03.16.03: External System Services

External system services are one of the fastest ways CUI controls break in real life. A cloud-hosted ticketing tool, managed SIEM, outsourced IT helpdesk, SaaS file transfer, or even a third-party MFA provider can become part of your CUI processing path without anyone formally deciding “this is in scope.” The result is predictable: unclear boundaries, missing contractual security requirements, incomplete flow diagrams, and weak operational monitoring.

03.16.03: external system services requirement is your forcing function. It is the requirement that makes you draw the line between (a) what you operate directly and (b) what a third party operates on your behalf, then prove you still manage the risk. The work is less about writing a policy and more about establishing repeatable mechanics: an intake workflow for new external services, minimum security requirements, contract language, technical guardrails, and ongoing oversight evidence.

This page is written for a Compliance Officer, CCO, or GRC lead who needs to operationalize 03.16.03 quickly with artifacts that stand up in assessments against NIST SP 800-171 Rev. 3. ¹

Regulatory text

Provided excerpt: “NIST SP 800-171 Rev. 3 requirement 03.16.03 (External System Services).” ¹

Operator interpretation (what you must do):
You must govern any external system service used to store, process, or transmit CUI, or that connects to your CUI environment. Governance means you (1) know it exists and what it does, (2) set security requirements for it, (3) authorize its use for the intended purpose, and (4) monitor that it continues to operate within your requirements. Your assessor will look for evidence across procurement, IT/security engineering, and third-party risk management that external services are controlled and not “shadow scope.” ¹

Plain-English interpretation of the requirement

03.16.03: external system services requirement expects you to treat external services as part of your system boundary decisions, not as an exception to them.

If a third party provides a system or platform that your people use for CUI work (or that connects into that environment), you need answers to basic questions:

• What data touches the service (CUI? metadata? authentication logs?)
• What connections exist (VPN, API, SSO, log forwarders, email routing)?
• Who is responsible for patching, logging, backups, and incident response?
• What security requirements apply and where are they documented (contract, security addendum, technical configuration standards)?
• How do you continuously validate the service still meets your requirements (attestations, configuration checks, review cadence, exceptions)?

This requirement is “medium severity” in many programs because external services often expand your attack surface and complicate incident response, data location, and access controls.

Who it applies to

Entity scope

• Nonfederal organizations that handle CUI in support of US federal work (including primes and subcontractors). ¹

Operational scope (what activities trigger it)

• You use SaaS tools for collaboration, ticketing, secure file transfer, engineering workflows, or HR/finance systems that can contain CUI-related artifacts.
• You outsource IT functions (managed service provider, managed detection and response, SOC, managed backups).
• You rely on externally hosted identity, email security, logging, vulnerability scanning, or endpoint management systems that connect into the CUI enclave.

Rule of thumb for scoping: If the external service can access CUI, can impact confidentiality/integrity/availability of CUI systems, or is a dependency for security operations, treat it as an external system service under 03.16.03.

What you actually need to do (step-by-step)

1) Build a complete inventory of external system services

Start with a pragmatic definition: “Any third-party-operated system that stores/processes/transmits CUI or connects to the CUI environment.”

Minimum inventory fields:

• Service name, third party legal entity, and service owner (internal)
• Business purpose and data types involved (identify CUI involvement explicitly)
• Integration points (SSO, API, VPN, agents, log forwarding)
• Hosting model (SaaS, PaaS, managed hosting, MSP toolstack)
• Where it sits in your boundary model (inside enclave, connected to enclave, outside but receives exports)
• Authorization status (approved/exception/blocked) and approval date
• Contract artifacts (MSA/SOW/security addendum) and renewal date

Practical collection methods:

• Pull from procurement/AP vendor master + SSO app catalog + firewall egress allowlists + CASB/SSE discoveries (if you have them).
• Ask IT/security for “tools we pay for” and “tools we connect to production.”
• Ask engineering/OT groups separately; they commonly procure specialized external platforms without central review.

2) Define minimum security requirements for external services

Write a short, enforceable standard that answers: “What must be true before we allow CUI or CUI-connected access into this service?”

Minimum requirement categories (keep them testable):

• Access control: SSO/MFA, least privilege, admin role separation
• Data protection: encryption in transit/at rest, data retention, secure deletion
• Logging and monitoring: what logs you need, retention expectations, access to logs
• Incident response: notification expectations and cooperation requirements
• Subprocessors/fourth parties: disclosure and change notification expectations
• Configuration and change management: what changes require your notice/approval
• Segmentation/boundary: how the service connects to the CUI enclave; prohibited patterns (for example, shared admin accounts, unmanaged VPN)

Map these requirements to how you enforce them:

• Contractual commitments (security addendum / DPA where applicable)
• Technical guardrails (SSO enforcement, conditional access, IP allowlisting, least-privileged API tokens)
• Operational checks (periodic access reviews, renewal reviews, exception management)

3) Insert the control into intake and approval workflows

You need an intake workflow that prevents “silent adoption.”

A workable flow:

1. Request: business owner submits an external service request stating whether CUI is in scope.
2. Triage: security/GRC classifies the service as (a) CUI-handling, (b) connected to CUI environment, or (c) out of scope with documented rationale.
3. Due diligence: collect security documentation; document gaps and compensating controls.
4. Contracting: attach security requirements; record any negotiated exceptions.
5. Technical onboarding: implement required configs (SSO, logging, network restrictions).
6. Authorization: formal approval by control owner; record in inventory.
7. Ongoing oversight: set review triggers (renewal, major service change, incident, new integration).

If you use Daydream, the operational win is centralizing: intake questionnaire, requirement mapping, approvals, renewal reminders, and evidence collection tied directly to 03.16.03 so you can produce an assessor-ready packet without rebuilding it each cycle.

4) Control the boundary: architecture and connectivity rules

Assessors will ask you to prove you understand the boundary and data flow, not just that you “have a vendor.”

Do this:

• Maintain data flow diagrams that show where CUI enters/leaves your environment and which external services are in the path.
• Require an architecture/security review for any new integration to a CUI system (SSO, API, agent install, log collector, email routing).
• Maintain an allowlist of approved external services for CUI processing, with prohibited services explicitly listed if needed.

5) Operational monitoring and recurring validation

Build lightweight recurring checks:

• Review admin accounts and privileged roles for each CUI-relevant external service.
• Confirm SSO/MFA enforcement is still enabled.
• Revalidate that integrations are still needed; remove stale API keys and OAuth grants.
• Reassess at renewal, after major product changes, or after security incidents.

Required evidence and artifacts to retain

Keep evidence in a way you can produce quickly during an assessment:

Inventory and scope

• External system services register with CUI relevance and authorization status
• CUI system boundary statement and supporting data flow diagrams

Requirements and approvals

• External services security standard / minimum requirements document
• Intake records and approvals (ticket/workflow history)

Contracts

• Executed MSA/SOW + security addendum (or documented exception)
• Documented subprocessors list if provided, and your review notes

Technical enforcement

• Screenshots or exports showing SSO/MFA enforcement and role assignments
• Configuration baselines for critical integrations (API scopes, IP allowlists, logging settings)

Ongoing oversight

• Renewal reviews, reassessment notes, exception register
• Incident records involving external services and post-incident actions

Common exam/audit questions and hangups

Expect these lines of questioning:

• “List all external services that store/process/transmit CUI. How do you know the list is complete?”
• “Show where you defined security requirements for external services, and where they are enforced.”
• “Which services are connected to your CUI enclave? Provide network diagrams and approval records.”
• “How do you handle external services purchased by departments outside IT?”
• “Show evidence of ongoing oversight, not just onboarding diligence.”

Common hangup: teams present a generic vendor risk questionnaire but cannot show the specific decision trail (approved for CUI, under what conditions, and what technical controls enforce those conditions).

Frequent implementation mistakes and how to avoid them

1. Confusing “vendor management” with “external system service control.”
   Fix: Tie each external service to your CUI boundary and data flows, not only to procurement records.

2. No technical enforcement, only paperwork.
   Fix: Make SSO/MFA mandatory and log access configurations part of onboarding evidence.

3. Shadow scope from “free” or “trial” tools.
   Fix: Require SSO integration for any tool used in the CUI environment; block non-approved apps where feasible and document compensating controls where not.

4. No renewal/changes trigger.
   Fix: Treat contract renewal and major integration changes as reassessment triggers and retain the review artifact.

5. Fourth parties ignored.
   Fix: Ask for subprocessors and document your stance (accept, restrict CUI, or require notice). If you accept risk, document it explicitly.

Enforcement context and risk implications

No public enforcement cases were provided in the source catalog for this requirement, so this page does not cite specific cases.

Risk implications you should communicate internally:

• External services can create uncontrolled CUI replicas (exports, caches, backups).
• A third party’s incident can become your incident, with tight notification and evidence expectations from customers and primes.
• Weak boundary documentation leads to assessment findings even when security engineering is decent, because you cannot prove control intent and control operation.

Practical 30/60/90-day execution plan

First 30 days (stabilize and stop new gaps)

• Stand up an external system services register template and start populating it from procurement + SSO app catalog.
• Publish a short “CUI external service intake” requirement: no CUI use without approval, named owner, and documented security requirements. ¹
• Add one gating control: security review required for any new integration to SSO or to the CUI network segment.

Days 31–60 (prove coverage on the highest-risk services)

• Identify the highest-impact services (CUI storage/collaboration, MSP tooling, identity, logging/SIEM, backup/DR).
• For each, collect contracts/security addenda, document CUI data flows, and capture technical enforcement evidence (SSO/MFA, roles, logging).
• Create an exception register for gaps you cannot close immediately, with compensating controls and an owner.

Days 61–90 (make it repeatable)

• Operationalize renewal and change triggers (calendar + workflow).
• Add periodic access reviews for privileged roles on external services tied to CUI.
• Build an assessor-ready evidence pack for 03.16.03: register, data flows, requirements standard, 3–5 completed service files with approvals and configs. ¹

Frequently Asked Questions

Does 03.16.03 apply if the third party never “stores” CUI but connects to the enclave?

Yes in practice, because connectivity can affect confidentiality, integrity, and availability of CUI systems. Treat connected services (MSP tools, monitoring agents, identity providers) as external system services and document boundary impact. ¹

What counts as an “external system service” versus a normal supplier?

If the third party operates a system you rely on to process CUI or to connect into the CUI environment, it fits the external system service pattern. Office supplies and non-connected professional services generally do not, unless they access CUI systems.

Do we need a SOC 2 report to comply?

NIST SP 800-171 Rev. 3 does not require a specific third-party report in the provided excerpt. Collect whatever evidence your program accepts, then document your approval decision and any compensating controls. ¹

How do we handle “department-bought” SaaS that security didn’t approve?

Put an intake requirement in front of SSO onboarding and network connectivity so the path of least resistance goes through review. For already-adopted tools, document current state, decide whether to authorize for CUI, and either remediate controls or restrict CUI use.

What evidence do assessors actually want to see for this requirement?

They typically want an inventory, documented security requirements, an approval trail for in-scope services, and proof of enforcement (SSO/MFA, role management, logging, integration controls). Provide a small set of complete service “case files” rather than a pile of disconnected documents. ¹

Can we scope an external service “out” if we claim we don’t put CUI in it?

Only if you can support that claim with data flows, configurations, and user guidance that prevents CUI entry or access. If users can paste CUI into it or the service is integrated with CUI repositories, treat it as in scope and govern it accordingly.

Footnotes

1. NIST SP 800-171 Rev. 3