03.17.03: Supply Chain Requirements and Processes

03.17.03 sits in the supply chain risk management (SCRM) family of NIST SP 800-171 Rev. 3 and is aimed at a practical problem: your organization can implement strong internal controls for CUI, then lose the security outcome because a third party hosts, develops, supports, or touches the system and introduces untracked risk. This requirement pushes you to operationalize supply chain requirements as a living process, not an annual questionnaire exercise.

For a Compliance Officer, CCO, or GRC lead, the fastest route to “ready for assessment” is to treat 03.17.03 as a lifecycle control with defined decision points: which third parties are in scope, what requirements apply based on risk and CUI exposure, how those requirements become contractual obligations, and how you verify performance over time. The practical challenge is proving consistency. Many teams can describe what they “generally do,” but cannot show that the process triggers reliably, approvals are recorded, and exceptions are governed.

This page gives requirement-level implementation guidance you can put into motion quickly: scope rules, an operating procedure, evidence lists, common audit traps, and an execution plan that results in defensible artifacts.

Regulatory text

Regulatory excerpt (provided): “NIST SP 800-171 Rev. 3 requirement 03.17.03 (Supply Chain Requirements and Processes).” (NIST SP 800-171 Rev. 3)

What an operator must do: Build and run documented processes that (1) define supply chain requirements relevant to protecting CUI and (2) ensure those requirements are applied and managed through the third-party lifecycle (selection, onboarding, contracting, ongoing oversight, and offboarding). The assessment focus is typically less about the elegance of your policy and more about whether your process produces consistent, reviewable outcomes (NIST SP 800-171 Rev. 3).

Plain-English interpretation (what 03.17.03 means in practice)

You need a repeatable way to:

1. identify which third parties can affect the confidentiality of CUI in your environment,
2. set minimum security requirements for them (based on how they interact with CUI and your systems),
3. embed those requirements into contracts and technical access patterns,
4. verify they keep meeting the requirements, and
5. manage exceptions and exits without losing data control.

If you can’t show the process is executed, 03.17.03 usually fails on “missing implementation evidence,” even if teams believe they are doing “vendor management.” (NIST SP 800-171 Rev. 3)

Who it applies to (entity and operational context)

Entities: Nonfederal organizations handling Controlled Unclassified Information (CUI), including federal contractors and subcontractors implementing NIST SP 800-171 Rev. 3 (NIST SP 800-171 Rev. 3).

Operational contexts that are typically in scope:

• Cloud/SaaS providers where CUI is stored, processed, or transmitted (ticketing, collaboration, ERP, MDM, backup, logging).
• Managed service providers (MSPs), SOC providers, IT administrators, or consultants with privileged access.
• Software suppliers whose code runs in your boundary (commercial software, open-source components in builds, outsourced development).
• Hardware/firmware and critical infrastructure providers (network gear, endpoint tools) that can introduce integrity and availability risks that spill into confidentiality.

Rule of thumb for scoping: If a third party can access CUI, admin your systems, inject code/configuration, or control a critical service that could expose CUI during failure response, they belong in the 03.17.03 process.

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

1) Establish ownership and a written operating procedure

Create a short “Supply Chain Requirements & Processes SOP” owned by GRC with clear RACI across Security, Procurement, Legal, IT, and system owners. Auditors want named roles and decision authority, not “the business handles it.”

Minimum SOP sections

• Third-party intake trigger (what events start the process).
• Risk tiering method tied to CUI exposure.
• Required due diligence by tier.
• Contracting requirements by tier.
• Ongoing monitoring and re-evaluation triggers.
• Exception process (who can approve, how long, compensating controls).
• Offboarding/data return steps.

Map this SOP to your system boundary and CUI data flows so it is obvious why a supplier is in scope (NIST SP 800-171 Rev. 3).

2) Build an inventory of third parties that can affect CUI

Create (or fix) a single system of record. Pull from AP/vendor master, SSO app catalog, procurement tools, and IT asset lists. Then tag suppliers with:

• Service description
• System(s) supported
• Access type (none, logical, privileged, physical)
• CUI touchpoint (stores/processes/transmits/none)
• Subprocessors/4th parties, if they matter to delivery

Practical tip: Your inventory must include “non-procurement” third parties (free SaaS, contractor accounts, ad-hoc consultants). That’s where exams find gaps.

3) Define “supply chain requirements” by risk tier

Create a baseline requirement set that you can apply consistently. Keep it short enough to execute, but specific enough to audit.

Example requirement categories (choose what fits your environment):

• Access control expectations (least privilege, MFA for admin access, separate admin accounts)
• Encryption expectations (in transit and at rest where applicable)
• Incident notification and cooperation requirements
• Subcontractor/subprocessor controls (flow-down obligations)
• Secure development and change control requirements (for software suppliers)
• Vulnerability and patch expectations
• Data location/return/destruction requirements
• Audit support and right-to-assess language

You are not trying to recreate all of NIST in a contract. You are defining enforceable requirements that reduce supply chain-driven exposure to CUI and can be checked (NIST SP 800-171 Rev. 3).

4) Tie requirements to onboarding gates and contracting

Operationalize via “no gate, no go.”

• Procurement gate: no purchase order or renewal without risk tier and security review outcome recorded.
• Legal gate: required clauses inserted for in-scope tiers; deviations logged as exceptions.
• IT gate: no account provisioning, SSO enablement, VPN connection, or admin access until approval evidence exists.

If you allow emergency onboarding, require a time-boxed exception record with compensating controls (restricted access, no CUI, monitored accounts) and a follow-up due diligence deadline you can prove later.

5) Perform due diligence that matches the tier

For higher-risk suppliers, gather evidence that directly supports your requirements. Examples:

• Security policies and incident response contacts
• Independent assessment reports or attestations (if available)
• Architecture notes for how CUI is segregated/encrypted
• Access control model for your tenant/account
• Subprocessor list and change notification process

Record a risk decision memo: accept, accept with conditions, or reject. Conditions should be trackable tasks with owners.

6) Monitor and re-evaluate (process, not a calendar ritual)

Define triggers and monitoring inputs:

• Trigger events: scope change, new CUI use case, acquisition, major outage, breach notification, critical control failure, or contract renewal.
• Monitoring inputs: service status, security advisories, penetration test summaries (if provided), support tickets, access reviews for privileged accounts.

Keep the monitoring lightweight but consistent. The audit point is that the process exists and produces records when triggered (NIST SP 800-171 Rev. 3).

7) Offboard cleanly

For offboarding, enforce:

• Data return/destruction confirmation (as applicable)
• Access removal verification
• Credential rotation if the supplier had privileged access
• Lessons learned if the supplier caused incidents or repeated exceptions

Required evidence and artifacts to retain

Keep artifacts that show design and operation:

Design evidence

• Supply Chain Requirements & Processes SOP
• Third-party risk tiering criteria and definitions
• Standard contract clause library / security addendum templates
• Exception/waiver procedure and approval matrix

Operating evidence (sampled by assessors)

• Third-party inventory with CUI-relevant tagging
• Intake records for new suppliers (tickets/forms/workflows)
• Completed risk assessments and approvals
• Executed contracts with required clauses (or documented exceptions)
• Monitoring records (renewal reviews, trigger-based reviews, risk acceptance memos)
• Offboarding checklists and access removal confirmations

If you use Daydream, the cleanest approach is to map 03.17.03 to a control, attach the SOP, then collect recurring evidence (intake approvals, contract artifacts, monitoring checks) on a schedule so you can answer assessor sampling without a scramble (NIST SP 800-171 Rev. 3).

Common exam/audit questions and hangups

Assessors and internal audit teams often ask:

• “Show me your list of third parties that can affect CUI confidentiality. How do you know it’s complete?”
• “Walk me through one high-risk supplier from intake to contract execution. Where are the approvals recorded?”
• “Where are supply chain requirements documented, and how do you ensure they are flowed down to subcontractors?”
• “How do you handle exceptions, and who approves them?”
• “What monitoring happens after onboarding? Show evidence for a sampled supplier.”

Hangup: Teams present a vendor questionnaire but cannot prove requirements were enforced contractually or technically (for example, access was provisioned before review).

Frequent implementation mistakes (and how to avoid them)

1. Inventory built from AP only.
   Fix: reconcile AP, SSO, IT app catalog, and contractor rosters; then document the reconciliation method.

2. No CUI-specific scoping.
   Fix: tag third parties by CUI interaction mode and system boundary; connect to data flow diagrams.

3. Policy without gates.
   Fix: implement workflow controls in procurement and IT provisioning. If the process can be bypassed, it will be.

4. Contracts done as “best efforts.”
   Fix: maintain a clause baseline by tier, record deviations as exceptions, and require compensating controls.

5. One-and-done assessments.
   Fix: use trigger-based reviews tied to renewals, scope changes, and incidents; keep evidence of the trigger and the decision.

Enforcement context and risk implications

No public enforcement cases were provided in the supplied source catalog for this requirement. Practically, 03.17.03 risk concentrates in two places: (1) third parties with privileged access and (2) hosted environments where CUI resides. The impact is usually loss of confidentiality through misconfiguration, overbroad access, or incident response gaps that delay containment and notification. Your control objective is to reduce these outcomes and prove governance (NIST SP 800-171 Rev. 3).

Practical execution plan (30/60/90)

You asked for speed. Use this execution pattern:

First 30 days (establish the minimum viable process)

• Assign ownership and publish the SOP (draft is fine, but approve it).
• Define risk tiers and the minimum requirements per tier.
• Stand up a single third-party inventory and tag known CUI-relevant suppliers.
• Implement one hard gate: no new high-risk supplier without security review recorded.

Next 60 days (make it enforceable and auditable)

• Standardize contract language and an exception workflow with Legal.
• Integrate procurement intake with IT provisioning so access cannot be granted without the right approval evidence.
• Run due diligence and contract remediation for the highest-risk suppliers first (cloud hosts, MSPs, privileged providers).
• Define monitoring triggers and record at least one completed trigger-based review.

By 90 days (stabilize operations and prepare for sampling)

• Expand inventory coverage to “shadow” tools and contractor arrangements.
• Run an internal sample test: pick several suppliers across tiers and confirm the end-to-end evidence exists.
• Train procurement and system owners on the workflow and exception rules.
• Set recurring evidence capture in Daydream (or your GRC system) so you can answer assessor requests with current artifacts (NIST SP 800-171 Rev. 3).

Frequently Asked Questions

Does 03.17.03 require a formal “SCRM program,” or is a procedure enough?

You need documented requirements and repeatable processes that operate. A lightweight program can satisfy the requirement if it covers inventory, tiering, contracting, monitoring, and exceptions with evidence (NIST SP 800-171 Rev. 3).

Which third parties should I prioritize first?

Start with providers that store/process/transmit CUI and any third party with privileged administrative access. Those relationships are most likely to create confidentiality exposure and audit scrutiny.

Can we rely on a supplier’s questionnaire response as evidence?

Questionnaires help, but auditors usually expect stronger proof for higher-risk suppliers, such as contract clauses, scoped technical access controls, and documented approvals. Keep the questionnaire as supporting evidence, not the control by itself.

What counts as “monitoring” for supply chain requirements?

Monitoring means you have defined triggers and you record follow-up actions when something changes (renewal, scope change, incident, or major service change). Evidence can be renewal review notes, updated risk decisions, and tracked remediation actions.

How do we handle exceptions without failing the control?

Use a written exception process with named approvers, documented rationale, compensating controls, and closure criteria. Exceptions should be searchable and reviewable during sampling.

We have too many suppliers. How do we make this scalable?

Tier suppliers so the highest-risk group gets deeper due diligence, while low-risk suppliers follow a lighter path. Automate intake and evidence collection where possible so the process runs consistently.