CIPS L4M3 Commercial Contracting Exam Practice Test

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Total 189 questions
Question 1

Which of the following is always an advantage of using fixed price arrangement in a contract for buying organisation?

Answer : A

Advantages of using fixed pricing arrangement are as below:

- Budget/income certainty - prices are fixed up front and should not change

- The impact of changes to the supplier's cost base is not fed through to the purchaser. If costs diminish, the supplier will benefit from this, and if costs rise, the purchaser will benefit

LO 3, AC 3.3

Question 2

Which of the following shall help the purchaser control the selection of tier 2 suppliers?

Answer : A

When a party takes on a contractual obligation, they are legally required to perform the obligation.

That same contracting party is still entitled to subcontract out the work to another service provider, unless the contract:

- is a contract for personal services, such an employment contract

- contains an express term preventing subcontracting out the work, or an implied term

Subcontracting clauses are written to control whether the contractor is entitled to subcontract, and how purchaser shall control that subcontracting process.

- Subcontracting clauses (delegation of contractual obligations to third parties)

- CIPS study guide page 153-157

LO 3, AC 3.2

Question 3

Which of the following should include in the service level agreement that is an appendix of a contract?

1. How often the service is measured

2. Minimum qualification of supplier staffs

3. Remedies to resolve dispute

4. On time service delivery

Answer : D

When the SLA is a schedule or an appendix to the contract, it should clearly state the following:

1. KPIs: how they are to be measured, who measures them and how often

2. How the measurements convert into scores

3. Any other service level standards, which may be of lesser importance than the KPIs

4. Minimum acceptable standards or scores in each case

5. Range of scores both above and below the minimum acceptable

6. Any mitigating factors which might apply in the event of poor performance

7. Any time period permitted in which to remedy a situation or poor performance.

In this question, '2. Minimum qualification of supplier staffs' and '4. On time service delivery' are the KPIs, while '1. How often the service is measured' is the frequency in which the KPIs are measured.

The remedies available in the event of poor performance should be set out in the body of the contract, along with those for any other contractual breach. These clauses should be cross-referenced in the SLA.

LO 2, AC 2.2

Question 4

Nestle gave away records of ''Rockin' Shoes'' or a voucher to people who sent in three wrappers from Nestle's 6d. milk chocolate bars as well as 1s 6d. Which of the following were the consideration of Nestle's customer? Select TWO that apply

Answer : A, B

Consideration is one thing given in exchange for another.

In this case, considerations of customers are three wrappers and 1s6d. Consideration of Nestle is Rockin' Shoes record or a voucher.

LO 1, AC 1.2

Question 5

Social and environmental criteria are often incorporated into which of the following type of specification?

Answer : D

Developing and using generic specifications is as import in the sustainable procurement process as it is in the traditional procurement process. During this stage, human/labour rights and environmental performance criteria should be translated into specifications that meet specific requirements of the specified outcome, desired by the procurement action.

The specification stage is key to all types of contract. Building in environmental and social considerations at this early stage, provides a clear indication to suppliers that sustainability is important to the UN organization. Consider available alternatives which are less environmentally and socially damaging. Consider all the phases of a product's life cycle (e.g. production, transportation, maintenance, disposal, etc) when determining its cost and environmental impact. Assess the overall environmental and social integrity of suppliers by looking at their policies and practices.

Specifications which are output-based rather than input-based can increase supplier innovation, reduce waste and minimise harmful social and environmental impacts.

- Sustainable Procurement

- CIPS study guide page 95-99

LO 2, AC 2.1

Question 6

Which of the following is an example of liquidated damages clause?

1. "In the event of a delay to the Offshore Installation Completion Date as per the Contract Schedule for which Contractor is solely responsible, Contractor shall pay to Company 0.25% per day of delay, subject to a maximum of 10% of the Initial Contract Price."

2. ''If Seller breaches its obligation to deliver goods in accordance with the schedule provided for in this contract, Seller shall pay Buyer $x per day for each day of delay"

3. "The Contractor shall defend and hold the Buyer, its officers, officials, employees and volunteers harmless from any and all claims, injuries, damages, losses or suits including attorney fees, arising out of or in connection with the performance of this Agreement, except for injuries and damages caused by the sole negligence of the Buyer."

4. "The contract is subjected to delay remedies. The amount will be agreed by both parties during the delivery"

Answer : D

Liquidated damages, also referred to as 'liquidated and ascertained damages' (LADs) are damages whose amount the parties designate during the formation of a contract[2] for the injured party to collect as compensation upon a specific breach (e.g. late performance). In supply contracts and work contracts, the liquidated damages clause often take form as known damages to be paid per day delayed. Number 1 and 2 are examples of this clause.

- Liquidated damages

- CIPS study guide 158-159

LO 3, AC 3.2

Question 7

Which of the following are likely to be implied terms in a contract? Select TWO that apply:

Answer : A, D

An implied term is a term which the courts imply into a contract because it has not been expressly included by the parties. This may be because the parties did not consider it, did not think that any problem would arise in relation to it or simply omitted to include it.

The courts are very reluctant to imply terms into contracts and will only do so in the following circumstances:

- terms implied under statute

- terms implied under common law

- terms implied because of custom or usage

- terms implied due to previous dealings

- terms implied 'in fact' or to reflect the parties' intentions

- Contracts: Express and Implied Terms

- CIPS study guide page 32

LO 1, AC 1.2

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Total 189 questions