Understanding Vendor Vetting for Business and Government

Today’s businesses and governments rely on a complex web of vendors and suppliers to deliver products and services. While this interconnectedness offers efficiency and scalability, it also introduces significant risks. From cybersecurity threats to compliance failures, a single weak link in the supply chain can have far-reaching consequences. That’s where vendor vetting comes in.

This article explores the vendor vetting process, its role in supply chain risk management, and how businesses and governments alike can implement best practices to ensure secure, compliant, and resilient partnerships.

What is vendor vetting?

Vendor vetting is the process of evaluating and verifying the reliability, compliance, and security of third-party vendors before entering a business relationship. It involves assessing risk factors, such as a vendor’s financial stability, operational capabilities, legal standing, cybersecurity posture, and ethical practices, among others.

The goal is to ensure that vendors meet organizational standards and applicable laws and won’t introduce unnecessary risk into your operations.

Challenges in performing comprehensive vendor vetting

Vendor vetting can be a complex and resource-intensive process, making it difficult for many organizations to perform it quickly and effectively. Common challenges include:

• Lack of standardized processes: Many organizations lack a formalized vendor vetting checklist, policies, or a risk assessment framework — leading to inconsistent evaluations.
• Limited visibility: Vendors may operate in different jurisdictions and use multiple trade names — making it difficult to access accurate and complete information.
• Data overload: Sifting through large volumes of data without the right tools can be overwhelming — resulting in less thorough analysis.
• Evolving threats: Cybersecurity risks and regulatory requirements are constantly changing — requiring continuous monitoring to ensure vendors remain safe to do business with.

Vendor vetting and supply chain risk management

Supply chain risks and disruptions can stem from a variety of sources — natural disasters, geopolitical tensions, cyberattacks, or financial instability. As a critical component of a comprehensive supply chain risk management (SCRM) program, vendor vetting helps organizations mitigate these risks by:

• Ensuring financial health: A financially unstable vendor may not be able to deliver on contracts.
• Determining ownership: Complex ownership structures can obscure vendor affiliation with adversarial nations or criminal ventures.
• Verifying compliance: Non-compliant vendors can expose an organization to legal and regulatory penalties.
• Assessing cybersecurity: Vendors with poor security practices can become entry points for cyber threats.

Proactive vendor vetting helps ensure organizations identify vulnerabilities in their supply chain before they become liabilities and maintain operational continuity by avoiding disruptions caused by vendor failures. This is true for governments and businesses as they work to build a more resilient supply chain.

Key criteria for evaluating potential vendors

A robust vendor vetting checklist or risk framework should include the following areas of focus for evaluation. Each organization will have its own criteria for determining the level of risk posed by issues in these areas, and those criteria should be standardized to ensure consistency.

• Financial stability: Can the vendor meet contractual obligations? Investigate by reviewing financial statements, credit ratings, and bankruptcy filings. Similarly, are they operationally capable of producing and delivering what is purchased?
• Legal and regulatory compliance: Does the vendor have required licenses and certifications for their industry? Are they current with regulatory filings? Investigate with licensing bodies and check for past or ongoing litigation or violations of import/export controls.  
• Foreign ownership, control or influence (FOCI): Does the vendor operate in an adversarial nation or in a contested area? Learn whether the vendor is state-owned, vends to adversarial governments, or is involved with military initiatives for adversarial states.
• Illegal or corrupt practices: Is the vendor on any sanctions lists or watchlists? Determine whether the vendor is involved with criminal or terrorist operations. Conduct background investigations, review customer testimonials, and use open-source intelligence (OSINT) tools to scan for negative media coverage.
• Ethical standards: Does the vendor’s values and practices align with your organization’s values and mission? Investigate labor practices, environmental impact, and corporate governance. Ensure the vendor is not complicit in human rights abuses or use of forced labor.

The role of third-party risk management tools

With so many aspects to investigate, it’s clear that performing vendor vetting manually is not sustainable, or even possible. That’s why many organizations have turned to modern vendor vetting software and third-party risk management tools to streamline the vetting process. Many of these tools incorporate artificial intelligence (AI) to speed the investigation, filter the data, and analyze the risk.

These tools reduce manual effort, improve accuracy, and enable continuous monitoring of vendor risk profiles by:

• Automating data collection and analysis
• Providing real-time risk scoring and alerts
• Integrating with compliance databases and watchlists
• Offering centralized dashboards for vendor oversight

Commercial versus government vendor vetting

For commercial organizations, vendor vetting is not just a compliance exercise — it’s a strategic imperative to remain competitive and profitable. Businesses should develop a standardized vetting process and train procurement teams to ensure staff understands risk indicators and red flags. No vendor is perfect, but higher visibility into the supply chain will enable business leaders to make proactive decisions.

Government agencies face unique challenges in vendor vetting, especially when it comes to national security concerns. Vendors may have ties to foreign adversaries; procurement decisions are subject to public scrutiny; and agencies must comply with federal, state, and local laws. Government procurement officers must implement rigorous due diligence processes that include initial and ongoing vendor vetting.

Best practices for vendor vetting

Organizations pursuing a robust vendor vetting capability as part of a supply chain risk management program should follow these best practices:

• Create a centralized vetting policy with defined roles, responsibilities, and escalation paths.
• Use a tiered risk approach to vet vendors based on the criticality of their services.
• Incorporate continuous monitoring that tracks vendor performance and risk over time.
• Leverage external data sources, including OSINT, credit bureaus, and compliance databases.
• Document everything to maintain audit trails for regulatory and legal purposes.
• Review and update regularly by adapting the vetting process to evolving threats and business needs.

Applying OSINT tools to vendor vetting

We’ve mentioned that OSINT tools are invaluable for uncovering hidden risks. By searching and analyzing publicly available and commercially available information (PAI/CAI) they can automatically and persistently:

• Identify undisclosed affiliations or shell companies
• Detect negative media coverage or legal issues
• Monitor social media for reputational risks
• Track geopolitical developments affecting vendor regions

Vendor vetting is no longer optional—it’s essential. Whether you’re a commercial enterprise or a government agency, the risks of inadequate vetting are too great to ignore. By implementing a structured, OSINT-enabled vetting process and risk framework into your vetting process, you can reduce supply chain risk, ensure compliance, and build stronger, more secure partnerships.

Babel Street offers a unique risk intelligence for vendor vetting solution that addresses the most complex and critical supply chain risks. Using the search and analysis capabilities of Babel Street Insights, the solution also leverages Babel Street Data, an in-house collections platform and data pipeline and Babel Street Analytics, an AI-powered text analytics capability comprised of advanced multilingual natural language processing (NLP) technology. Together with our proprietary risk framework, this solution rapidly analyzes and assesses vendor risk to ensure commercial organizations and governments make the right decisions around their business partnerships.  

Learn more about our risk intelligence for vendor vetting solution.