CIPS L5M3 Exam Questions Instant Access - No Installation Required

Question 1

GoGo Ltd has contracted Reny Manufacturing to produce a bespoke piece of equipment for them. It is an asset and costs a significant amount of money. A contract is drawn up which states that GoGo Ltd has the right to terminate the contract at any time for any reason. Halfway through production of the asset, GoGo Ltd calls Reny Manufacturing to cancel the order. Reny Manufacturing has incurred many costs already. Can GoGo Ltd cancel the order?

Ayes- the order has not yet been delivered meaning that GoGo Ltd can cancel- there has been no transfer of ownership

Bno- Reny Manufacturing will sue for damages

Cyes- there is a termination clause in the contract

Dno- the termination clause is unfair

Answer : C

The correct answer is 3 - 'yes there is a termination clause in the contract'. In this scenario it would be immoral for GoGo Ltd to cancel, but it wouldn't be illegal. They have the right to use the clause that's been put into the contract. It's possible that Reny might sue for damages, but this doesn't prevent GoGo Ltd from cancelling the order (they might be okay with paying the damages). There is a very similar question to this in the exam. Termination clauses are discussed on p.134 - I recommend brushing up on this topic before the exam.

Question 2

Which of the following must a legally binding contract contain? Select THREE

AIntention

BIndemnity

CConsideration

DLiability

ECapacity

Answer : A, C, E

Intention, Consideration and Capacity are the correct answers. A contract must contain 5 elements to be legally binding. As well as these three, the other two factors are offer and acceptance. P.2 of the study guide.

Question 3

A contract term which is difficult to classify at the time of drafting a contract is known as?

Acondition

Bwarranty

Cconsideration

Dinnominate

Answer : D

Innominate - the conflict resolution process would determine if the clause is a condition or a war-ranty. Before there's a breach there's no way to know, so it's classed as an Innominate Term. P. 43. Types of contract terms comes up a lot in the exam. Learn these.

Question 4

George is a procurement manager at a manufacturing company and is reviewing a contract he has with a supplier. He notes that there are multiple appendices to the contract and there is no Precedence of Documents. What does this mean for the contract?

Aall clauses are considered equal

Bclauses in the contract take precedent over clauses in the appendices

Cthe clauses that come first in the document, take precedent

Dthe contract is not valid

Answer : A

Where there's no order of precedence, it is assumed that all documents have equal significance. This is a direct quote from the study guide p.15

Question 5

Derrek owns a factory and employs a Facilities Management Company called Balls FM to look after certain aspects of the factory including cleaning and testing the machinery to ensure they are in good working condition. One day he realises that one of the cleaners doesn't work for Balls FM, he works for another company called Bells FM. Which of the following statements regarding subcontracting is true?

ASubcontracting would be if Derrek delegated responsibility for managing the contract to a member of his team

BBalls FM have committed a fundamental breach of the contract

CIt is okay for Balls FM to subcontract out part of the contract to Bells FM if they are unable to fulfil their obligations

DSubcontracting is never allowed in a contract unless specifically mentioned.

Answer : C

'It is okay for Balls to subcontract' is the correct answer. This question is testing whether you know that subcontracting can be a remedy in a contract. It is usually okay for a supplier to use a subcontractor if they're unable to fulfil their responsibilities and the alternative would be to breach the contract. This is a difficult question because you don't get a lot of context- it's based on a similar question in the exam- but just remember subcontracting can be a solution if one party can't fulfil their obligations in a contract. This is better than them breaching the contract. See p.89 for more information on subcontracting

Question 6

Which of these statements about Guarantees are TRUE? Select 2

AA Guarantee is a secondary obligation of a contract

BA guarantor's responsibility is higher than the Principle

CA guarantee is a promise to repair or replace an item within a defined period of time

DA guarantor's responsibility cannot be higher than the Principle

Answer : A, D

'A Guarantee is a secondary obligation of a contract' and 'A guarantor's responsibility cannot be higher than the Principle' are the correct answers. Guarantees are explained on p.28. Be careful not to confuse this with Warranty. A promise to repair or replace an item within a defined period of time is the definition of a warranty. That was put in there to trick you. Sorry. Remember a Guaran-tee is to do something when the Principle of the contract fails to do it. It's most common in leasing agreements- if you're a young person, you'll often need a responsible adult / parent to sign the lease as your Guarantor. As a Guarantor, they promise to pay the rent if you're unable to. Legally they can't be asked to do any more than you are assigned to do in the contract. So if your rent is 500 a month, that's all they can be asked to pay if you don't pay it. The primary obligation is between you and the landlord. The secondary obligation is between the guarantor and you.

Question 7

Which of the following conflict resolution styles may involve a private caucus and a joint ses-sion?

Amediation

Badjudication

Cnegotiation

Dlitigation

Answer : A

This is Mediation. The private caucus is when each of the parties meets in private with the media-tor, this is usually after a joint session between the three parties. See p.71 for more information on mediation

CIPS Managing Contractual Risk L5M3 Exam Questions