Each party shall be entitled to conduct such background checks on the other party as it deems necessary to comply with applicable law or its internal compliance procedures. Each party shall comply promptly with the other party's reasonable requests for information required to conduct such background checks.
Here is a plain English explanation of the Background Checks clause:
This clause allows each party to perform background checks on the other party. The checks must be needed to follow the law or the party's own compliance rules.
The background checks can ask for information from the other party. The other party must provide the requested information quickly, as long as the requests are reasonable.
In simple terms, this clause permits each party to conduct necessary background checks on the other party.
The parties must cooperate with reasonable requests for any information required for the checks.
Background check clauses emerged in business contracts as risk management tools, becoming more commonplace with heightened post-9/11 security concerns.
Their origins lie in employer screening of personnel, but expanded to assessing business partners amid growing liability fears.
Pre-employment background checks date back decades for sensitive roles, though widened applicability more recently. Companies wanted risk insights on staff with access to facilities, data, finances. This filtered into third-party contracts, as organizations demanded more vetting of vendors and partners.
Security considerations accelerated in the 2000s. Post-September 11th, corporations and governments mandated stricter reviews, including of contractors and suppliers. Terrorism and technology risks increased pressure to investigate business relationships via background checks.
Gradually such clauses filtered into many commercial agreements for due diligence. Parties wanted assurances about those gaining access through the contract. Scrutiny focuses on financial, legal, and security issues that could expose the other's business.
Now background checks are routine precautions in an interconnected business environment. As risks and accountability grow, parties utilize these contractual tools to make informed choices around partnerships.
Proper execution depends on reasonable tailored approaches.