risk

Risk in public procurement refers to circumstances or events that may occur and negatively affect the objectives of a procurement. It can range from a supplier failing to deliver as agreed to market conditions shifting during the contract period. Understanding and managing risk is essential for contracting authorities to achieve value for money.

How does risk management work in procurement?

Risk management involves identifying, assessing, treating and monitoring risks throughout the procurement lifecycle. Best practice — as reflected in EU Directive 2014/24/EU's emphasis on sound procurement planning — recommends that contracting authorities carry out a risk assessment during the planning phase, before publishing the contract notice.

Risks are typically evaluated using a risk matrix that combines the likelihood of an event occurring with its potential impact. High-impact, high-likelihood risks require immediate mitigation measures, while lower-rated risks may be accepted or monitored. The results of the assessment influence the choice of procurement procedure, requirements specification, contract terms and the intensity of contract monitoring.

Risk allocation between the parties

A fundamental principle in public procurement is that risk should be allocated to the party best able to manage and bear it. Disproportionate risk transfer — where the contracting authority pushes excessive risk onto the supplier — typically leads to higher prices, lower quality and greater potential for disputes.

• Contract conditions regulate the allocation of risk between the parties and define responsibilities throughout the contract period
• Standard contracts and model clauses are designed to ensure balanced allocation
• Pricing mechanisms such as index-linking can reduce supplier exposure to external risks like currency fluctuations or energy prices
• Performance bonds provide the contracting authority with financial security against contractor default

Tools like Cobrief can help suppliers identify risk factors in tender documents early, enabling them to price risk accurately in their bid.

Summary

Risk is a cross-cutting theme in public procurement — from planning and specification through to contract monitoring. Systematic risk management enables contracting authorities to anticipate challenges, while balanced risk allocation supports successful delivery and a constructive relationship between the parties.