Processor Checklist

You are already aware of what constitutes a good Data Processing Agreement. However, before signing a contract, ensure that your software development partner is trustworthy. Our brief checklist can help you discover your data processor’s weak spots and include them in the DPA agreement.

Here are some questions to consider:

1. Is there a registered office in the European Union for a company?

Select an outsourcing partner with a European presence. It will offer you more confidence in the security of the services provided by your partner. It will also assist you in ensuring that GDPR compliance and data privacy exist not just on paper but also in practice.

2. Is a company GDPR-compliant?

Check the vendor’s privacy and data protection policies. Assess the list of third-party entities that have access to the company’s data. If you have any security concerns, talk about them ahead of time. It is sometimes even preferable to specify contentious topics in the agreement or contract.

3. What information security strategy does it have?

Ask your prospective partner about the methods for guaranteeing information security. Do they have a security plan? Inquire about who is in charge of data security in their organization. You should observe your partner’s readiness to answer security-related questions.

4. What are the data storage methods?

When a company fails to protect its own data, it is almost hard to protect consumer data. Inquire with the partner about the location of their data. Do they have on-premise storage or a cloud-based solution? How reliable is their cloud provider if they use the latter?

5. Is data secure on the technical level?

Inquire with the outsourcing provider about the technical aspects of data protection. What kind of hardware do they use? How do they guarantee that authorization is secure? A trustworthy partner maintains track of approved devices and manages inventories.

6. What is a company’s strategy for preventing software vulnerabilities?

A professional software development team uses the full-cycle technique while creating a software product. That is, in addition to creating the product itself, a company also offers support and maintenance. So, how does your partner secure the safety of the products? In the event of a data breach, do they have a response strategy?

7. What infrastructure protection approach does it pursue?

The final question will assist you in understanding how the organization handles data breach prevention. How does your prospective partner store their data? How do they protect their devices against harmful attacks?

To Conclude

A data processing agreement is required if you use third-party services to function while utilizing EU citizens’ personal information. The work of writing such an agreement may appear difficult, but don’t worry – many others have gone before you. You only need to research and implement their methods.

Experienced developers, on the other hand, have their own DPA templates. And using them is the most cost-effective and time-efficient means of protecting your legal rights and public image. If your contractor recommends a template, thoroughly review it and modify it to fit your company strategy.

With the information provided, we hope that you will be able to select a high-quality software development company that is reliable. If you need more detailed and guided answers, please contact us, our IT staff augmentation services will help you.

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What is a data processing agreement?

A data processing agreement specifies the rules for processing personal information between a company and its contractor.

Who are data controllers and data processors?

Data controllers are companies that hire contractors to perform tasks that involve processing customer data. A contractor processes data.

Do I need a DPA for my startup?

A DPA is necessary to comply with the GDPR if you operate a business that uses EU citizens’ personal information through third-party contractors.

When do I need a data processing agreement?

A data processing agreement is required when managing data from others. This legally binding contract defines both parties’ duties and obligations, as well as the conditions under which data will be processed.