FAC Risk Assessment & Underwriting 3 — Questions and Answers
Question 1: In federal contracting, 'technical risk' is BEST described as the probability that:
- The contractor will submit an inflated invoice
- The proposed technical approach will fail to meet performance requirements (Correct answer)
- The contracting officer will make an award to a non-responsible offeror
- The period of performance will conflict with other government priorities
Correct answer: The proposed technical approach will fail to meet performance requirements
Technical risk refers to the likelihood that a contractor's approach or solution will not achieve the required performance or technical specifications.
Question 2: A contracting officer determines that a proposed contract has high cost risk and moderate technical risk. Which contract type is MOST appropriate?
- Firm-Fixed-Price (FFP)
- Time-and-Materials (T&M)
- Cost-Plus-Incentive-Fee (CPIF) (Correct answer)
- Purchase Order
Correct answer: Cost-Plus-Incentive-Fee (CPIF)
CPIF contracts reimburse costs and provide a fee adjustment tied to meeting cost targets, sharing risk between the government and contractor in high-uncertainty environments.
Question 3: Under FAR 9.104-1, a contracting officer must determine that an offeror is 'responsible' before making an award. Which factor is NOT part of the responsibility determination?
- Adequate financial resources to perform
- Satisfactory performance record
- Lowest evaluated price among all offerors (Correct answer)
- Necessary technical equipment and facilities
Correct answer: Lowest evaluated price among all offerors
Responsibility under FAR 9.104-1 assesses capability and integrity, not whether the offeror submitted the lowest price.
Question 4: Which risk category encompasses the potential for a contractor to use unapproved subcontractors or counterfeit parts in the supply chain?
- Schedule risk
- Cost risk
- Supply chain risk (Correct answer)
- Legal/compliance risk
Correct answer: Supply chain risk
Supply chain risk includes threats from unauthorized subcontractors, counterfeit components, and other vulnerabilities introduced through the procurement supply chain.
Question 5: The government's use of Earned Value Management (EVM) on large contracts PRIMARILY helps manage which type of risk?
- Liability risk from contractor negligence
- Schedule and cost performance risk (Correct answer)
- Proposal fraud risk
- Environmental compliance risk
Correct answer: Schedule and cost performance risk
EVM integrates scope, schedule, and cost data to provide early warning of schedule slippage and cost overruns, enabling proactive risk management.
Question 6: A CO reviewing a cost proposal notices that the contractor's proposed labor rates are significantly below current Bureau of Labor Statistics (BLS) data. This MOST likely indicates:
- The contractor is offering an exceptionally competitive price
- A potential risk of labor rate escalation and contractor financial stress (Correct answer)
- The contractor used a more efficient staffing model
- The proposal reflects accurate regional wage rates
Correct answer: A potential risk of labor rate escalation and contractor financial stress
Labor rates far below industry norms may signal that the contractor underestimated costs, creating risk of cost growth, poor performance, or financial difficulty.
Question 7: Which FAR clause requires contractors on cost-reimbursement contracts to provide timely notice when costs are expected to exceed the estimated contract cost?
- FAR 52.232-20, Limitation of Cost (Correct answer)
- FAR 52.215-10, Price Reduction for Defective Certified Cost or Pricing Data
- FAR 52.249-4, Termination for Convenience
- FAR 52.222-26, Equal Opportunity
Correct answer: FAR 52.232-20, Limitation of Cost
FAR 52.232-20 (Limitation of Cost) requires contractors to notify the CO when costs are expected to exceed the estimated cost, allowing the government to decide whether to increase funding.
FAC Risk Assessment & Underwriting 3
In federal contracting, 'technical risk' is BEST described as the probability that: