Risk Management in Procurement Flashcards

What is 'inherent risk' in the context of public procurement?

Answer: The level of risk that exists before any risk controls are applied

Inherent risk is the raw, uncontrolled level of risk present in an activity or procurement before any mitigating measures are put in place.

Which clause in a public contract helps the agency recover costs if a supplier fails to deliver on time?

Answer: Liquidated damages clause

A liquidated damages clause specifies a pre-agreed dollar amount the contractor must pay for each day of delay, compensating the agency without requiring proof of actual damages.

When should a public procurement office conduct a risk assessment for a large contract?

Answer: During the pre-solicitation planning phase, before the solicitation is issued

Conducting a risk assessment during pre-solicitation allows the agency to design the procurement strategy, contract terms, and evaluation criteria to address identified risks proactively.

A public buyer is procuring IT services from a vendor with limited financial reserves. Which risk mitigation measure is most appropriate?

Answer: Requiring a performance bond or financial guarantee from the vendor

Requiring a performance bond or financial guarantee protects the agency if the vendor becomes insolvent or unable to fulfill contractual obligations.

What is the purpose of a 'force majeure' clause in a public contract?

Answer: To excuse non-performance by either party due to unforeseeable, extraordinary events beyond their control

Force majeure clauses protect both parties from liability for delays or failures caused by events such as natural disasters, wars, or pandemics that are outside their control.

Which risk management technique involves planning an alternative course of action to be taken if a risk event occurs?

Answer: Contingency planning

Contingency planning prepares a ready-to-execute backup plan so the agency can respond quickly and effectively when a risk materializes.