L4M3 - Spotting

CIPS Level 4 L4M3 Commercial
Contracting
Revision Questions
Leading global excellence in procurement and supply

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Question 1
What is quantum meruit?
A. An act of God
B. Compensation
C. Damages
D. Warranty
not be altered, copied, sold or lent to other parties. Copyright ©2018 CIPS 2
Question 2
Is a verbal contract legally enforceable
A. Yes, a verbal agreement is just as legally enforceable as a written one
B. Yes, but only if you have a witness at the time the verbal agreement was
made
C. No, only contracts in writing will be legally enforceable
D. No, verbal contracts are never legally enforceable
Question 3
ETC Co Ltd is seeking to improve its competitiveness in the marketplace. To
achieve this, they want to encourage their suppliers to identify and deliver
cost savings in the contracts with them. Which of the following pricing
schedule would help?
A. Fixed price schedule agreement
B. Incentives for price reduction
C. Agreements on pricing instalments
D. Cost reimbursable agreement
Question 4
A procurement manager has been approached by a key supplier requesting
that the current 60 day payment terms between the companies be reduced
to 45 days due to cash flow problems. After consideration the procurement
manager agrees to this but requires an additional 5% discount on the
supplier’s prices for doing so. Is this the correct thing do?
A. Yes, as the procurement manger is helping the supplier so the supplier
should help the purchasing manager by reducing its costs
B. No, as the procurement manager is taking an unfair advantage of the
suppliers financial position to gain an advantage
C. No, the payment terms in the contact is 60 days and the procurement
manager should insist that the supplier accepts this position
D. Yes, as the procurement manager has a cost saving target to achieve and
looks on the suppliers financial position as an opportunity to achieve this
target
Question 5
A common law principle ‘caveat Emptor is Latin for …..
A. Try before you buy
B. No returns acceptable
C. Purchase with care
D. Let the buyer beware
Question 6
You are a buyer who is presently collating the necessary data and
information for a forthcoming tender. The project is for the supply and
installation of numerous car park barriers and related equipment. It will also
need to include the provision of spare parts to support the maintenance
provision for an ongoing period. Which of the following would be an
appropriate pricing arrangement?
A. Cost plus
B. Pricing schedule
C. Cost reimbursement
D. Fixed price
Question 7
When providing a conformance specification, the buyer details exactly what the
required product or item must consists of. The supplier may not know in detail or
even at all what purpose the item will play in the buyer’s business. The supplier is
expected to strictly conform to the buyers’ specification. The buyer therefore bears
the greatest risk if the specification fails. Which one of the following might describe
a conformance specification?
A. The details of how the item is required to interface with the other elements of
the process
B. Required safety levels and controls including the any relevant standards that
apply
C. Identification and emphasis on a brand name and model name or model
number
D. The criteria or methods to be used in measuring whether the item has achieved
its purpose
Question 8
What are the five essential elements of a legally binding contract?
A. Offer, acceptance, consideration, capacity, correct form

B. Offer, agreement, consensus, capacity, correct form
C. Offer, acceptance, compensation, ability, correct form
D. Offer, acceptance, mediation, capacity, contract
Question 9
In the creation of a contract, identify TWO types of a contract term that will
always form part of the contract.
A. A special term
B. A representation term
C. An express term
D. An implied term
E. A model form term
Question 10
Sprint Couriers Pty Ltd is a national provider of parcel services. a high
proportion of the services it provides are undertaken through a
subcontracted network of delivery drivers. It is presently renegotiating all of
its subcontracted services and is looking to develop Service Level
agreements (SLA) with its providers. Which of the following should form part
of the SLA document
A. The geographic area covered by the subcontractor
B. The percentage of company policies adhered to
C. The total number of completed deliveries each month
D. The actual percentage against target of 99% on time delivery
Question 11
XYZ Ltd is developing a new product to improve its competitive advantage.
They are looking for suppliers to use their expertise and innovation to assist
with the development of a new component. What is the most appropriate
form of specification to use?
A. Service level specification

B. Conformance specification
C. Performance specification
D. Output based specification
Question 12
The requirement to adhere to which of the following International standards
relates to environmental considerations in specifications
A. ISO 9001
B. ISO 14001
C. ISO 18001
D. ISO 44001
Question 13
Dunlop Ltd supplied tires to Garage Ltd agreed in the contract. It would pay
Dunlop Ltd $50 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 $50 per tyre an example of?
A. Exclusion clause
B. Liquidated damages
C. Quantum meruit
D. Un-liquidated damages
Question 14
What is the Vienna Convention a Treaty on?
A. Protection of Intellectual property rights

B. Free trade agreement in the EU
C. International sales law
D. Mandates the reduction of greenhouse gas emissions
Question 15
Which of these statements is the correct definition of a contract?
A. A promise made by a supplier to supply goods or services

B. An agreement enforceable by law made between two or more people
C. An offer and acceptance has taken place
D. A promise made by the buyer to place an order
Question 16
Singh Computers is a computer hardware stockiest and distributor. It offers a
next day carriage service to all of its customers which is unique in the
industry and it gives them a competitive advantage over their competitors.
Efficient management of its inventory is key in-order to meet customer
expectations and to maintain profitability. It is experiencing some issues with
transportation of goods and is looking to develop some key performance
indicators with its suppliers. Which of the following would help?
A. The total number of supplier purchase orders each month
B. The total quantity of supplier parts ordered each month
C. The total cost of supplier parts ordered each month
D. The total number of late supplier deliveries each month
Question 17
• A service contract for cleaning is due for expiry after a five year
duration. Which of the following are good sources of data to
create a specification for the invitation to tender?
1. Incumbent supplier
2. Maintenance services
3. Alternative suppliers
4. Management information
A. 1, 2 and 3 only
B. 2, 3, and 4 only
C. 1, 2 and 4 only
D. 1, 3 and 4 only
Question 18
You are a buyer working in a busy procurement office. A colleague from another department
would like to procure some new electrical equipment which is essential to their operation.
They are specifying a branded version which is almost double the cost of some acceptable
alternatives available on the market. You are keen to ensure that their preferred product
represents best value. What are your considerations?
1. The inspection cost of the alternative product
2. The overall cost of the purchase
3. The quality of the branded product
4. The validity of the alternative quotation
A. 1 and 3 only
B. 3 and 4 only
C. 2 and 4 only
D. 1 and 2 only
Question 19
Which of the following might be considered as advantages to the supplier of
the Key Performance Indicators (KPIs)? Select TWO that apply
A. They help the suppliers to focus on specific critical success factors

and maximize on effectiveness
B. They help the suppliers to achieve higher productivity by cutting down
on other aspects like quality
C. They help the suppliers to avoid confusion arising from unclear
expectation from buyers
D. They help the suppliers to share their best cost saving systems with
their competitors
E. They help the suppliers to ensure that they do not exceed the target
performance levels
Question 20
You are a senior buyer in a large manufacturing company. The engineering
team are looking for a product that will assist them in a new innovative
project. The technology is evolving and the product supplied is likely to be
bespoke to the supplier. You are suggesting the use of performance
specification as a part of the tender. What is the main reason for this?
A. The cost of the product is likely to be cheaper

B. This places the responsibility for success with the supplier
C. The tender process is likely to be a faster
D. This will allow a comprehensive description of the product
Question 21
A large manufacturing group is going through a period of investment under
which a number of its facilities will close on a short-term basis for re-fit and
upgrade works to be undertaken. The CPO is concerned about the impact
on the organisation's ability to meet customer orders should any of the work
carried out by suppliers overrun. In respect of this particular concern, the
CPO should consider using which of the following contractual terms with
these suppliers?
A. Insurance
B. Force majeure
C. Liquidated damages
D. Jurisdiction
Question 22
Which of the following is a disadvantage of using performance
specifications?
A. They are costly to prepare

B. They limit the number of suppliers who can quote
C. Difficult to assess the suitability of each quotation
D. Not allowed for use in public procurement
Question 23
A procurement manger decides to use a conformance specification in an
RFQ for the manufacturing of a specialist item designed by their company.
The company does not have the capability to manufacture the item in-house
but requires the item to be made to their detailed specification. Was this the
correct thing to do?
A. Yes, as it means that the company will be able to get the most cost
effective price for the item from the chosen supplier
B. No, as it means that the chosen supplier will be able to use their
expertise and knowledge to manufacture the item
C. Yes, as it means that the company will get exactly what it has specified
and meets its specific requirements
D. No, as the item will be of non-standard construction and will not be
able to be used by other competitors.
Question 24
Setting key performance indicators for supplier performance
should ensure….
A. Reduced vendor base

B. Managed supply risk
C. Lowest price for products
D. Earliest delivery
Question 25
Denny is putting together the final version of a contract to send out to a
supplier. He places certain documentation into additional contract schedules
at the end of the main contract. Which of the following would be suitable
inclusions to the additional schedules? Select TWO that apply?
A. Financial statements
B. Health and safety commitments
C. Supplier references
D. Non- disclosure agreement
E. A blank RFQ form
Question 26
In the preparation of specifications covering social and environmental for an
invitation to tender options should be ….
A. Inclusive
B. Exclusive
C. Industry focused
D. Cost sensitive
Question 27
Which of these are remedies for misrepresentation
1. The contract is void
2. Rescission of the contract
3. Caveat Emptor
4. Damages
A. 1 and 2 only
B. 2 and 3 only
C. 1 and 3 only
D. 2 and 4 only
Question 28
John is a new Procurement manager who has recently joined EAC Facilities Management
Company. The company provides maintenance services through the utilization of subcontractors.
It is experiencing a number of issues with its supply chain which has resulted in customer
complaints and John would like to introduce Service Level Agreements to some of its key
providers. Which of the following should be included:
1. How often the service will be provided

2. The procedures to be followed to resolved disputes
3. The qualifications needed by staff providing the service
4. The stock maintained by the contractor
A. 1, 3 and 4 only
B. 2, 3 and 4 only
C. 1, 2 and 4 only
D. 1, 2 and 3 only
Question 29
You are a procurement manager for a successful electrical component re-seller
and distributor. The company presently carries stock of over 50 000 different
items, some of which may be variances of the same product or similar products
from different manufacturers. The managing Director of the company is looking to
increase the margin on products sold and has asked for your support. It is a
competitive industry with a customer base that will be resistant to a price increase.
Which of the following could support this request?
A. Improve the quality of products purchased

B. Increase the range of products sold
C. Standardize the products purchased
D. Reduce the range of products purchased
Question 30
In-order for a contract to exist and be legally binding, there needs to be
certain elements present. Select the THREE that apply
A. There must be an agreement in the form of offer and acceptance

B. There has to be money transferred at the time of the contract
C. There must be an intention to create legal relations
D. All parties must have contractual capacity
E. The request for quotation must be received at the correct time
F. There must be the opportunity to counter offer
Question 31
Capital Construction Company Ltd was contracted by Parker Holdings Ltd to
construct new premises for its business. The agreement stated that building works
would take 6 months to complete. Throughout the project a number of issues arose
which delayed building works, all of which were due to the inability of Capital
Construction to secure adequate labour to complete the work. The building works
was finally completed three months late, although there are ongoing snagging
issues to be resolved. Parker is looking to recover the losses its business has
incurred. It has reviewed the contract and has noted the following clause:
Penalties for late delivery
Capital Construction shall pay Parker a sum equal to 3% of the total contract value
for each calendar month where completion occurs after the agreed project
completion date. Parker has requested 9% repayment of the contract value in
accordance with the above clause. If Capital construction pay the claim, it is likely
to jeopardize the future of its business. Is Capital Construction contractually obliged
to make the payment to Parker?
Que 31 cont….
A. No, the amount claimed is excessive and could put Capital Construction out of
business so it is not legally enforceable
B. No, the payment is clearly entitled as penalty in the agreement which is not a legally
enforceable clause.
C. No, Capital Construction have continued to undertake the snagging works at its
own costs and it should be reimbursed as such
D. Yes, although entitled penalty is a liquidates damages clause as it is a fixed sum
and a genuine attempt at estimating the loss
A purchase order has been raised for $50 000. It allows the user department to order
items of $500 value when they need them. This is an example of what type of an order?
A. Shut off
B. Stand off
C. Straight off
D. Call off
Question 32
Swift company wishes to issue an invitation to tender for a range of
suppliers. They do not wish to limit the number suppliers who can respond.
Which form of tender process is the best one to use?
A. Restricted open tender

B. Selective tender
C. Selective closed tender
D. Open tender
Question 33
How should a key performance indicator (KPI) be used in commercial
contracting
1. As a price negotiation tool pre-contract
2. A metric for managing performance
3. To focus on getting the important things right
4. To maintain a library subjective data
A. 1 and 3 only
B. 2 and 3 only
C. 1 and 2 only
D. 3 and 4 only
Question 34
If a clause in a contract is a genuine attempt at estimating the loss in
advance of a potential breach. It is …..
A. An indemnity clause
B. A penalty clause
C. A liquidated damages clause
D. A quantum meruit clause
Question 35
Which of the following would be steps in the preparation of an invitation to
tender? Select TWO that apply
A. Re-writing a model form contract

B. Creating a detailed specification
C. Learning international standards
D. Advertising the required
E. Publishing your company’s financial reports
Question 36
A construction company wishes to place the contract for the building of a
new hotel to a principal contractor using a model form contract. What is the
advantage of using a Model form contract
A. It avoids the requirement to create complex contracts each time but
can be adapted to suit particular circumstances
B. That incentive payment terms can be included to reward the supplier
for attainment of cost savings
C. Legal advice is still required if significant amendments or variations
are to be made to the contract
D. Formula or indices can be included to assess any additional suppliers
claim for contract price adjustments.
Question 37
Which of the following is part of a conformance specification?
A. Material, dimensions, tolerances and drawings

B. Material, innovation, performance, and descriptions
C. Ideas, dimensions, tolerances and output
D. Ideas, innovation, tolerances and descriptions
Question 38
Electro Systems PLC is a public sector manufacturer of highly technical
solutions to the telecommunications industry. The market in which it
operates is fast paced and ever-changing with the latest inventions and
developments. The products in procures are high cost and can be subject to
lengthy lead times. Michael Jones, the Procurement Director believes that
establishing Framework Agreements would be beneficial to the tendering
process. How could this assist them?
A. Improve supplier lead times

B. Enable the use of mini-competitions
C. Improve supplier product quality
D. Enable the use of e-tendering
Question 39
The costs in a cost reimbursable contract are described as …
A. Fixed Costs
B. Variable Costs
C. Indirect costs
D. Actual Costs
Question 40
Natalie has placed an order for the supply and installation of six new servers for a total amount for
$600 000 from supplier A. Which of the following could potentially be treated as examples of a
liquidated clause within the contract for the supply of the servers?
1. If the supplier delivers any of the servers late $1000 per server will be deducted from the order per
day
2. This contract is subject to delay remedies of $X the amount to be agreed by both parties during
delivery
3. The sum for breach of the completion date for the order is $40 000 per day up to a maximum of
50% of the contract price
4. If the performance of any of the servers degrades within 5 years, a full refund of $600 000 will be
provided
A. 1 and 2 only
B. 3 and 4 only
C. 1 and 3 only
D. 2 and 4 only
Question 41
The exclusion of liability is restricted by statute for which of the
following? Select TWO that apply.
A. Negligence
B. Legal capacity
C. Breach of implied terms
D. Non payment
E. Caveat Emptor
Question 42
Offer and acceptance are essential elements of a legally binding contract.
Which of the following activities are likely to be considered as an “offer” in
the transactions between the buyer and the supplier?
1. The buyer dispatches a request for quotation to the supplier to
complete and return
2. The supplier a returns a duly completed request for quotation
3. The buyer submits a bid for an item on the online auction site.
4. The supplier sends an email copy of the dispatch advice
A. 1 and 2 only
B. 1 and 3 only
C. 2 and 3 only
D. 2 and 4 only
Question 43
Whilst it is recognized that longer term contracts have the
potential to drive significant benefits for the organisation, a
number of situations are more suited to making one-off
purchases. Which of the following is likely to be more suited to a
one-off purchase?
A. The ordering of equipment for a special project

B. The requirement for the maintenance of buildings
C. The purchase of compatible IT infrastructure equipment
D. The purchase of internal and external audit services
Question 44
Where a supplier in incentivized to deliver improvements that
create added value for the buyer, this is described as what type
of outcome?
A.Lose-win
B.Lose – win
C.Win – lose
D.Win – Win
Question 45
An effective key performance indicator should be :
A. Standardized, Meaningful, achievable, realistic,

typical
B. Sustainable, Measurable, analysed, realistic, timely
C. Specific, Measurable, achievable, realistic timely
D. Specific, Meaningful, analysed, realistic , typical
Question 46
In a standard or negotiated agreement, a pricing schedule will
include details of a number of elements. Select TWO that apply
A.Key elements the calculated price does not include

B.Suppliers schedule of prices, fees and charges
C.The mechanism used to calculate the price
D.A model form contract schedules that has been used
E.The remedies available should the contract fail
Question 47
Key performance Indicators (KPIs) are used to measure supplier
performance. Select THREE KPIs that may be used
A.Cost management
B.Employee attendance
C.Timeliness of delivery
D.Quality conformance
E.Style of negotiation
F.Contract standardization
Question 48
Standards are documents that stipulate or recommend minimum
levels of performance and quality levels of goods and services.
The government is the only source of any standards that are
applied by business in nations. Is this correct?
A. Yes, because a country has a national body that regulates standards
within the nation
B. Yes the only other possible source is through international initiatives
such as ISO
C. No, governments only create standards for products related to national
security
D. No, standards can be generated internally by other organizations
besides the government and ISO
Question 49
Which of the following describes the function of a non-disclosure
agreement (NDA)?
A. Defines what compromises confidential information

B. Sets out what is not required under the contract
C. Determines the scope of the specification
D. Identifies all of the parties to the agreement
Question 50
Mable sees a coat displayed in a shop window with a price tag of $100 on it.
When Mable goes into the shop to buy it, the shop owner says the window
display had an incorrect price on and the coat is actually $120. Mable argues
that the shop has to honor the $100. Is she correct?
A. Yes, the coat was advertised at $ 100 so the shop is legally bound to
honor it
B. No the display is an invitation to treat so the shop can legally amend the
price
C. Yes, the display is an invitation to treat and therefore the shop is bound
to sell for $100
D. No, the shop will make a loss on the coat so should not have to sell at
$100.
Question 51
Global Automotive Company wishes to create a contract for an
engineering supplier to install new car lifts in their workshops
across the world. What be most suitable for this agreement?
A. NEC
B. JCT
C. RIBA
D. FIDIC
Question 52
A fixed pricing arrangement may be beneficial to use in the following circumstances
1. Where the accuracy and reliability of the project scope information is known
2. Where the supplier is undertaking the project is inexperienced in the activity
3. Where the estimates for the labour, material and associated costs are known
4. Where the contractor will be able to obtain incentives or early completion
A. 3 and 4 only
B. 1 and 3 only
C. 1 and 4 only
D. 2 and 3 only
Question 53
A supplier sends a quote with their terms and conditions noted at
the bottom of the quote. The buyer then sends a purchase order
with their terms and conditions noted at the bottom of the order.
What would best describe this exercise?
A. Exchange of terms
B. Battle of forms
C. Dispute of conditions
D. Variation of contract
Question 54
Which of the following is an advantage of using input
specifications?
A. Greater opportunity for innovation

B. The risk of meeting the required function is by the supplier
C. The specification documentation requires less effort to produce
D. The buyer is able to determine the processes used in the delivery of
the contract
Question 55
Which of these Key performance indicators are qualitative?
Select TWO that apply
A. Cost savings achieved

B. Effectiveness of the suppliers’ staff
C. Responsiveness of the supplier
D. Number of customer complaints
E. Employee satisfaction score
Question 56
In the creation of a contract with an overseas supplier, a procurement
manager insists that the suppliers adhere to the CIPS corporate code of
conduct and to conduct all business relationships with respect, honesty and
integrity and avoid causing harm to others as a result of business decisions.
Was this the correct thing to do?
A. No, as the overseas suppliers should be free to conduct business in
whatever way they wish with no regards to ethical practices
B. Yes, as the procurement managers role will be to protect the company
from potential reputation risk from dealing with unethical suppliers
C. Yes as it means that they are delivering a value solution to the
company by potentially purchasing items at the cheapest price
D. No as the procurement manager could be missing out on cost savings
by not using the cheapest source for the items
Question 57
Key performance indicators are used to….
A. Measure suppliers progress and achievement

B. Measure the quality of a tender submission
C. Collect data about suppliers to inform future specifications
D. Measure the risks identified with the contract
Question 58
When negotiating international contracts how should the buyer
ensure ethical compliance?
A. Verify that the suppliers’ employees are all paid a living wage
B. Ensure the supplier operates an equal opportunity policy
C. Insist the suppliers workforce enjoys union representation
D. Confirm that supplier’s standards comply with the buyer’s
Question 59
In a request for quotation (RFQ) a buyer requests that the responses to the
RFQ include a pricing schedule on a cost plus basis for a research project.
Is this a good approach for a buyer to take?
A. No because you have a strict budget. Cost plus contracts are a poor
choice due to the greater cost uncertainty than fixed price contract.
B. Yes as it means that the buyer will know what the cost will be at the
beginning of the project and can allow for this in their project budget
C. No there may be more of an incentive for the supplier to complete the
project in an efficient and effective manner and make more money
D. Yes as it means that the buyer does not have to review the supplier
costs on a regular basis to ensure compliance with the project budget.
Question 60
How should a key performance indicator (KPI) be used in commercial
contracting
1. As a price negotiation tool pre-contract
2. A metric for managing performance
3. To focus on getting the important things right
4. To maintain a library subjective data
A. 1 and 3 only
B. 2 and 3 only
C. 1 and 2 only
D. 3 and 4 only

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CIPS Level 4 L4M3 Commercial

Leading global excellence in procurement and supply

A. Offer, acceptance, consideration, capacity, correct form

A. Service level specification

A. Protection of Intellectual property rights

A. A promise made by a supplier to supply goods or services

A. They help the suppliers to focus on specific critical success factors

A. The cost of the product is likely to be cheaper

A. They are costly to prepare

A. Reduced vendor base

1. How often the service will be provided

A. Improve the quality of products purchased

A. There must be an agreement in the form of offer and acceptance

A. Restricted open tender

A. Re-writing a model form contract

A. Material, dimensions, tolerances and drawings

A. Improve supplier lead times

A. The ordering of equipment for a special project

A. Standardized, Meaningful, achievable, realistic,

A.Key elements the calculated price does not include

A. Defines what compromises confidential information

A. Greater opportunity for innovation

A. Cost savings achieved

A. Measure suppliers progress and achievement

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