What is a Data Processing Agreement (DPA) and Why is It Important?
Alexis Dessaints
8 mins
January 9, 2025
Data is one of the most valuable assets people can possess. It is also highly sought after by various global companies, resulting in wide-scale data collection practices throughout the world.
How does your personal data matter and why is it sought after by companies? There are various reasons for data collection - from helping companies understand a particular demographic for better marketing to sending targeted ads to people - data collection is a practice that generally aids companies in increasing their global revenue.
In such circumstances, it is natural to advocate for one’s privacy and ethical data collection practices. To safeguard people’s personal data, nations and organizations across the world have implemented various regulations to uphold data integrity and prevent the loss of the trust of data subjects.
A kind of agreement that is often followed is the data processing agreement (DPA); commonly referred to as the data protection agreement or a data processing agreement. A DPA is often a mandatory requirement for companies that collect or process the personal data of their users and customers - before handing it over to third parties.
So, what is a DPA and what is its relevance today? This article will provide a comprehensive overview of a DPA and its many aspects - from its key components to the best practices one can implement to draft a strong DPA.
Let us begin from the basics, understanding what a DPA is. A data protection agreement is a legal contract signed between two parties - the company that collects its customers’ and users’ private data and a third-party organization that processes the collected data.
Depending on the jurisdiction of the company, the terms and regulations for a DPA may differ. However, the primary aim of a DPA is to regulate the data that has been collected and shared between both parties - assuring users, consumers, and more generally data subjects that their data is safeguarded and will be processed under relevant laws.
An important data protection regulation formulated by the EU (European Union) is the General Data Protection Regulation (GDPR) - which governs the ways companies can use, process, and store personal data. Another well-known law is the California Consumer Privacy Act (CCPA) - implemented to enhance the privacy rights and consumer protection of people living in the state of California. Similarly, many countries have different data protection laws - but a DPA is a common practice for many organizations globally.
Other well-known global data protection regulations include:
As a business, what good would a DPA do for you? To ensure that you are accountable for implementing relevant steps and security measures throughout data collection and processing practices.
For example, if you decide to hire a third-party organization (e.g. a cloud service-based organization) to outsource the data processing of your users’ data, you must sign a data processing agreement. The contract will solidify the agreement between both parties - ensuring that the third-party organization upholds the tenets of information security, prevents any data leakage or other security incidents, and complies with relevant data protection laws.
It is a known fact that most businesses rely on third-party organizations for processing their data - this can be carried out in the form of analytics, marketing data, cloud storage, CRM, etc. Signing a data privacy agreement bolsters your chances of:
Having understood what is a DPA, let us delve into the key components comprising one. These components play an integral part in drafting a robust and detailed agreement between the involved parties.
A key element of a DPA is clearly defining the scope and purpose of the data processing. This section could involve information such as:
All involved parties can ensure compliance by clearly outlining their obligations and responsibilities - in this case, the onus falls on the data processor (the third-party organization) and the controller.
This section will define the responsibilities of the data processors and how they will carry about the data processing - according to the instructions set by the controller. Any deviation from the implemented instructions has to be processed through a legal channel.
This section must also clearly state that at the end of the processing, the controller will retain rights over the data and determine what to do with it.
A data protection agreement is incomplete without an extensive draft of the security measures in place to ensure there is no breach. These measures could address subjects such as:
Many data processors often access formalized certifications or draw up a code of conduct that will attest to the implemented protocols. Both measures are popular options and are GDPR-compliant.
This component of a DPA outlines the responsibilities of the data processor to implement relevant technical and organizational measures to respond to any requests made by data subjects.
This means that the processor must notify the controller if it receives a request from data subjects for example accessing to their data. The processor must also state that it will not respond to such requests barring the documented instructions of the controller.
If both parties agree to utilize a sub-processor, there must be an addendum for that as well. A sub-processor is an organization that has been engaged by the primary data processor to handle personal data - on behalf of the controller. While hiring sub-processors is also a common practice, there has to be a strict set of regulations to ensure data compliance.
This involves clauses and instructions pertaining to the kind of data the sub-processor can access, the duration of possessing the data, the procedures for data processing, which security measures will be implemented by the sub-processor, and more.
A DPA must have clauses pertaining to the measures both parties can take in case of a data breach. As per the GDPR guidelines, the processor must notify the controller promptly in such circumstances, and provide sufficient information to the controller, which allows them to report this instance to the applicable Supervisory Authority as well as to users, consumers, and more generally to any data subject when relevant.
There are also clauses pertaining to how the processor can aid the controller in the investigation, mitigation, and remediation of the breach.
A DPA must have clear guidelines on data deletion and retention policies. The GDPR states that the data processor must delete and procure the deletion of any and all copies of the controller’s company personal data according to the stipulated timeline in the agreement.
After explaining what is a DPA and its key components, let us understand how a DPA facilitates GDPR compliance. There are several tenets of a data privacy agreement that do the job, including:
The GDPR has a strict set of rules that govern the legal basis upon which a party can carry out data processing. Controllers and third-party organizations have a legal basis for data processing under at least one of the following situations:
Both the controller and processor agree upon certain mechanisms for safeguarding the data transfer process. The GDPR lists a set of transfer tools that are considered to be “appropriate safeguards” for the transfer of personal data. The main kinds of tools - relevant to private companies are:
Every data processing agreement will have a set of clauses pertaining to audits. In this section, there may be clauses pertaining to:
A DPA can be a very complex document to navigate around. Understanding key practices utilized by many companies can aid you in drafting a solid DPA.
Depending on your organization, the involved parties, and the scope of data processing activities, your DPA will consist of various clauses. However, ensure to include the following clauses while formulating your DPA:
While there are no specific guidelines from the GDPR about how often a DPA should be reviewed, many companies make it a practice to regularly review and update their DPAs.
This is done most often by organizations that are handling highly sensitive personal data. Bear in mind that if there are any significant changes in the data processing activity, the DPA should either be updated or a new one should be drafted.
Such changes may include:
The essence of a DPA lies in mutual accountability between the involved parties. This can be achieved by outlining the responsibilities, obligations, liabilities, and indemnities of the data processor, the data controller, and any other party involved (e.g. sub-processor).
It is always recommended to know common mistakes people make while drafting a data privacy agreement in order to avoid repeating those mistakes.
The GDPR has highly specific terms that must be included in all DPAs - only including some of them will not be GDPR-compliant. Bear in mind that the more detailed your DPA is and the more research you do on the mandatory terms - the likelier you are to avoid any legal consequences.
For example, many organizations include most of the mandatory terms in their DPA but may forget to or choose not to address clauses and provisions such as data sub-processing. In case of a data breach, there could be consequences for the processor and controller if this term is not present in the DPA.
It is critical to specify the kind of data that will be processed in the contract between the data controller and the processor.
A generic DPA that does not specify the kind of data to be processed will be considered GDPR-non-compliant - which may result in legal consequences and penalties for the guilty parties.
Maintaining data security and integrity is one of the most crucial parts of data processing - and a detailed security protocol must be drafted into the DPA by both parties. In the absence of clear protocols, there are higher chances of a data breach, which can leave your business in a very vulnerable position.
This applies to every section, addendum, and clause within a DPA. Ambiguity in a DPA gives room for misinterpretation, misunderstandings, and in the case of a data breach, penalties. Do not take any section of your DPA lightly - ensure that each process, mechanism, and protocol is defined with utmost clarity to not only avoid legal trouble - but also facilitate a smooth process for the involved parties.
We know what a DPA is; let us now understand what a DPO (data protection officer) means.
A DPO is responsible for overseeing the data processing procedure in their organization. They strive to ensure that the personal data of the staff, customers, and other involved individuals remains safe and all procedures comply with local or global data protection standards.
The DPO advises the organization on its data protection obligations, precisely the scope of the Data Processing Agreement. This includes:
The DPO ensures the organization's compliance with the DPA terms by:
The DPO assesses all risks related to data processing activities and ensures that the DPA includes provisions for risk mitigation, such as:
The DPO is the medium of contact between the organization and its processors to:
The DPO periodically audits data processors to ensure DPA compliance, which involves:
Even after all security protocols, a data security incident does occur; in such a scenario, the DPO ensures that the processor adheres to the DPA's breach notification terms and assists in the resolution process.
Navigating around the nuances of a DPA can be overwhelming for many organizations. Engaging the services of a DPO consultancy firm can not only alleviate your doubts but will also streamline your process and provide expert guidance to facilitate your data processing agreement.
DPO Consulting has over eight years of consulting experience and has guided over 800 clients globally for personal data protection and GDPR compliance. Committed to helping businesses execute their GDPR compliance and implement fail-safe DPAs, DPO Consulting tailors solutions to ensure that your business avoids penalties and has a hassle-free data processing procedure with third-party organizations.
Investing in GDPR compliance efforts can weigh heavily on large corporations as well as smaller to medium-sized enterprises (SMEs). Turning to an external resource or support can relieve the burden of an internal audit on businesses across the board and alleviate the strain on company finances, technological capabilities, and expertise.
External auditors and expert partners like DPO Consulting are well-positioned to help organizations effectively tackle the complex nature of GDPR audits. These trained professionals act as an extension of your team, helping to streamline audit processes, identify areas of improvement, implement necessary changes, and secure compliance with GDPR.
Entrusting the right partner provides the advantage of impartiality and adherence to industry standards and unlocks a wealth of resources such as industry-specific insights, resulting in unbiased assessments and compliance success. Working with DPO Consulting translates to valuable time saved and takes away the burden from in-house staff, while considerably reducing company costs.
GDPR and Compliance
Outsourced DPO & Representation
Training & Support
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