CPPB Risk Management in Procurement 1 — Questions and Answers
Question 1: What is the first step in a formal procurement risk management process?
- Purchasing insurance for the agency
- Identifying potential risks that could affect procurement outcomes (Correct answer)
- Issuing a solicitation with risk-transfer clauses
- Contacting the agency's legal counsel
Correct answer: Identifying potential risks that could affect procurement outcomes
Risk identification—systematically cataloging what could go wrong—must precede any analysis, mitigation planning, or monitoring activities.
Question 2: In public procurement, which bond guarantees that a contractor will complete a project according to contract terms?
- Bid bond
- Payment bond
- Performance bond (Correct answer)
- Fidelity bond
Correct answer: Performance bond
A performance bond protects the agency by ensuring the surety will complete the work or compensate the agency if the contractor defaults.
Question 3: Which risk response strategy involves shifting the financial impact of a risk to a third party?
- Avoidance
- Acceptance
- Mitigation
- Transfer (Correct answer)
Correct answer: Transfer
Risk transfer moves the financial consequence of a risk—such as through insurance, bonds, or indemnification clauses—to another party.
Question 4: A public agency requires a 5% bid bond from all construction bidders. What is the primary purpose of this requirement?
- To fund project contingencies if costs overrun
- To discourage low-quality bids and ensure the winning bidder will execute the contract (Correct answer)
- To pay subcontractors if the prime contractor defaults
- To satisfy prevailing wage requirements under Davis-Bacon
Correct answer: To discourage low-quality bids and ensure the winning bidder will execute the contract
A bid bond assures the agency that the winning bidder will enter into the contract; if they refuse, the bond compensates the agency for re-solicitation costs.
Question 5: Which of the following is an example of a 'supply chain risk' in public procurement?
- A vendor submitting a non-responsive bid
- A geopolitical event disrupting the delivery of critical components (Correct answer)
- A procurement officer violating the code of ethics
- An agency exceeding its annual procurement budget
Correct answer: A geopolitical event disrupting the delivery of critical components
Supply chain risk refers to disruptions—such as natural disasters, geopolitical instability, or logistics failures—that can prevent suppliers from delivering goods or services.
Question 6: What does a risk register document in a procurement risk management plan?
- The list of all approved suppliers for a commodity
- Identified risks, their likelihood, impact, owner, and planned response actions (Correct answer)
- The audit history of all past procurements
- Financial reserves set aside for emergency purchases
Correct answer: Identified risks, their likelihood, impact, owner, and planned response actions
A risk register is the central repository that captures each identified risk along with assessment data and the responsible party's mitigation or contingency plan.
CPPB Risk Management in Procurement 1
What is the first step in a formal procurement risk management process?