CPPB Risk Management in Procurement 2 — Questions and Answers
Question 1: What is 'inherent risk' in the context of public procurement?
- Risk that remains after all controls and mitigations are applied
- The level of risk that exists before any risk controls are applied (Correct answer)
- The risk introduced by a new procurement regulation
- Risk specific to international suppliers only
Correct 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.
Question 2: Which clause in a public contract helps the agency recover costs if a supplier fails to deliver on time?
- Severability clause
- Liquidated damages clause (Correct answer)
- Force majeure clause
- Indemnification clause
Correct 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.
Question 3: When should a public procurement office conduct a risk assessment for a large contract?
- Only after contract award when the supplier is on board
- During the pre-solicitation planning phase, before the solicitation is issued (Correct answer)
- Only when required by an external audit finding
- At contract close-out, to document lessons learned
Correct 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.
Question 4: A public buyer is procuring IT services from a vendor with limited financial reserves. Which risk mitigation measure is most appropriate?
- Waiving performance reporting requirements to reduce vendor burden
- Requiring a performance bond or financial guarantee from the vendor (Correct answer)
- Paying the full contract amount upfront to support the vendor
- Reducing the contract scope to lower the vendor's workload
Correct 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.
Question 5: What is the purpose of a 'force majeure' clause in a public contract?
- To allow the agency to unilaterally change contract scope
- To excuse non-performance by either party due to unforeseeable, extraordinary events beyond their control (Correct answer)
- To give the contractor the right to increase prices annually
- To require the contractor to obtain additional insurance mid-contract
Correct 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.
Question 6: Which risk management technique involves planning an alternative course of action to be taken if a risk event occurs?
- Risk avoidance
- Risk acceptance
- Contingency planning (Correct answer)
- Risk quantification
Correct answer: Contingency planning
Contingency planning prepares a ready-to-execute backup plan so the agency can respond quickly and effectively when a risk materializes.
CPPB Risk Management in Procurement 2
What is 'inherent risk' in the context of public procurement?