Fractional CHRO
CAIA Assessment
Risk Management
HR AI Vendor Due Diligence
Understanding risk before it shows up in a claim.
Most HR AI risk does not come from custom tools. It comes from vendors.
Recruiting platforms, assessment tools, engagement systems, and workforce analytics often include AI features. These features influence decisions long before leaders notice. Due diligence is how you stay ahead of that.
Why Vendor Risk Matters in HR
Vendors build the tools. Employers own the decisions.
Using a third-party platform does not shift accountability. If a tool influences hiring, pay, promotion, or termination, responsibility stays with the employer.
That's why vendor review matters. Legal liability follows the employment decision, not the software contract.
Where HR AI Vendor Risk Usually Hides
Risk often sits in places teams overlook. Many AI-powered features operate invisibly within familiar platforms.
Resume Screening
Ranking logic and automated filtering that narrows candidate pools before human review.
Rejection Workflows
Automated disqualification triggers that remove candidates without clear explanation.
Predictive Models
Scoring systems and "fit" algorithms that influence selection decisions.
Model Updates
Opaque changes to AI systems that happen without notification or documentation.
Contract Language
Broad disclaimers that shift responsibility back to the employer.
If you can't explain what the tool is doing, that's a signal. Unclear functionality creates compliance exposure.
What Due Diligence Actually Means
Due diligence is not a technical audit. It's about informed oversight.
It means being able to answer reasonable questions:
Decision Influence
What decisions does this tool influence and how significantly?
AI Usage
How is AI being used within the platform's workflows?
Human Review
Where do humans review or override system outputs?
Data Sources
What data is being used to train or operate the AI?
Documentation
What documentation exists to support compliance needs?
You don't need perfect visibility. You need informed oversight and the ability to explain your practices.
Key Areas to Review With HR Vendors
Strong vendor review focuses on a few critical areas. Start with clarity about how the tool actually works.
Use Case Clarity
What the tool does, what it does not do, and where it influences employment decisions.
Functional Boundaries
Understanding the difference between recommendations and automated decisions.
Decision Points
Mapping where AI outputs connect to hiring, promotion, or termination workflows.
Human Oversight
Technology supports decisions. People make them.
  • Where humans review outputs before action
  • How overrides occur and who authorizes them
  • Who is accountable for final decisions
  • What happens when AI and human judgment conflict
Effective oversight requires more than a checkbox. It requires training, clear authority, and documented process.
Transparency and Documentation
01
Vendor Disclosure
What the vendor explains about how AI operates within the system.
02
Opacity Assessment
What remains unclear or proprietary and how that affects oversight.
03
Change Communication
How and when the vendor notifies customers about model updates.
04
Documentation Standards
What records exist to support compliance and audit requirements.
Documentation is not optional. It's how you demonstrate reasonable care when questions arise.
Data and Bias Considerations
AI systems learn from data. That data carries assumptions, patterns, and potential bias.
Types of Data Used
What inputs train the model? Historical hiring data, performance metrics, and external benchmarks all carry risk.
Bias Mitigation Steps
What has the vendor done to identify and reduce discriminatory patterns? Testing, auditing, and validation matter.
Known Limitations
What does the vendor acknowledge the tool cannot do? Honest limitations signal responsible design.
No AI system is perfectly neutral. The question is whether the vendor understands that and acts accordingly.
Contractual Reality
Contracts define where legal responsibility actually sits. Read them carefully.
1
Responsibility Allocation
Where does the contract place liability for AI-driven decisions? Most vendors shift it to the customer.
2
Indemnification Limits
What protection exists if the tool creates legal exposure? Often less than expected.
3
Employer Ownership
What remains the employer's responsibility regardless of vendor performance? Usually everything that matters.
Contracts often shift risk back to the customer. That needs to be understood, not assumed away. Legal language matters when claims emerge.
How I Support Vendor Due Diligence as a Fractional CHRO
I help leaders navigate vendor AI risk without building a separate compliance program.
Identify Vendors
Map which HR vendors use AI and where those tools touch decisions.
Ask Questions
Develop vendor inquiry frameworks that get useful answers.
Interpret Responses
Translate vendor language into practical risk assessment.
Decide Risk
Determine what risk is acceptable given business needs.
Document Oversight
Create records that demonstrate informed decision-making.
This fits inside normal HR governance. It does not require a separate program or specialized technical expertise.
Connection to the Colorado AI Act
For Colorado employers, vendor due diligence is not optional. It's a compliance requirement.
The law focuses on three core areas:
  • Preventing algorithmic discrimination in employment decisions
  • Identifying high-risk AI systems that require oversight
  • Ensuring reasonable care in deployment and monitoring
You cannot meet these expectations without understanding your vendors. The law makes that explicit.
Vendor reliance does not create a safe harbor. It creates a documentation obligation.
Common Misconceptions
These assumptions create unnecessary risk. I hear them often from otherwise careful leaders.
"The vendor handles compliance"
Vendors provide tools. Employers make employment decisions. Compliance responsibility does not transfer.
"It's widely used, so it must be fine"
Market adoption is not a legal defense. Popular tools can still create discriminatory outcomes.
"We don't control how it works"
You control whether to use it and how to oversee it. That's enough to establish responsibility.
None of these beliefs remove employer accountability. They just delay the moment when risk becomes visible.
When Vendor Review Is Most Important
Vendor due diligence matters most at decision points. Timing determines risk exposure.
1
Adopting New HR Technology
Before signing contracts and deploying tools that influence employment decisions.
2
Scaling Hiring
When candidate volume increases and automation becomes more attractive.
3
Changing Performance Systems
When new evaluation or promotion tools replace established practices.
4
Planning Workforce Reductions
Before using AI-driven analytics to inform layoff or termination decisions.
5
Responding to Legal Questions
When regulators, auditors, or attorneys ask how decisions are made.
Waiting until something breaks is too late. Vendor review is most effective when it's proactive, not reactive.
The Goal
The goal is not to reject vendors. It's to use them responsibly and with clear oversight.
Reduces Surprise
You understand how tools work before problems emerge.
Improves Decision Quality
Human judgment is informed, not replaced, by technology.
Creates Defensible Practices
Documentation shows you acted with reasonable care.
Keeps Leadership in Control
Strategic decisions remain with people, not algorithms.
Good due diligence creates confidence. It allows you to adopt useful technology without accepting unmanaged risk.
Let's Talk
If HR vendors influence your people decisions, this applies to you.
The first conversation focuses on practical questions:
  • Which vendors use AI in your HR systems
  • Where those tools influence employment decisions
  • What oversight exists today
  • What needs to change to reduce risk
This is not about perfection. It's about informed leadership and defensible practices.