Key Takeaways

  • A vendor confidentiality agreement is a legal contract used to safeguard sensitive business information shared with vendors.
  • These agreements outline what constitutes confidential information, the obligations of both parties, and exclusions from confidentiality.
  • NDAs may be written or verbal, and sometimes not needed if covered under broader agreements like a Master Client Agreement.
  • Vendors can face civil, criminal, or contractual penalties for violating the agreement.
  • Agreements may be mutual or unilateral, and include terms for governing law, enforcement, and termination.
  • Special legal protections apply under laws like the Defend Trade Secrets Act (DTSA).

A vendor confidentiality agreement is a contract between a vendor and an organization, where one or both parties agree to keep certain information confidential. These agreements may also be called non-disclosure agreements.

The following samples show the types of information a confidentiality agreement may cover.

Sample of a Vendor Confidentiality Agreement: Healthcare Industry

One party entering into the agreement gives understanding that he or she needs certain information to do their job.

The information they agree to keep confidential may include, but is not limited to, the following:

  • Patient information
  • Student information
  • Employee information
  • Research
  • Financial records
  • Business operations
  • Donors

Some of this information is legally protected, such as health information. Confidential information can be in any form, including oral, overheard, written, observed, or electronic. Access to confidential information may be granted on a need-to-know basis. “Need-to- know” includes information necessary for performing the job.

The party agrees not to disclose confidential information to family members, friends, patients, coworkers, or anyone else without permission from the organization. The party also agrees to protect the confidentiality of all confidential information while at the company and after leaving the company.

The confidential information is the company's property and may not be kept by or removed by the party without express permission of the organization.

If the vendor violates the agreement, he or she is subject to adverse action, which includes losing the ability to work at or on behalf of the company. The vendor may also be subject to civil or criminal penalties.

Vendors agree to be bound by the contract, with an understanding they have read the agreement and understand the terms. They then sign and date the agreement.

Sample of a Vendor Confidentiality Agreement: Non-Disclosure

Business A states that their business depends on the free flow of information as well as its ability to withhold confidential information. Clients and vendors may ask Company A to agree to non-disclosure or confidentiality agreements before they provide any confidential information.

What are typical situations that call for NDAs, and what's the policy and process to deal with these types of requests? It will depend on the vendor and organization. Companies may outline policies for written versus verbal agreements, as well as situations in which they won't agree to NDAs.

What Information Is Typically Protected?

A vendor confidentiality agreement may protect a wide range of information, depending on the nature of the business and the vendor's role. Commonly protected types of information include:

  • Proprietary formulas, designs, or processes
  • Pricing strategies and financial records
  • Trade secrets and business plans
  • Vendor or client lists
  • Software code or IT system architecture
  • Product roadmaps or marketing strategies
  • Information marked as "Confidential" or shared under specific verbal terms

These categories are broadly defined to encompass not only written records but also oral communications, electronic data, and any derivative works or analyses based on confidential material.

Written NDAs

Company A's policy is not to agree to NDAs, as it wants its analysts to have the ability to freely use any information they obtain outside of client services. The company may make exceptions to the policy if a vendor identifies certain information as particularly sensitive yet vital to understanding the context of a service, product, or other aspect of the vendor's business.

Confidential disclosures must be specifically identified and kept as narrow as possible. When any exceptions are made, the company's NDA documents may be used because it allows the company to limit the NDA's scope to specific information obtained in the vendor briefing.

Key Clauses in a Vendor Confidentiality Agreement

While each agreement may vary, effective vendor confidentiality agreements often include the following clauses:

  1. Definition of Confidential Information – Clearly outlines what is considered confidential and any exclusions.
  2. Use Restrictions – Limits the recipient's use of confidential data solely for the purpose of the agreement.
  3. Non-Disclosure Obligations – Prohibits disclosure to third parties without written consent.
  4. Return or Destruction of Information – Requires the return or destruction of confidential materials upon request or contract termination.
  5. Legal Disclosures – Allows disclosure when required by law, such as in court or regulatory proceedings.
  6. Term and Survival – Specifies how long confidentiality must be maintained, even after the business relationship ends.
  7. Remedies and Penalties – Outlines consequences of breach, which may include injunctive relief, damages, or termination of services.

Verbal NDAs

During a vendor briefing, a vendor may ask participants from Company A to verbally agree to keep certain information confidential. If participants agree to keep this information secret, on an “off the record” basis, the vendor has to be very clear which information is confidential.

Parties may agree to certain terms for verbal agreements, such as recognizing the validity for no more than 30 days after the briefing. Otherwise, they should specify the time limit in writing.

Exceptions and Exclusions

Not all information is protected under a vendor confidentiality agreement. Typical exclusions include:

  • Information that becomes public without fault of the receiving party
  • Information already known by the receiving party before disclosure
  • Data independently developed without reference to the disclosed information
  • Disclosures approved in writing by the disclosing party
  • Information disclosed under court order or governmental request

These exclusions are important to ensure that the agreement is fair and not overly restrictive.

When No NDA Will Be Signed

In some cases, confidential information that's exchanged between parties has coverage in a Master Client Agreement and the confidentiality terms contained in it. Due to this blanket coverage, there's no need for parties to enter into another confidentiality agreement.

The client has the responsibility of identifying information as confidential or not.

Confidentiality and non-disclosure agreements are designed to protect businesses as well as vendors. Breaching such contracts can have costly legal consequences. Know what you're signing before you agree to any terms.

If you need help understanding all the legal language and provisions in a contract, consult with an attorney who's experienced in contract law. That way, you'll be informed and protected from any adverse legal actions in the future.

Governing Law and Dispute Resolution

It's important to define which state’s laws will govern the agreement. This is especially critical if the parties operate in different states, as laws related to trade secrets, contract enforcement, and damages vary by jurisdiction. Most agreements include a clause stating the chosen jurisdiction for resolving disputes.

Agreements may also specify whether disputes must be handled in arbitration or court, which can significantly affect the resolution process.

Mutual vs. Unilateral Agreements

Vendor confidentiality agreements can be structured as:

  • Unilateral NDAs – Only one party (usually the vendor) is disclosing confidential information, and the recipient must protect it.
  • Mutual NDAs – Both parties expect to share and protect confidential information. This is common when the vendor also has proprietary methods or pricing.

Choosing the right type depends on the nature of the information exchange and the level of risk for each party.

Frequently Asked Questions

  1. What is the main purpose of a vendor confidentiality agreement?
    To legally protect sensitive or proprietary business information disclosed to vendors during a working relationship.
  2. Can a vendor confidentiality agreement be verbal?
    Yes, but written agreements are more enforceable. Verbal NDAs must be clearly stated and are often time-limited.
  3. Is it necessary to have a separate NDA if there’s already a Master Client Agreement?
    Not always. If the Master Agreement includes a confidentiality clause, a separate NDA may not be required.
  4. What happens if a vendor breaches the agreement?
    They may face penalties such as termination of the business relationship, civil liability, or legal action depending on the agreement’s terms.
  5. Can NDAs be mutual?
    Yes, mutual (or bilateral) NDAs are used when both parties share confidential information and wish to protect it.

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