Managing Risk in the Procurement Process

What is risk, what causes it, and how do I manage it in the procurement process? In its simplest form, risk in the procurement process is the possibility of an event occurring that would adversely impact a procurement’s timing, cause liability, result in harm or cause some other negative outcome. A risk assessment should include everything from solicitation development, the evaluations process, contract award, management, and close out. Public agencies typically recognize the importance of risk management while the RFP is under development and during vendor selection process. However, as the process proceeds to contract administration risk management typically falls to the wayside. This article addresses four key strategies to managing risk.

The first mitigating factor is aligning your agency’s business objectives with the procurement. We manage risk every day in the procurement world. What creates the harm from risk is your agency not fully controlling that event. If you could control the “risk” (i.e., Equipment not being available due to component parts stuck in a supply chain) you would of course remove it. The “risk” therefore wouldn’t exist. That is the most ideal option, to remove it out right. That unfortunately is not always an available option. Therefore, the key to managing risk where it cannot be eliminated is mitigating the risk’s possibility of occurring. The available option is ensuring your procurement (inclusive of the full cradle to grave process) is aligned with your firm’s business objectives. That your procurement’s outlined purpose aligns with your agency’s purpose. This alignment will eliminate most unnecessary risk.

The second mitigating factor is ensuring stakeholders are included in each stage of the decision-making process. Stakeholders are broadly divided into two categories – internal and external. Your internal stakeholders include budget owners, finance, legal, and senior management. It also includes the end users that are impacted by the procurement. When procuring software or a new process that will impact day to day end users, ensure that they are included in the decision. Your external stakeholders are your suppliers and other partners. Where a procurement requires integrations with existing infrastructures (i.e., hardware integrations) from other manufacturers these external stakeholders must be involved. Without these stakeholders costly change orders (if they are even an option under your State’s procurement laws) are inevitable.

The third mitigating factor is using subject matter experts (SMEs). While not the silver bullet, SMEs are a great resource to gain insight into an otherwise unfamiliar industry. SMEs can provide insights that are only available through years of experience. One overlooked resource for SMEs is from the suppliers themselves through a structured Request for Information (RFI). It is typical in the public procurement process to disallow a supplier from competing in a procurement who was involved in drafting the Request for Proposal (RFP). However, soliciting industry expertise through an RFI generally absolves this issue when managed according to applicable statute. Using suppliers as SMEs can also be achieved through structuring your RFP such that vendors are able to demonstrate in their proposal their industry expertise and how that expertise aligns with your agency objectives.

The last mitigating factor is to ensure sound contract administration processes. It is typical for an agency during the RFP development phase and vendor evaluations to have industry standards at the forefront to selecting the best value vendor. Two years into the contract term industry standards can shift. If the appropriate contract administration procedures aren’t practiced this shift in industry best practices will be missed. The original contract terms typically are no longer aligned with these new industry standards. With changing technology and industry standards you must continue monitoring the occurrence of risk during the contract term.

The outlined risk mitigation strategies are by no means exhaustive. However, these serve an excellent starting point to ensuring your agency is not exposed to unnecessary risk. Proper risk mitigation strategies allow your agency to focus more on what is important, carrying out its established purpose and managing those risks it can impact.

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