CIPS L4M5 Exam Questions Instant Access - No Installation Required

Question 1

Commercial negotiations on price cover various aspects, including pricing arrangements. A buyer may negotiate a fixed-price agreement. Why is a fixed-price agreement advantageous to the buyer?

AThe buyer will benefit from any savings the supplier makes from efficient cost management of the contract

BThe buyer will not need to monitor the supplier's costs relating to the contract

CSuppliers always seek price agreements that include cost-sharing incentives

DSuppliers calculate prices using fixed costs, which the buyer must counteract by pushing for a fixed-price agreement

Answer : B

In fixed-price agreements, cost-overrun risk is transferred to the supplier, giving the buyer price certainty and reducing the need for ongoing cost scrutiny. Monitoring focuses on delivery to specification and timing, not on the supplier's internal cost build-up (unlike cost-plus).

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Question 2

In airline industry, suppliers prefer to adopt dynamic pricing in order to constantly monitor and change their fares in response to market conditions. Dynamics pricing is based on which costing method?

AActivity-based costing

BCost plus costing

CAbsorption costing

DMarginal costing

Answer : D

Dynamic pricing is the practice of dynamically calculating the price of a product or service in order to incorporate real-time market conditions, input costs, and/or competitive perspectives. Dynamic pricing which is based on marginal costing, is used by airlines and many other organisations.

Marginal cost is the cost of producing an additional unit of output. Marginal Costing is a costing technique wherein the marginal cost, i.e. variable cost is charged to units of cost, while the fixed cost for the period is completely written off against the contribution.

Question 3

In which of the following scenarios could you adopt a distributive-based negotiation approach?

AWhen asking for changes to the provision of a strategic service provided by a monopoly supplier

BWhen determining costs to incorporate a unique product into your design with the patent holder

CWhen your organisation is dependent on a supplier for delivery of a large contract in the future

DWhen procuring a widely available commodity item which is not strategic to your organisation

Answer : D

Question 4

A procurement manager withholds important information to strengthen negotiating power. Is this appropriate when using an integrative negotiation style?

ANo, because this will not discover the supplier's resistance point

BNo, because this is not being open about the requirement

CYes, because it will discover the supplier's resistance points

DYes, because it will maximise the outcome for the procurement manager

Answer : B

Integrative negotiation relies on openness and trust, aiming to identify underlying interests, not just positions. Withholding information is typical of distributive (win-lose) bargaining, where each side protects its bottom line. In an integrative context, hiding key details prevents mutual understanding, reduces creative option-building, and damages relationship trust. Instead, transparency enables value creation---such as joint cost reduction or innovation. CIPS emphasises that power must be balanced with openness when integrative outcomes are desired.

Question 5

When is the best time for buyer to propose the negotiation agenda to potential supplier?

AAt opening stage

BAt conclusion stage

CAt testing stage

DAt preparation stage

Answer : D

A business negotiation agenda is a formal agreed upon list of goals to be achieved or items to be discussed in a particular order during a meeting or negotiation. Agendas can be formal and obvious, or informal and subtle in negotiations.

The agenda is one of the main structural elements of negotiation, in addition to such questions as site, identification of participants, and elements of timing. Together, they answer the who, what, when, and where questions. As with other aspects of negotiation, the agenda can be used either manipulatively to enhance leverage or to improve the prospects for agreement and the possibilities for mutual gain. In most cases, it will be used both ways, reflecting the nature of negotiation as a ''mixed-motive'' situation.

Although it can be instrumental to [research] volunteer as a sole source to write the agenda, in most cases it becomes a joint activity to construct a consensual basis for subsequent negotiation. In these situations, agenda-building becomes one of the pre-negotiation activities that set the tone for the relationship (Saunders, 1985). In other situations, the parties may engage in actual negotiation without a formal or written agenda. When this occurs, the risks and uncertainties may be high but the party who appreciates the importance of the informal agenda has a tremendous advantage.

Whether one plans it or not, during the course of negotiation the parties will discuss a finite set of issues in some sequence and from a particular perceptual framework. Consciousness of the universality and centrality of the agenda is prerequisite to guiding negotiation to a successful conclusion.

CIPS study guide page 146-150

Managing the negotiation agenda | SpringerLink

What is Negotiations Agenda - Negotiation Coaching (brightfocusconsult.com)

Question 6

Lina Rawlins, a senior buyer, asks a supplier: ''Can you tell me exactly what you are doing to ensure quality?'' What type of question is this?

AHypothetical

BReflective

CProbing

DLeading

Answer : C

A probing question seeks deeper information, clarifying specifics beyond surface-level responses. Lina's question is factual, detailed, and investigative --- designed to uncover processes and commitments. Hypothetical questions test options (''what if...''), reflective restate or summarise to confirm understanding, and leading steer the respondent toward a desired answer. Probing is essential in negotiations to validate claims, identify risks, and build persuasive arguments.

Question 7

An oil refinery plant imports much of its crude oil from overseas. A procurement manager in the refinery suggests that fixing the crude oil contract price for 36 months would be beneficial for the company. Would this be a right thing to do?

AYes, financial budgeting task would be a lot easier with fixed pricing arrangement

BNo, fixed price should be only applied to contracts that last 60 months or longer

CNo, the refinery would not be able to reap the benefits from falling commodity price and currency rates

DYes, the supplier would bear the risk when the material price increased

Answer : C

Fixed price contract is the contract in which the price is static throughout the contract period. A fixed-price contract may give certainty to budget and simplify contract management. However, it may lead to other problems since it requires bidders to estimate and bear the financial risks associated with price escalations. If the estimates are too high or events do not materialize, the buyer will pay a steep price that may affect the economy and efficiency of the contract. In the worst case, it may mean that the bid price is then above budget and may lead to a reduction in the requirements or rebidding. If the estimates are too low, it may appear as an abnormally low bid and disrupt contract execution.

On the other hand, price adjustment provisions include formulas designed to address problems, and can protect both the borrower and contractors from price fluctuations. Price adjustment formulas allow contractors to offer more realistic prices at the time of bidding. Despite concerns that they may lead to budget uncertainties, price adjustment formulas will estimate the actual cost implications that will be encountered. They use indexes that can be used for cost projection.

According to Asia Development Bank (ADB), any contract with a delivery or completion period beyond 18 months should contain an appropriate price adjustment clause.

In the scenario, the crude oil contract is planned to last 36 months. This period is pretty long with a fluctuating commodity. Therefore, the company should use price adjustment agreement.

- CIPS study guide page 113-117

- Guidance Note on Procurement: Price Adjustment (adb.org)

LO 2, AC 2.2

CIPS Commercial Negotiation L4M5 Exam Questions