Project Risk Management Contract & Procurement Risk 2 — Questions and Answers
Question 1: Which elements are typically included in a procurement risk register?
- Project budget baseline and earned value metrics
- Vendor performance history, contract terms risks, and supply chain vulnerabilities (Correct answer)
- Internal team skill gap assessments and training plans
- Stakeholder communication preferences and escalation paths
Correct answer: Vendor performance history, contract terms risks, and supply chain vulnerabilities
A procurement risk register tracks risks specific to vendor relationships, including performance history, contractual obligations, and supply chain vulnerabilities.
Question 2: What is the purpose of source selection criteria in project procurement?
- To define the scope of work for prospective vendors
- To evaluate and rank vendor proposals objectively and consistently (Correct answer)
- To set milestone payment schedules within contracts
- To outline warranty and performance bond requirements
Correct answer: To evaluate and rank vendor proposals objectively and consistently
Source selection criteria provide objective standards for evaluating vendor proposals, reducing the risk of biased or poor vendor selection decisions.
Question 3: A project manager learns a key vendor is experiencing significant financial difficulties. Which risk response is most appropriate?
- Ignore the risk since the contract legally protects the project
- Develop a contingency plan including an alternative qualified vendor (Correct answer)
- Immediately terminate the existing contract to avoid further exposure
- Increase contract payments to help stabilize the vendor financially
Correct answer: Develop a contingency plan including an alternative qualified vendor
Developing a contingency plan with an alternative vendor is a proactive response that ensures project continuity if the primary vendor becomes unable to deliver.
Question 4: What does 'contract risk allocation' mean in project procurement management?
- Distributing contract documents to all project stakeholders for review
- Assigning financial and performance responsibilities between the buyer and seller (Correct answer)
- Allocating procurement budget funds across different contract categories
- Setting up escrow accounts to hold funds pending contract milestones
Correct answer: Assigning financial and performance responsibilities between the buyer and seller
Contract risk allocation defines which party bears specific risks, ensuring risks are assigned to the party best positioned to manage and absorb them.
Question 5: Which procurement strategy best reduces the risk of schedule delays caused by vendor non-performance?
- Using a single preferred vendor for all contracted work
- Including liquidated damages clauses tied to milestone dates (Correct answer)
- Avoiding fixed-price contracts to maintain schedule flexibility
- Removing acceptance criteria to speed up delivery acceptance
Correct answer: Including liquidated damages clauses tied to milestone dates
Liquidated damages clauses impose pre-defined financial penalties for schedule delays, creating a strong financial incentive for vendors to deliver on time.
Question 6: In procurement risk management, what does a 'force majeure' clause address?
- Buyer authority to change contract scope without penalty
- Excusing contract non-performance due to unforeseeable extraordinary events (Correct answer)
- Mandatory seller insurance coverage and bonding requirements
- Financial penalties for deliverable scope deviations
Correct answer: Excusing contract non-performance due to unforeseeable extraordinary events
A force majeure clause protects both parties from liability when extraordinary, unforeseeable events such as natural disasters or war prevent contract performance.
Question 7: What is the primary risk to the buyer when using a time-and-materials (T&M) contract for a long-duration project?
- The seller has a guaranteed profit margin regardless of efficiency
- The buyer assumes open-ended cost risk because total price is not fixed (Correct answer)
- The contract terms cannot be amended during project execution
- The seller bears all financial responsibility for any cost overruns
Correct answer: The buyer assumes open-ended cost risk because total price is not fixed
In T&M contracts, the buyer pays for all hours worked and materials consumed, so cost risk rests entirely with the buyer unless a price ceiling is contractually specified.
Project Risk Management Contract & Procurement Risk 2
Which elements are typically included in a procurement risk register?