Contract & Procurement Risk Flashcards

Which contract type transfers the most financial risk to the seller?

Answer: Fixed-price contract

In a fixed-price contract, the seller must complete the work at the agreed price regardless of actual costs, bearing the full financial risk.

What is the primary purpose of a make-or-buy analysis in project risk management?

Answer: To assess the risks and costs of producing internally versus outsourcing

A make-or-buy analysis evaluates the risks, costs, and benefits of producing a product or service internally versus outsourcing to an external vendor.

In a Cost-Plus-Incentive-Fee (CPIF) contract, how is seller performance risk managed?

Answer: The seller receives incentive fees for meeting defined performance targets

CPIF contracts include incentive fees tied to performance metrics, motivating sellers to control costs while sharing financial risk with the buyer.

Which procurement document is used to solicit bids when the scope of work is clearly and completely defined?

Answer: Invitation for Bid (IFB)

An Invitation for Bid (IFB) is used when scope is fully defined and vendor selection is based primarily on price.

What does a warranty clause in a procurement contract primarily protect against?

Answer: Defects or failures in delivered goods and services after acceptance

A warranty clause requires the seller to repair or replace defective goods or services for a specified period after delivery and acceptance, protecting the buyer.

Which risk response strategy is employed when a project team outsources project work to an external vendor through a contract?

Answer: Transfer

Outsourcing work to a vendor through a contract transfers the financial and performance risk to the third party.

What is a key risk associated with sole-source procurement?

Answer: Vendor dependency and lack of competitive pricing leverage

Sole-source procurement creates vendor dependency and eliminates competitive pricing, increasing the risk of cost overruns and reducing the buyer's negotiating leverage.