CIPS Commercial Contracting L4M3 Exam Practice Test

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Total 233 questions
Question 1

A procurement manager is preparing a long-term contract with a major supplier. She decides to use the variable pricing arrangement using price indices. The payment terms describe the circumstances and mechanism where the price is allowed to change. In order to successfully manage this type of contract, the buying organisation should have...?



Answer : A

There are several approaches to price adjustment for long-term contract. Describing circumstances and mechanism is one of them. Although this approach has some limitations, it is the best option. It relies on good market knowledge but provides the most equitable approach to satisfying the needs of the purchaser and the supplier.


LO 3, AC 3.3

Question 2

Which of the following is used to detail the complex matter that may be verbiage to the main document?



Answer : B

Without further explanation, a schedule may be deemed to form an integral part of the obligations of either or both parties. Obviously, the scope or binding nature of such schedule depends on the way it is referred to in the obligatory language of the main agreement. Accordingly, merely attaching the general terms and conditions of sale without explaining to which part of the sale they apply or which provisions apply does not subject a sale pursuant to the body text of the agreement to those general terms and conditions.

Subcontracting is the practice of assigning, or outsourcing, part of the obligations and tasks under a contract to another party known as a subcontractor.


- Schedules, annexes and exhibits

- CIPS study guide page 22-26

LO 1, AC 1.1

Question 3

A company is considering entering a new market. Which of the following are the external factors that influence the difference between cost and price of this company? Select THREE that apply



Answer : D, E, F

The difference between cost and price is profit. According to Michael E. Porter, the profitability of an industry is shaped by five forces:

1. Competition in the industry

2. Potential of new entrants into the industry

3. Power of suppliers

4. Power of customers

5. Threat of substitute products

The Question: only mentions

external factor, then business strategy is not accepted.


LO 3, AC 3.3

Question 4

Which of the following is the term that describes an item bought for a single and non-recurring use or purpose?



Answer : B

Ad-hoc purchase is the item bought for a single and non-recurring use or purpose.

A call-off contract, also known as a blanket order, is a purchase order which enables bulk orders over a period of time.

Operational procurement refers to the procurement of goods and services that are required to sustain an organization's day-to-day business operations.


LO 1, AC 1.3

Question 5

Which of the following are always included within a framework agreement? Select TWO that apply:



Answer : B, D

A framework agreement will set out the following:

- How call offs can be made - whether a mini-competition is required or a direct call off can be made

- How price is calculated

- The specification - this may have various options to cater for different needs

- The duration of the agreement

- Who can access the agreement

- Any limitations

- The main terms to be included in the contract or the form of contract to be used, where this is intended to be a standard form.


LO 1, AC 1.3

Question 6

Standard terms and conditions should become the governing terms for which group of items?



Answer : D

Standard terms and conditions are set of terms that is prepared by an organisation. These terms can become the governing terms in low-value, low-risk transactions (or Routine items according to Kraljic's portfolio model). They can be a reference when negotiating for more important contract.


LO 3, AC 3.1

Question 7

What does quantum meruit mean?



Answer : A

Quantum meruit means 'the amount he deserves' or 'as much as he has earned'. In most cases it denotes a claim for a reasonable sum in respect of services or goods supplied to the defendant.

An action in quantum meruit is available to recover money for services or goods supplied to a defendant in circumstances where the claimant is not recompensed by performing his obligations or supplying the goods. The claimant must usually show that the defendant expressly or impliedly requested or freely accepted the services or goods in question. Depending on the facts, the claimant might find it difficult to prove how much the claimant is entitled to receive under the principle of quantum meruit.

A claim for quantum meruit cannot arise if the parties have a contract to pay an agreed sum. In such circumstances, the parties' relationship is governed by the law of contract. However, a claim for quantum meruit may arise where the parties:

- Have not agreed a contract, or there is a so-called quasi-contract. For example, the parties may have agreed some of the contractual terms, but may have failed to reach an agreement on an essential term, such as price.

- Have not fixed a price for the services or goods supplied.

- Have an agreement to pay a reasonable sum for the services or goods supplied.

- Have agreed a scope of work under the original contract and the work carried out falls outside that scope.


LO 3, AC 3.1

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Total 233 questions