Risk Management in Procurement Flashcards

Which procurement action best manages the risk of ambiguous specifications?

Answer: Conducting a pre-bid conference and issuing written addenda to clarify requirements

Pre-bid conferences and formal addenda allow the agency to resolve ambiguities before bidders submit proposals, reducing the risk of disputes and non-responsive bids.

What is 'residual risk' in procurement?

Answer: The level of risk that remains after mitigation measures have been applied

Residual risk is what persists even after controls and mitigations are in place; it must be accepted or addressed with additional measures.

Under the Federal Acquisition Regulation (FAR) framework, which contract type places the MOST cost risk on the government?

Answer: Cost-plus-fixed-fee (CPFF)

Under a cost-plus-fixed-fee contract, the government reimburses all allowable costs plus a fixed fee, bearing virtually all cost overrun risk.

A public agency is considering a multi-year contract for janitorial services. What risk should the procurement officer specifically analyze related to contract length?

Answer: Pricing volatility risk—that fixed rates may become unfavorable as labor and supply costs change over time

Long-term fixed-price contracts expose either the agency or the supplier to pricing risk as economic conditions—labor rates, material costs—change over the contract period.

What is the key difference between risk 'mitigation' and risk 'avoidance'?

Answer: Mitigation reduces the likelihood or impact of a risk; avoidance eliminates the risk by not proceeding with the risky activity

Avoidance means deciding not to engage in the activity that creates the risk, while mitigation means proceeding but taking steps to reduce the risk's probability or impact.

Which procurement document is typically used to formally document the agency's risk tolerance and accepted residual risks before proceeding with contract award?

Answer: The acquisition plan or procurement plan

An acquisition or procurement plan captures risk assessments, mitigation strategies, and acceptance of residual risks, providing management approval and accountability before award.