Weekend Sale Limited Time Flat 70% Discount offer - Ends in 0d 00h 00m 00s - Coupon code: 70spcl

CIPS L4M3 Commercial Contracting Exam Practice Test

Page: 1 / 20
Total 196 questions

Commercial Contracting Questions and Answers

Question 1

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

Options:

A.

Subcontracting clause

B.

Warranty clause

C.

Guarantee clause

D.

Insurance clause

Question 2

In which scenarios would it be appropriate for a procurement organisation to include contractual indexation and/or price adjustment formulae clauses in a services contract? Select TWO that apply.

Options:

A.

The supplier’s directors shall be paid dividends during the term

B.

The supplier’s contract staffing costs will be subject to regulatory increase

C.

The material components were tendered as fixed costs for the term

D.

The supplier’s preference is to switch to a more expensive material specification

E.

The market rates for the supplier's material costs will vary during the term

Question 3

Under a price adjustment agreement, which of the following would be supplier's justification for increasing unit price?

Options:

A.

Rise in fuel price

B.

Rise in economies of scale

C.

Rise in shares price

D.

Rise in customer's satisfaction

Question 4

Transformers & Rectifiers Ltd wanted to buy some specialist gaskets. They sent a request for quotation with specification to Needs Ltd. The supplier replied with a quotation in which had its own terms and conditions. The buyer edited delivery terms on the quotation and sent the document back to Needs Ltd. Gaskets were delivered to Transformers’ premise with an invoice from Needs Ltd. Which of the following is most likely to be the governing terms if the two companies must settle the dispute at court?

Options:

A.

Edited terms and conditions

B.

Terms and conditions in the request for quotation

C.

Terms and conditions in the invoice

D.

Terms & conditions in the original quotation

Question 5

When a contract has been agreed on the basis of a fraudulent misrepresentation, which of the following remedies are available?

Options:

A.

Damages only

B.

Rescission only

C.

An injunction only

D.

Both damages and rescission

Question 6

Which of the following contracts would be best suited to a ‘variable pricing’ arrangement?

Options:

A.

A contract for window cleaning during the next three months

B.

A contract for road building estimated to take five years to complete

C.

A contract for the supply of 100 printing machines to be delivered next month

D.

A contract for the supply of lubricating oil for immediate delivery

Question 7

Which of the following should be specially noticed in market dialogue with suppliers in specification development?

Options:

A.

Both parties must respect confidentiality

B.

The buying organisation must avoid social media at all cost

C.

Market dialogue is banned in the public sector

D.

Market dialogue should only be conducted with well-known supplier

Question 8

Which of the following key performance indicators are most likely to use numerical data as the main source of information?

The critical evaluation of project deliverables

The subjective responses of a satisfaction survey regarding a service

The instances of late deliveries within a given month

The occurrence of accidents and near misses in a year

Options:

A.

1 and 3 only

B.

2 and 4 only

C.

3 and 4 only

D.

1 and 2 only

Question 9

A company needs to source a product from oversea. It wants to overcome technical barrier to cross-border trade by using standards in the specification. Which of the following is most likely to be incorporated into that specification?

Options:

A.

National standards

B.

Company standards

C.

Brands

D.

International standards

Question 10

Which of the following should be applied when measuring frequency of on-time deliveries during a contract period?

Options:

A.

Qualitative assessment

B.

Numerical measure

C.

Binary measure

D.

Subjective measure

Question 11

When a supplier signs an insurance policy with an insurance company, which of the following is transferred to insurance company?

Options:

A.

Right

B.

Risk

C.

Legal responsibility

D.

Contractual obligation

Question 12

In order to monitor supplier’s performance, an organization decides to draft performance management frameworks. Which of the following are the components of a performance management framework? Select THREE that apply:

Options:

A.

Targets

B.

KPIs

C.

Consequences

D.

Indemnity

E.

Force majeure

F.

Justification

Question 13

Which of the following would be steps in the preparation of an invitation to tender? Select TWO that apply.

Options:

A.

Re-writing a model form contract

B.

Creating a detailed specification

C.

Learning International Standards

D.

Advertising the requirement

E.

Publishing your company's financial reports

Question 14

A fashion company is drafting a specification for an order in next year. The company wants to expand its supply base in low cost countries. The procurement department is considering applying standard ISO 3759 on method for the preparation, marking and measuring of textile fabrics, garments and fabric assemblies for use in tests for assessing dimensional change after a specified treatment. Which of the following should be taken into account when embedding this standard into the specification?

Options:

A.

Date of publication

B.

Supplier selection

C.

Type of specification

D.

Legality

Question 15

Curnoe Ltd supplied tyres to Garage Ltd. Garage Ltd agreed in the contract that for any specified breaches of contract, it would pay Curnoe Ltd £5 per tyre sold in breach. It subsequently sold tyres at below the listed price, which was one of the breaches mentioned in the contract. What is the £5 per tyre provision an example of?

Options:

A.

Quantum meruit

B.

Exclusion clause

C.

Liquidated damages

D.

Unliquidated damages

Question 16

What are disadvantages of a buyer contracting on the supplier's terms? Select TWO that apply.

Options:

A.

Materials will not be changed without the buyer’s consent

B.

The buyer would not be subject to any indemnity clause obligations

C.

Title to goods may remain with the supplier until payment is received

D.

Goods received late will incur penalties for the supplier

E.

Prices may increase without notification to the buyer

Question 17

Which of the following are most likely to be liabilities of suppliers under a guarantee clause?(SelectAny Two)

Options:

A.

TWO that apply

B.

Repair

C.

Decommissioning

D.

Upgrading

E.

Replacement

F.

Installation

Question 18

Infra Constructions receive a contract for construction of a building, and following terms were agreed upon. "The entire cost of the project will be reimbursed to Infra Constructions (estimated cost of the project being $ 25 million). The profits will be 20% of the entire cost of a project subject to a max of $ 5 million." This arrangement is an example of...?

Options:

A.

Incentive pricing arrangement

B.

Gain-share/pain-share arrangment

C.

Cost-plus pricing arrangement

D.

Fixed-pricing arrangement

Question 19

Which of the following is the contract provision that relieves the parties from performing their contractual obligations when certain circumstances like natural disasters, terrorist attacks, etc arise?

Options:

A.

Indemnity clause

B.

Liquidated damage clause

C.

Insurance clause

D.

Exclusion clause

Question 20

As a result of a global pandemic, a local hospital is facing significant patient capacity pressures and would like the construction of a new 50-bed ward to be prioritised and fully operational at the earliest opportunity. Which of the following pricing arrangements would support this aspiration?

Options:

A.

Incentivised contract pricing

B.

Fixed price economic adjustment pricing

C.

Time and materials arrangement pricing

D.

Penetration contract pricing

Question 21

The cost in cost reimbursable contract is...?

Options:

A.

Actual cost

B.

Variable cost

C.

Fixed cost

D.

Profit

Question 22

Which of the following is a benefit to the buyer of using model form contracts?

Options:

A.

The terms used are advantageous to the buyer

B.

It reduces time and costs in developing a formal contract

C.

No legal advice is required as variations are not accepted

D.

Most suppliers are unfamiliar with the terms used

Question 23

Which of the following regulates barriers to the trade of goods between Member States of WTO?

Options:

A.

NAFTA

B.

GATT

C.

CISG

D.

TRIPS

Question 24

A buyer and a supplier plan to sign a contract with cost-plus arrangement. If the cost base is $350 and the markup component is 11% then the invoice price will be...

Options:

A.

393.26

B.

388.5

C.

368.5

D.

362

Question 25

Which of the following standards gives guidance on the layout and preparation of specifications?

Options:

A.

BS EN 60601-1-11:2015

B.

BS 5864:2019

C.

BS 5975:2019

D.

BS 7373-1:2001

Question 26

Prior to circulating the service specification to a tendering supplier, it is good practice for the purchasing organisation to request completion of a non-disclosure agreement. Is this statement correct?

Options:

A.

No, because the non-disclosure agreement has no legal standing

B.

Yes, because the non-disclosure agreement protects intellectual property

C.

Yes, because the non-disclosure agreement encourages transparent bidding

D.

No, because the non-disclosure agreement only applies after contracting

Question 27

Information assurance protects information systems and...?

Options:

A.

Hard copy

B.

Computers

C.

Inventory

D.

People

Question 28

Which of the following is a key element for the development of a contract?

Options:

A.

Scoping specifications

B.

Contract management

C.

Budget approval

D.

Managing suppliers

Question 29

A retailer prefers to display its best selling products and promotion programme on the building windows. According to rule of contract formation, this act will generally constitute...?

Options:

A.

An invitation to treat

B.

A legal capacity

C.

An offer

D.

A mailbox rule

Question 30

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"

Options:

A.

2 and 4 only

B.

1 and 3 only

C.

3 and 4 only

D.

1 and 2 only

Question 31

Which of the following is a disadvantage of using input specifications?

Options:

A.

It is difficult to assess suitability of each quotation

B.

It requires a more proactive approach to monitoring

C.

There is less opportunity for innovation

D.

There is no limit to the number of suppliers who can quote

Question 32

Which of the following may be a benefit for purchaser in using call off contract?

Options:

A.

Ability to discover new potential suppliers

B.

No long-term commitment required

C.

Secured supply

D.

Maintaining a degree of competition between suppliers

Question 33

Which of the following is the procedure that makes no further competition under a framework agreement?

Options:

A.

Closed system

B.

Direct call-off

C.

Standing offer

D.

Blanket order

Question 34

Solus Trading has begun a project to improve the level of delivery performance from its suppliers. They need to develop a key performance indicator (KPI) to measure the performance improvement. Which KPI would be suitable to use?

Options:

A.

Percentage of on-time in full

B.

Percentage of rejects and returns

C.

Percentage of cost reduction

D.

Percentage of customer complaints

Question 35

According to mailbox rule in some common law countries, at which point the offeree's acceptance will be effective?

Options:

A.

When the letter of acceptance is opened and its contents read by the offeree.

B.

When the letter of acceptance is received by the offeror.

C.

When the letter of acceptance has been written.

D.

When the letter of acceptance has been correctly addressed, its postage paid, and posted.

Question 36

The model form contract invented by Institute of Civil Engineers is...?

Options:

A.

NEC

B.

IMechE/IET

C.

FIDIC

D.

JCT

Question 37

Company A based in Canada signed a commercial contract with Company B in Egypt. Both countries are Contracting States to Vienna Convention on Contracts for the International Sale of Goods. The contract states that "The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of Canada". Which of the following set of rules will be applied if dispute between contracting parties occurs?

Options:

A.

CISG

B.

Canada’s legal system

C.

WTO rules

D.

Egypt’s legal system

Question 38

Streaming Ltd is a music streaming provider based in the UK. The company is looking for extending its presence in the US. To achieve this, the company needs to outsource the data centre service to a local company. To monitor the performance, the procurement manager would like to introduce a service level agreement (SLA) to the data centre service provider. Which of the following should be included in the SLA?

1. System availability

2. The mean time to recover from system failure

3. The actual number of on-time service delivery

4. Dispute resolution procedure

Options:

A.

1, 3 and 4 only

B.

1, 2 and 4 only

C.

1, 2 and 3 only

D.

2, 3 and 4 only

Question 39

Which of the following best defines an ‘express’ term in general contract arrangements?

Options:

A.

It is a standard set of terms and conditions published by CIPS

B.

It is not necessarily discussed by the parties, but nonetheless forms part of the contract

C.

It is the term that is added to the contract by the law or based upon the facts of the case.

D.

It is clearly agreed between the parties, and is virtually always written down in the contract

Question 40

What is the purpose of using key performance indicators in procurement and supply?

Options:

A.

To validate the supplier's bid or tender

B.

To monitor supplier's performance

C.

To ease the termination process

D.

To qualify which supplier is suitable

Question 41

In which of the following conditions, request for quotation produces the best results?

Options:

A.

With an ambiguous specification

B.

Under framework agreements

C.

Under a complex process

D.

With strategic items

Question 42

Which of the following are likely to be advantages of using request for quotation? Select TWO that apply:

Options:

A.

Lower administration costs

B.

Short turnaround times

C.

No specification required

D.

Helping the buying organisation assess both price and quality

E.

Encouraging suppliers to submit creative solutions

Question 43

Royal Naval Hospital at Rockstown, Anyport manages a fleet of nine ambulance vehicles. During busy periods, it becomes very difficult to keep track of the location of each ambulance (and the nature of their journey). Continual problems lead to the proposal for a new control system (ERNS).

For this ERNS project, the procurement department has drafted a specification in which only a bullet point list of basic requirements was written down. The procurement manager understands that the specification should be developed more specifically but a cross functional team from the Hospital could not do that. A senior buyer suggests that some of Hospital's pre-qualified suppliers could support them in developing the specification.

Which of the following should be a priority approach of procurement department in developing dialogue with those suppliers about specification development?

Options:

A.

Internal discussion

B.

General networking

C.

One-to-one meeting with the suppliers

D.

Request for quotation from the suppliers

Question 44

Which of the following regulates barriers to the provision of services between countries?

Options:

A.

CISG

B.

GATS

C.

ADA

D.

Incoterms

Question 45

Which of the following is a key feature of liquidated damage clauses?

Options:

A.

The amount of damage is predetermined

B.

Liquidated damage is a penalty

C.

The amount of liquidated damages must be exceptionally larger than the actual damages incurred

D.

The liquidated damages are non-negotiable

Question 46

Parkers Medical Supplies is a distributor of first aid supplies to supermarkets nationwide. A new supplier has approached Parkers with an offer to supply a new and innovative product. Parkers have never dealt with this company before, so are looking to ensure that the new supplier has the necessary insurance cover as the new product could potentially cause personal injury. Which type of insurance should Parkers insist the new supplier takes out?

Options:

A.

Employers' liability

B.

Public liability

C.

Product liability

D.

Professional indemnity

Question 47

Under which of the following scenarios an RFQ is most likely to be used?

Options:

A.

Purchase of a small number of standardised products under a framework agreement

B.

Purchase of complex machinery

C.

Design of a unique and complex software code

D.

When the buying organisation does not know the requirements in details and needs the input from suppliers

Question 48

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

Options:

A.

1, 3 and 4 only

B.

1, 2 and 3 only

C.

2, 3 and 4 only

D.

1, 2 and 4 only

Question 49

Cleveland Insurance (Cleveland) offers a range of insurance services. The main software used in the call centre is a customer relationship management (CRM) system. Cleveland perceived an urgent need to replace the existing CRM system to deal with the increasing number of customers and services.

Urgent Digital Ltd (Digital) is one of the bidders of Cleveland’s ITT. Its bid team is led by Hank Irvine, its technical director. Hank realises that winning the Cleveland contract (valued at approximately £50M) will enhance his career. During discussions with Cleveland, Hank offers certain assurances regarding timescales for the project. He has not carried out any investigations into the viability of the timescales. Hank has little idea whether the timescales can be met.

Cleveland decides that Digital’s bid meets with its requirements, especially given the assurances in timescale offered by Hank, and decides to proceed with it, subject to a formal contract. Eventually, a formal contract is signed by both parties. The initial assurances given by Hank about the timing of the project are never going to be achieved and are at best grossly exaggerated.

Hank’s pre-contractual assurance is most likely to be an example of which of the following?

Options:

A.

Inaccuracy in communication

B.

Threat

C.

Initial impossibility

D.

Fraudulent misrepresentation

Question 50

The pricing arrangement in which markup is added into cost base to calculate the final price is known as...?

Options:

A.

Fixed Price approach

B.

Market based approach

C.

Price indices

D.

Cost plus pricing

Question 51

If a false statement of material fact is made by one of the contracting parties, the misled party will have remedies for:

Options:

A.

Indemnity

B.

Misrepresentation

C.

Recission

D.

Damages

Question 52

Buyer D agrees a contract with Supplier C which includes the words 'to be agreed' in relation to the date for delivery of the goods. At the time of the contract, Buyer D is aware that the goods take two days to produce and one day to deliver. Buyer D contacts the supplier one week later, requesting the goods be delivered the following day. Supplier C is unable to deliver the next day but rather delivers the goods three days later. Is it the case that Buyer D can legally refuse to pay for the goods because Supplier C is in breach of contract?

Options:

A.

Yes, because the delivery date is an express term within the contract

B.

Yes, because the goods should have been delivered within three days

C.

No, because the goods were delivered within a reasonable time

D.

No, because there is a contract in place and the delivery date does not matter

Question 53

Which of the following are examples of conformance specification? Select TWO that apply:

Options:

A.

Outcome-focused specification

B.

Statement of work

C.

Product sample

D.

Output-focused specification

E.

Technical drawing

Question 54

A buyer is procuring innovative new IT systems and has issued a performance specification as part of the invitation to tender. Is this a suitable approach?

Options:

A.

No, because the bidder may use it to inflate costs

B.

Yes, because it allows the bidder to present solutions and further inform the requirement

C.

No, because the Procurement Team should only include outputs in specifications

D.

Yes, because it will improve relationships and collaboration between both parties

Question 55

The contracts manager at a newly established private transport agency, Travel Response Services (TRS), has been asked to draft a set of standard terms and conditions that will protect customers’ personal information when it is passed to sub-contracted suppliers by TRS. Which standard clause would be best suited for this?

Options:

A.

An intellectual property rights clause

B.

An invoicing and payment clause

C.

A corporate social responsibility clause

D.

A confidentiality and use of data clause

Question 56

Danielle buys a car from Aaron. Not long after, she receives an proposal from Brian, who isinterested in buying the car but his budget is very constraint. Then, Brian decides to sign a hire purchase agreement with Danielle which lasts 4 years. Brian lives very far from Danielle, so hehires Charlie to deliver the car to his place. During the transport, Charlie has an accident and the car is written off. At the time of accident, who has the title of the car?

Options:

A.

Charlie

B.

Aaron

C.

Brian

D.

Danielle

Question 57

John Powers is the managing director of ACC Trading Ltd, which provides components to the automotive industry. His company has been providing number plates to Elite Motors Ltd for many years. As John Powers and Peter Ellis, the MD of Elite, have been friends for a long time, there has never been a formal contract agreed between the companies. Following a downturn in the market, Elite Motors Ltd has now been placed in administration. ACC recently delivered 200 number plates but have not received payment. As the number plates have been fitted to some vehicles, the administrators are being very slow to return them. Which clause in a formal agreement would have helped John?

Options:

A.

Force Majeure

B.

Retention of Title (Romalpa)

C.

Liquidated Damages

D.

Penalty Clause

Page: 1 / 20
Total 196 questions