Document compliance review

# Contract Compliance Review Report

**Contract:** Software Development Services Agreement
**Counterparty:** Acme Software Solutions Inc.
**Contract Type:** Vendor Agreement
**Contract Value:** $250,000
**Review Date:** February 10, 2026
**Reviewer:** Sarah Chen, Procurement Manager

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## Executive Summary

**Recommendation:** ⚠️ **SIGN WITH CHANGES** - Legal review and negotiation required

This contract requires modifications before signature. While the overall structure is sound, several clauses deviate from company policy and introduce unacceptable risks that must be addressed.

**Top 3 Concerns:**
1. **Payment terms (Net 60)** exceed company policy maximum without CFO approval
2. **Unlimited liability** for data breaches creates unacceptable financial risk
3. **Missing GDPR data processing clauses** create regulatory compliance risk

**Critical Blockers:** 1 (Unlimited liability must be capped)

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## Compliance Findings

### Company Policy Compliance

#### ❌ Payment Terms - NON-COMPLIANT
- **Policy Requirement:** Net 30 standard, Net 45 maximum with CFO approval
- **Contract Terms:** Net 60 from invoice date
- **Deviation:** Exceeds maximum allowed payment terms
- **Severity:** MEDIUM
- **Required Action:** Negotiate to Net 30, or obtain CFO exception approval for Net 60
- **Policy Source:** Payment Terms Policy, Section 2.1, Updated January 2026

#### ❌ Liability Cap - NON-COMPLIANT
- **Policy Requirement:** Liability capped at contract value or $1M, whichever is greater
- **Contract Terms:** Unlimited liability for data breaches and security incidents
- **Deviation:** No liability cap for data-related claims
- **Severity:** CRITICAL
- **Required Action:** MUST negotiate liability cap before signing
- **Policy Source:** Vendor Risk Management Policy, Section 4.3

#### ✅ IP Rights - COMPLIANT
- **Policy Requirement:** All deliverables owned by company, vendor retains pre-existing IP
- **Contract Terms:** Section 7 assigns all work product IP to company, vendor keeps background IP
- **Status:** Compliant with IP ownership policy
- **Policy Source:** Intellectual Property Policy, Section 3.2

#### ⚠️ Confidentiality - PARTIALLY COMPLIANT
- **Policy Requirement:** Mutual NDA with 5-year term, return/destruction upon termination
- **Contract Terms:** Mutual NDA with 3-year term, destruction upon termination
- **Deviation:** Shorter term than standard (3 vs. 5 years)
- **Severity:** LOW
- **Recommendation:** Request 5-year term or accept 3-year with documentation
- **Policy Source:** Confidentiality Standards, Section 2.4

### Regulatory Compliance

#### ❌ GDPR - GAPS IDENTIFIED
**Requirement:** GDPR-compliant data processing agreement if handling EU personal data

**Findings:**
- ✅ Data processor relationship defined (Section 9)
- ❌ Missing: Sub-processor notification and approval requirements
- ❌ Missing: Data subject rights assistance obligations
- ❌ Missing: Data breach notification timeline (must be 72 hours)
- ❌ Missing: Data transfer mechanisms (SCCs or adequacy decision)

**Risk:** GDPR non-compliance exposes company to fines up to 4% of global revenue

**Required Action:** Add GDPR DPA addendum with required clauses

**Policy Source:** GDPR Compliance Checklist, Sections 3.1-3.5

#### ✅ SOX Controls - NOT APPLICABLE
This contract does not involve financial reporting systems or controls.

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## Risk Analysis

### Overall Risk Level: 🔴 **HIGH**

### Critical Risks

**1. Unlimited Liability for Data Breaches**
- **Severity:** CRITICAL
- **Likelihood:** POSSIBLE (data processing involved)
- **Potential Impact:** Unlimited financial exposure; potential claims exceeding $10M
- **Mitigation:** Negotiate liability cap at $1M or contract value ($250K), whichever is greater
- **Clause Reference:** Section 10.2

**2. GDPR Non-Compliance**
- **Severity:** HIGH
- **Likelihood:** LIKELY (vendor will process EU customer data)
- **Potential Impact:** Regulatory fines, contract invalidity, customer trust loss
- **Mitigation:** Add compliant GDPR DPA as addendum; ensure vendor GDPR certification
- **Clause Reference:** Section 9 (incomplete)

### High Risks

**3. Extended Payment Terms (Cash Flow Impact)**
- **Severity:** MEDIUM
- **Likelihood:** CERTAIN (contract term is Net 60)
- **Potential Impact:** $250K tied up for additional 30 days vs. policy; cash flow strain
- **Mitigation:** Negotiate to Net 30; or obtain CFO approval with business justification
- **Clause Reference:** Section 4.1

### Medium Risks

**4. Weak Termination for Convenience**
- **Severity:** MEDIUM
- **Likelihood:** UNLIKELY (project likely to complete)
- **Potential Impact:** 90-day notice required; difficult to exit if performance issues
- **Mitigation:** Negotiate 30-day termination for convenience; or add performance-based termination
- **Clause Reference:** Section 11.2

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## Clause-by-Clause Review

### Payment Terms (Section 4)
- **Terms:** Net 60 from invoice date; milestones: 30% upfront, 40% at UAT, 30% at go-live
- **Assessment:** Upfront payment (30%) is acceptable per policy (under 40%); Net 60 exceeds policy
- **Action:** Negotiate to Net 30

### Liability and Indemnification (Section 10)
- **General Liability:** Capped at contract value ($250K) ✅
- **Data Breach Liability:** UNLIMITED ❌ CRITICAL ISSUE
- **Indemnification:** Mutual indemnification for third-party claims ✅
- **Action:** Must cap data breach liability before signing

### Intellectual Property (Section 7)
- **Work Product:** All deliverables owned by company ✅
- **Background IP:** Vendor retains ownership, grants license to company ✅
- **Open Source:** Vendor must disclose and obtain approval ✅
- **Assessment:** Compliant and favorable

### Data Protection (Section 9)
- **Data Processing Role:** Vendor is data processor ✅
- **Security Measures:** ISO 27001 certified, encryption at rest and in transit ✅
- **GDPR Clauses:** INCOMPLETE - missing key requirements ❌
- **Action:** Add GDPR DPA addendum

### Termination (Section 11)
- **For Cause:** Either party, 30-day cure period ✅
- **For Convenience:** 90-day notice by either party ⚠️ (prefer 30 days)
- **Post-Termination:** Data return/destruction, IP transition ✅
- **Assessment:** Acceptable but lengthy termination notice

### Warranties (Section 8)
- **Workmanship:** 90-day warranty on deliverables ✅
- **Non-Infringement:** Vendor warrants no IP infringement ✅
- **Performance:** Meets specifications or remediation ✅
- **Assessment:** Standard and acceptable

### Dispute Resolution (Section 12)
- **Governing Law:** Delaware law ✅
- **Disputes:** Mediation, then binding arbitration ✅
- **Venue:** Delaware arbitration (JAMS rules) ✅
- **Assessment:** Favorable jurisdiction and reasonable process

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## Required Actions

### Critical Issues (MUST address before signing)

1. **Cap data breach liability**
   - Current: Unlimited
   - Required: Cap at $1M or contract value, whichever is greater
   - **Negotiation Language:** "Notwithstanding Section 10.1, liability for claims arising from data breaches or security incidents shall be capped at the greater of (i) total fees paid under this Agreement or (ii) $1,000,000."

2. **Add GDPR data processing addendum**
   - Include sub-processor controls
   - Data subject rights assistance
   - 72-hour breach notification
   - Standard Contractual Clauses (if EU transfers)
   - **Recommended:** Use company's standard GDPR DPA template

### Recommended Changes (SHOULD address)

3. **Negotiate payment terms to Net 30**
   - Current: Net 60
   - Preferred: Net 30
   - Fallback: Obtain CFO exception approval for Net 60

4. **Reduce termination notice period**
   - Current: 90 days for convenience
   - Preferred: 30 days
   - Rationale: More flexibility to exit if performance issues

5. **Extend confidentiality term to 5 years**
   - Current: 3 years
   - Company standard: 5 years
   - Lower priority but preferred

### For Information (acceptable but note)

6. **90-day warranty period**
   - Company typically prefers 1 year
   - 90 days is acceptable for this contract value
   - Recommend extended warranty for mission-critical systems

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## Approval Requirements

Based on identified issues, the following approvals are required:

- ✅ **Legal Team Review** - REQUIRED (liability and GDPR issues)
- ✅ **CFO Approval** - REQUIRED (if Net 60 payment terms retained)
- ⚠️ **Privacy Officer Review** - RECOMMENDED (GDPR DPA review)
- ⚠️ **Procurement Approval** - REQUIRED (contract value >$100K)

**Estimated Negotiation Time:** 1-2 weeks for changes and approvals

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## Next Steps

1. **Legal team to draft negotiation positions** for critical issues (liability cap, GDPR DPA)
2. **Send redlined contract to vendor** with proposed changes
3. **Schedule negotiation call** to discuss payment terms and data protection
4. **Obtain CFO exception approval** if Net 60 terms are accepted
5. **Final legal review** of negotiated contract before signature
6. **Route for signature** once all critical issues resolved

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## Appendix: Policy Citations

All compliance checks reference the following policies:
- Payment Terms Policy, Version 2.1, Effective January 2026
- Vendor Risk Management Policy, Version 3.0, Effective November 2025
- Intellectual Property Policy, Version 1.5, Effective March 2025
- Confidentiality Standards, Version 2.0, Effective June 2025
- GDPR Compliance Checklist, Version 4.2, Effective December 2025

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**Report Generated:** February 10, 2026 at 10:45 AM
**Automated by:** MagOneAI Contract Compliance System
**Review ID:** CR-2026-0142