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CIPS L5M3 Managing Contractual Risk Exam Practice Test
Question 1
Which of the following will you put into box 8?
Answer : A
The correct answers are as follows:
This is mediation - there's a third party with no powers. The answer can't be negotiation as negotiation doesn't have a third party. The answer can't be litigation or arbitration as the third party here does have decision making power.
Question 2
What is the purpose of a liability clause in a contract?
Answer : A
The purpose of liability clauses is 'to limit commercial and financial exposure'- this is a direct quote from p.2. Liability is the amount that a company owes to another party- this is why contracts will focus on limiting their liability as much as possible.
Question 3
Which of the following will you put into box 8?
Answer : B
The correct answers are as follows:
This is arbitration as it involves a panel.
Question 4
When there has been a major breach in a contract, the contract will be terminated. Is this statement true?
Answer : C
'no- the contract can be affirmed by the injured party' is the correct answer. When there is a breach in a condition, one of two things can happen; the contract is terminated, or the contract is affirmed. The injured party has the choice of whether or not they want to continue working with the other party and this is called 'affirmirmation of the contract'. The contract doesn't HAVE to be terminated in the case of a major breach so options 1 and 2 are incorrect. Option 4 is also incorrect- the contract can continue even if the offending party says they'll commit further breaches - it's completely up to the injured party whether they want to continue working with them or not. See p. 46 for further details
Question 5
Tutu Incorporated has a contract with a software company to provide their IT software. They want to ensure that the supplier pays compensation if there are any issues with service (e.g. the software doesn't work for a day). Which two items would Tutu Incorporated need to include in the contract?
Answer : C, D
They should include service credits and a service level agreement. Service Credits allow the buyer to claim back if the service drops below an agreed standard. That standard needs to be clearly out-lined in an SLA. See p.31 for more details
Question 6
Which of the following is a consensual form of dispute resolution?
Answer : B
Mediation is consensual- consensual is when a third party is introduced to help reach an agreement. This is in contrast to adjudicative dispute resolution in which the third party acts as a judge and decision maker. Negotiation doesn't involve a third party so is neither. See p. 137.
Question 7
Kelly and Chloe have a contract in which Kelly provides MRO supplies to Chloe's manufac-turing business. Kelly has committed a fundamental breach but Chloe has not suffered any loss. Chloe has chosen to terminate the contract. Can she claim damages?
Answer : C
3 is the correct answer. Damages cannot be claimed is there has not been any loss. This is stated on p. 122
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