Contractual Risk Assessment

Contractual risk assessment is the process Canadian federal procurement practitioners use to judge the risks specific to a contract, particularly the possibility of financial loss, delay or non-performance. The result of the assessment determines an appropriate contractual-risk profit rate for that contract.

The term sits inside the Government of Canada's procurement pricing framework. CanadaBuys defines the related term contractual risk in the Supply Manual glossary as the risk of the possibility of financial loss, delay, or non-performance related to contract specific factors.

Where the assessment sits in federal pricing guidance

The assessment is described in the Practitioner's Guide for Procurement Pricing, which supports practitioners who must determine a fair price and profit treatment. CanadaBuys lists the Contractual Risk Assessment Tool on its Pricing Framework page as a pricing tool associated with Section 5.2.3, Contractual Risk, of the Pricing Guide.

The tool is a summary tool containing questions that help determine the risk level of a contract. Both the 2023 guide and the 2024 guide set out how it is used.

How the assessment is carried out

The process begins with the basis of payment. The guide treats identifying the basis of payment as the first step, because the structure chosen affects how risk is balanced between Canada and the contractor. It also shows which party is better positioned to manage the risks.

From there, the practitioner works through a sequence:

• Establish the basis of payment for the procurement.
• Review the applicable profit ranges.
• Consider the contractual-risk factors.
• Determine the degree of risk using the Contractual Risk Assessment Tool.
• Assign the contractual-risk profit rate.

The risk factors considered

The guide identifies three contractual-risk factors to consider:

• Accuracy of costing: how reliable the cost estimates behind the price are.
• Technical risk: the possibility that the work cannot be delivered to the technical requirements.
• Schedule risk: the possibility that delivery will be late.

These factors tie the assessment to the specific contract rather than to the supplier in general. The same company can present a different risk profile on two different contracts.

The 2024 update and Industrial and Technological Benefits

CanadaBuys introduced a new Contractual Risk Assessment Tool in December 2024 and clarified its contractual-risk guidance. The Summary of Changes notes that this guidance includes considerations related to the Industrial and Technological Benefits policy, which can affect the contractual risk of a procurement.

What it means for a supplier bidding on Canadian public contracts

The assessment is a resource for procurement practitioners. It is not a supplier certification or a security-screening requirement, and suppliers do not submit it themselves.

Suppliers still influence the outcome. Canada needs reliable costing, technical information and schedule information to assess a contract's specific risks. A bid with well-supported cost estimates, a credible technical approach and a realistic schedule gives the practitioner a clearer basis for the risk rating. Suppliers should also check the basis of payment in the solicitation, since it sets how risk is shared between Canada and the contractor.