Risk is the single word that determines every contract. Adequate steps for risk mitigation must be taken in all public procurement contracts. Where the tender document so requires, an unconditional performance security must be provided by the successful tenderer issued by a reputable bank or a PPOA approved insurance company based in Kenya or by cash. Where a tender is international the security must be partly payable in Kenya Shillings and be issued by local institutions. The value of the two securities shall be in the same proportions of foreign and local currencies as requested in the form of foreign currency requirements.
Failure of the successful tenderer to lodge the required performance security shall constitute a breach of contract and sufficient grounds for the annulment of the award and forfeiture of the tender security and any other remedy under the contract. In the circumstance the procuring entity may award the contract to the next ranked tenderer.
The greatest risks which must be mitigated in the management of procurement contracts are:
- The supplier delivering late or not delivering at all.
- The quality of the required goods, works or services being of inferior quality
- Being charged a higher cost than what the contract provided for.
- The risk of paying for work not done
A risks register should be maintained in which identified risks should be recorded and monitored.
The common contract risks that should be watched are:
- Incomplete or incorrect specifications.
- Poor communication.
- Supplier lacking sufficient resources.
- Production problems.
- Quality problems including technology.
- Shipment details.
- Underestimation of costs by supplier.
- Inflation trends.
- Unexpected events.
Any risks identified shall be isolated and addressed before it is too late.