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NEW QUESTION # 24
Maximum Score 1
The nature of the "Battle of the forms" is when both buyer and supplier are attempting to ...
- A. Create a performance specification
- B. Form a joint contract
- C. Secure their own terms and conditions
- D. Create a collaborative relationship
Answer: C
Explanation:
The "battle of the forms" arises when each party seeks to have its own terms and conditions govern the contract.
Under common law, the terms last sent and accepted (expressly or by conduct) usually apply.
Reference: CIPS L4M3 Commercial Contracting - "Battle of the forms and contract acceptance."
NEW QUESTION # 25
Which of the following statements is true about model form of contract?
- A. Model contract form's standard clauses often contain correct legal terminology without recourse to third party experts.
- B. The standard clauses of model contract forms give the offeror legal advantages over the offeree
- C. Only the publishers of model forms of contract can edit the clauses of these forms
- D. When model contracts are employed, there are no requirements for legal advice and input
Answer: A
Explanation:
Model forms of contract are published by some industry or professional organisations such as FIDIC, ITC, CIPS,... These forms are often carefully prepared by legal professionals, with correct legal terminology. The standard clauses within these forms are based on fair and balanced risk/reward allocation between the contracting parties. The model contract forms also include standard clauses to be selected or deleted on an as required basis.
Despite being standardised to be used in any jurisdiction, legal advice may be required if the users decide to make variations to the forms.
The correct answer should be "Model contract form's standard clauses often contain correct legal terminology without recourse to third party experts." Reference:
LO 3, AC 3.1
NEW QUESTION # 26
Maximum Score: 1
When a company has decided to outsource part of its operation, the contract will need to include a number of key contract terms to minimise risk. Which of the following should be included?
* A confidentiality clause designed to protect either party
* A clause stating how long the service is to be outsourced
* A clause stating how long the employees can take for holiday
* A contract variation and price adjustment clause
- A. 1 and 4 only
- B. 3 and 4 only
- C. 1 and 2 only
- D. 2 and 4 only
Answer: A
Explanation:
Risk-minimising contract terms for outsourcing typically include:
* Confidentiality (1) - protects sensitive information.
* Variation and price adjustment (4) - allows controlled changes to scope and pricing over time.
Service duration is important but not itself a risk-control clause; employee holiday length is an HR detail, not a key risk term.
Correct answer: 1 and 4 only.
Reference: CIPS L4M3 Commercial Contracting - Key clauses in outsourcing contracts.
NEW QUESTION # 27
Michelle contacts Hannah and asks her if she would be interested in purchasing her car for £2000. Hannah immediately takes £2000 to Michelle and says she wants to buy the car. Michelle subsequently refuses to proceed. Has the contract between Michelle and Hannah been made?
- A. No, because by refusing to proceed, Michelle rejects Hannah's counter-offer
- B. Yes, because both parties have full legal capability to enter into a contract
- C. No, because Michelle has rejected Hannah's offer on buying the car
- D. Yes, by her performance Hannah has accepted Michelle's offer on selling the car
Answer: C
Explanation:
To solve the question, you must distinguish the following notion:
- Offer: The case of Storer v Manchester City Council [1974] 1 WLR 1403 outlines that an offer is: An expression of willingness to contract on specified terms, with the intention that it is to be binding once accepted
- Acceptance: in order for a contract to be formed, the offer must be accepted. Acceptance represents the meeting of the minds of the parties to the contract - both agree to exchange something for the other (payment, services, goods, etc.).
- Counter offer: is an offer made in response to a prior offer.
- Invitation to treat: An important distinction to make in contract law is that between an offer and an invitation to treat. An invitation to treat is usually an invitation for another party to make an offer. It may also be defined as an indication that a party is open to negotiation.
Here are some key distinctions of offers and invitation to treats.
Offer:
* Certain promise to be bound
* Clear and specified terms
* The conduct or words of the party show certainty
* There is no room for negotiation
Invitation to treat:
* There is room for negotiation
* There is an invitation for offers
* There is a request for information
* Lack of certainty
In the scenario above, initially Michelle just gives an invitation to treat because she is asking whether Hannah is interested to buy her car (request for information from Hannah). Hannah may reject or go into a negotiation with Michelle. Then, Hannah makes an offer by taking the money andshows her intention to be legally bound.
At this point, when Hannah's offer is present, Michelle can accept or reject. When she rejects, the contract is not formed. The answer must be "No, because Michelle has rejected Hannah's offer on buying the car".
Reference:
- Definition of Counter Offer
- Formation of the contract
- CIPS study guide page 28-35
LO 1, AC 1.2
NEW QUESTION # 28
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
- A. 1, 2 and 4 only
- B. 1, 3 and 4 only
- C. 1, 2 and 3 only
- D. 2, 3 and 4 only
Answer: A
Explanation:
A service-level agreement (SLA) defines the level of service you expect from a vendor, laying out the metrics by which service is measured, as well as remedies or penalties should agreed-on service levels not be achieved.
According to CIPS L4M3 study guide, SLA should cover the following:
- KPIs
- How the measurements convert into scores
- Any other service level standards
- Minimum acceptable standards or scores in each case
- Range of scores both above and below the minimum acceptable
- Any mitigating factors which might apply in the event of poor performance
- Any time period permitted in which to remedy a situation of poor performance
- Remedies available
- Dispute settlement
- How to deal with inconsistencies or conflicts between KPIs and any other documents.
In IT service (such as in the scenario), the SLA often covers:
- Uptime
- Call metrics
- Customer satisfaction
- Turn around time
- Quality
- Mean time to recovery
- Mean time between failure
- Backlog
- Business results
You can read the details of above indicators here.
Reference:
- CIPS study guide page 112-115
- 9 Examples of SLAs
- What is an SLA? Best practices for service-level agreements
LO 2, AC 2.2
NEW QUESTION # 29
A large company supplies a lot of products. Their shipments are often delayed and customers are not satisfied.
Which of the following KPIs is most likely to be applied to this situation?
- A. OTIF delivery
- B. Consignment stock availability
- C. Delay damages
- D. Technical support
Answer: A
Explanation:
If the deliveries often delay, buyer should use KPI to measure how many missed deliveries there are and the percentage of total missed deliveries on total number of deliveries for period. OTIF (one-time in-full) delivery might help.
Consignment stock availability means that the supplier holds adequate range/number of units of stock to offer a reliable service Delay damages are the consequences caused by delay of deliveries Technical support is the acceptable quality of technical information/support provided by supplier for goods supplied.
LO 2, AC 2.2
NEW QUESTION # 30
When a supplier signs an insurance policy with an insurance company, which of the following is transferred to insurance company?
- A. Right
- B. Risk
- C. Legal responsibility
- D. Contractual obligation
Answer: B
Explanation:
An insurance policy transfers a specific set of risks such as the fire and flood risk for a particular asset.
The legal liability does not transfer to the insurance company (known as insurer).
Reference:
LO 3, AC 3.2
NEW QUESTION # 31
Maximum Score 1
The Bravo Engineering Company is negotiating a maintenance contract with Express Deliveries Ltd. This large logistics company uses modern robotic storage and picking warehouse machinery to identify, sort, and facilitate over 200,000 orders each day. The volatile nature of the business means that the parties should build maximum flexibility into the performance management aspects of the contract.
Which of the following would be most appropriate to set out the parties' obligations under the maintenance contract?
- A. A non-binding side-agreement to the maintenance contract
- B. A Service Level Agreement issued after the maintenance contract
- C. A formal appendix to the maintenance contract
- D. A clause that disclaims all accountability for the contract for the buyer
Answer: C
Explanation:
Performance obligations are best captured in a formal appendix (schedule) to the main contract, ensuring flexibility while remaining legally binding.
A non-binding or post-issued SLA would lack enforceability.
Reference: CIPS L4M3 Commercial Contracting - "Contract appendices and schedules."
NEW QUESTION # 32
Michelle contacts Hannah and asks her if she would be interested in purchasing her car for £2000. Hannah immediately takes £2000 to Michelle and says she wants to buy the car. Michelle subsequently refuses to proceed. Has the contract between Michelle and Hannah been made?
- A. No, because by refusing to proceed, Michelle rejects Hannah's counter-offer
- B. Yes, because both parties have full legal capability to enter into a contract
- C. No, because Michelle has rejected Hannah's offer on buying the car
- D. Yes, by her performance Hannah has accepted Michelle's offer on selling the car
Answer: C
Explanation:
To solve the question, you must distinguish the following notion:
- Offer: The case of Storer v Manchester City Council [1974] 1 WLR 1403 outlines that an offer is: An expression of willingness to contract on specified terms, with the intention that it is to be binding once accepted
- Acceptance: in order for a contract to be formed, the offer must be accepted. Acceptance represents the meeting of the minds of the parties to the contract - both agree to exchange something for the other (payment, services, goods, etc.).
- Counter offer: is an offer made in response to a prior offer.
- Invitation to treat: An important distinction to make in contract law is that between an offer and an invitation to treat. An invitation to treat is usually an invitation for another party to make an offer. It may also be defined as an indication that a party is open to negotiation.
Here are some key distinctions of offers and invitation to treats.
Offer:
* Certain promise to be bound
* Clear and specified terms
* The conduct or words of the party show certainty
* There is no room for negotiation
Invitation to treat:
* There is room for negotiation
* There is an invitation for offers
* There is a request for information
* Lack of certainty
In the scenario above, initially Michelle just gives an invitation to treat because she is asking whether Hannah is interested to buy her car (request for information from Hannah). Hannah may reject or go into a negotiation with Michelle. Then, Hannah makes an offer by taking the money and shows her intention to be legally bound. At this point, when Hannah's offer is present, Michelle can accept or reject. When she rejects, the contract is not formed. The answer must be "No, because Michelle has rejected Hannah's offer on buying the car".
Reference:
- Definition of Counter Offer
- Formation of the contract
- CIPS study guide page 28-35
LO 1, AC 1.2
NEW QUESTION # 33
What is the pricing method that incentivises the supplier to control their costs?
- A. Penetration pricing
- B. Target Costing
- C. Cost-plus pricing
- D. Skimming pricing
Answer: B
Explanation:
Penetration pricing is a marketing strategy used by businesses to attract customers to a new product or service by offering a lower price during its initial offering. The lower price helps a new product or service penetrate the market and attract customers away from competitors.
Price skimming is a product pricing strategy by which a firm charges the highest initial price that customers will pay and then lowers it over time. As the demand of the first customers is satisfied and competition enters the market, the firm lowers the price to attract another, more price-sensitive segment of the population. The skimming strategy gets its name from "skimming" successive layers of cream, or customer segments, as prices are lowered over time.
Incentive contracts allow sharing of the risks between the contractor and the client. The contractor is reimbursed all its justifiable costs in addition to a calculated fee. Target costing is an element of incentive contracts.
Cost-plus pricing is also known as markup pricing. It's a pricing method where a fixed percentage is added on top of the cost to produce Reference:
LO 3, AC 3.3
NEW QUESTION # 34
Which of the following is a true statement on express and implied terms?
- A. Express terms must be prepared by the party with expert knowledge
- B. Implied terms may derive from oral negotiations
- C. Express terms always take precedent over implied terms
- D. Express terms must always be in writing
Answer: B
Explanation:
Express terms are the terms of the agreement which are expressly agreed between the parties. Ideally, they will be written down in a contract between the parties but where the contract is agreed verbally, they will be the terms discussed and agreed between the parties.
Implied terms are terms implied into the contract by the courts. They are not expressly set out in the contract but are taken to be as effective as if they were and as if they had been included from day one of the contract. The express terms and any implied terms together create the legally binding obligations on the parties.
The types of express terms to be found in a contract are many and varied and will depend on the type of contract. Any term written into the contract is an express term and may refer to price, time scales, warranties and indemnities, limitations on liability, conditions precedent and so on.
An implied term is a term which the courts imply into a contract because it has not been expressly included by the parties. This may be because the parties did not consider it, did not think that any problem would arise in relation to it or simply omitted to include it.
The courts are very reluctant to imply terms into contracts and will only do so in the following circumstances:
1. terms implied under statute
2. terms implied under common law
3. terms implied because of custom or usage
4. terms implied due to previous dealings
5. terms implied 'in fact' or to reflect the parties' intentions
Reference:
- CIPS study guide page 126-132
- Contracts: Express and Implied Terms
LO 3, AC 3.1
NEW QUESTION # 35
Which of the following can be considered as implied terms in a contract?
1. Case law
2. Statute
3. Trade custom
4. A term can never be implied, it must always be expressed by the parties
- A. 1, 2 and 4 only
- B. 1,3 and 4 only
- C. 2, 3 and 4 only
- D. 1, 2 and 3 only
Answer: D
Explanation:
An implied term is a term which the courts imply into a contract because it has not been expressly included by the parties. This may be because the parties did not consider it, did not think that any problem would arise in relation to it or simply omitted to include it.
The courts are very reluctant to imply terms into contracts and will only do so in the following circumstances:
1. terms implied under statute
2. terms implied under common law
3. terms implied because of custom or usage
4. terms implied due to previous dealings
5. terms implied 'in fact' or to reflect the parties' intentions
Reference:
- Contracts: Express and Implied Terms
- CIPS study guide page 126
LO 3, AC 3.1
NEW QUESTION # 36
A school has a contract for the supply of fruit for break time. The school needs the fruit delivered by 10am every morning to be served at 10:30am. How would this best be covered in a commercial agreement?
- A. Sales of Goods Act 1974
- B. Note on each purchase order
- C. Contractual term
- D. Pricing schedule
Answer: C
Explanation:
Time-critical requirements, such as daily deliveries by a specific time, should be clearly stipulated as contractual terms. This ensures enforceability and provides a legal basis for remedy in the case of non- performance. Notes on purchase orders or general legislation do not offer the same level of protection or clarity.
Reference:
CIPS L4M3 Commercial Contracting Study Guide, Chapter 3, Section 3.1.1 - Express contract terms for delivery and performance.
NEW QUESTION # 37
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 for designing, building and managing the new CRM system. 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.
Cleveland brought the case to the court and sought rescission of contract with Digital. Is Cleveland's claim appropriate in this case?
- A. Yes, because Cleveland needs to seek rescission first before claiming for damages
- B. No, because the work had been carried out which could not be returned
- C. Yes, because both parties agreed with rescission of their contract
- D. No, because the contract does not include any provision on rescission
Answer: B
Explanation:
Hank's pre-contractual assurances may amount to misrepresentation. Remedies for misrepresentation could be rescission of contract or damages. Rescission will be impossible in the following instance:
- Where the innocent party has affirmed the contract; that is, acted in a way confirming that they wish it to continue
- Where the claim has not been brought within a reasonable time (this is a point of general law)
- Where restitution (returning to the pre-contractual position) is impossible (e.g. because the goods have been consumed or have deteriorated)
- Where there has been intervention of innocent third-party (e.g., if the goods have been sold on) In this case, the subject of contract is designing, building and managing the new CRM system which is impossible to be restituted. Therefore, the contract cannot be rescinded.
Reference: CIPS study guide page 53-55
LO 1, AC 1.2
NEW QUESTION # 38
CISG will be most likely to apply to which of the following transactions?
- A. Sale of a ship
- B. Sale of a property
- C. Sale of iron ores
- D. Sale of electricity
Answer: C
Explanation:
Article 2 of CISG states that:
This Convention does not apply to sales:
(a) of goods bought for personal, family or household use, unless the seller, at any time before or at the conclusion of the contract, neither knew nor ought to have known that the goods were bought for any such use; (b) by auction; (c) on execution or otherwise by authority of law; (d) of stocks, shares, investment securities, negotiable instruments or money; (e) of ships, vessels, hovercraft or aircraft; (f) of electricity.
LO 1, AC 1.2
NEW QUESTION # 39
A construction company is undertaking a housing development project. They need lots of bricks and other building materials, but the construction site doesn't have large area for storage of materials. Therefore, the company's suppliers must deliver the building materials with fixed quantity and at fixed time intervals. What type of contract is used between the construction company and its suppliers?
- A. Call off contract
- B. Framework agreement
- C. One off contract
- D. Spot transaction
Answer: A
Explanation:
In the scenario, the contract between the company and its suppliers is continuous rather than one-off. So it cannot be one-off contract or spot purchase. The quantity and time is well known and fixed, this type of contract is known as call-off contract or blanket order.
Reference:
LO 1, AC 1.3
NEW QUESTION # 40
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?
- A. Request for quotation from the suppliers
- B. General networking
- C. One-to-one meeting with the suppliers
- D. Internal discussion
Answer: C
Explanation:
The procurement team has drafted basic requirements in the specification. They will need to develop it further and more specific. Developing market dialogue with supplier is a good solution. There are number of approaches which can be taken to engage with suppliers:
- General meetings: buyer meets supplier at a networking event (such as trade show) or social media. These discussions are unlikely to deliver very specific information.
- One-to-one meetings: This will be most likely to deliver direct input into specification development and supplier-specific product development information.
- Group visits
- Meet-the-buyer events
- Formal negotiations or competitive
The answer for this QUESTION should be One-to-one meeting.
Reference: CIPS study guide page 83-84
LO 2, AC 2.1
NEW QUESTION # 41
Which of the following are implied terms in sales contracts? Select THREE that apply.
- A. Payment method
- B. Fitness for purpose
- C. Mode of transportation
- D. Risk transfer
- E. Customer satisfaction
- F. Transfer of ownership
Answer: B,D,F
Explanation:
Generally, under the Sale of Goods Acts (in UK, Singapore, Australia,...) or Commercial Codes (in France, Germany, Vietnam,...), the sale contracts have the following implied terms:
- the seller has the right to sell the goods. This is also a condition of the contract
- the goods are free from undisclosed security interests
- the goods supplied under the contract will be reasonably fit for any purpose which the buyer made known to the seller
- sales of unseen goods will be of merchantable quality, and match their description and conformwith a sample.
- Passing of risk
- Passing of possession and title
Reference: CIPS study guide page 126-132
LO 3, AC 3.1
NEW QUESTION # 42
Which of the following KPIs is qualitative?
1. Openness and co-operation of supplier
2. Responsiveness of supplier
3. Customer satisfactory ratings
4. Cost management
5. OTIF deliveries
- A. 1 and 3 only
- B. 1 and 4 only
- C. 2 and 3 only
- D. 2 and 5 only
Answer: A
Explanation:
Qualitative KPIs are based on pure opinions about how well or otherwise the goods are performingor the service is being delivered. Most often, these will be linked to, or convertedinto, a numerical measure.
However, such satisfaction surveys often also include free fields for respondents to explain why they feel the way they do, and what they might have liked to have been different.
On the other hand, quantitative KPIs are based on numerical measure with either definite number (e.g., actual number of orders incomplete or otherwise inaccurate during the time period) or as a percentage (e.g. number of inaccurate orders as a percentage of the total number of orders).
Openness and co-operation means that supplier is open and co-operative in its relationship with purchaser, e.
g., in terms of joint problem solving. This KPI is qualitative since it is measured by individual judgement.
Responsiveness of supplier means the supplier responds rapidly to requests for information and support without having to be chased. It is measured by the number of times requests chased as a percentage of number of requests. It is a quantitative KPI.
Customer satisfactory ratings means the level of customer's satisfaction. This KPI is measured by periodic survey and it is a qualitative KPI.
Cost management is another quantitative KPI. It can be measured by comparing between the actual costs and the contractual costs.
OTIF (one-time in-full) deliveries is a quantitative KPI. It can be measured by counting the inaccurate deliveries in the period or inaccurate deliveries as a percentage of total number of deliveries for period.
Reference: CIPS study guide page 117-122
LO 2, AC 2.2
NEW QUESTION # 43
Which of the following is the reason why liquidated damage clauses are embedded into a contract?
- A. Because compensation will be awarded immediately
- B. To penalise the supplier for their wrongdoing
- C. To avoid argument on correct measure of damage
- D. Because liquidated damages are the only remedy
Answer: C
Explanation:
Liquidated damages are an amount of money, agreed upon by the parties at the time of the contract signing, that establishes the damages that can be recovered in the event a party breaches the contract. The amount is supposed to reflect the best estimate of actual damages when the parties sign the contract. These usually apply to a specific type of breach, and in construction, it is frequently the failure to complete work on time.
Liquidated damages clauses are usually written as some sort of formula, for example:
Total Contract Price - [(X amount of $ per day) x (number of days late)] Including a liquidated damages clause can provide many benefits, the most important of which is predictability. When setting a predetermined amount of damages, it allows both parties a chance to negotiate and settle on a number they both feel is fair and reasonable.
From the owner's perspective, this acts like a cheap form of insurance against your contractors. In the event of a breach, the owner can immediately calculate the damages without going through the trouble of proving actual damages. Proving actual damages can be a complicated, lengthy, and costly process.
From a contractor perspective, this allows them to analyze the level of risk involved, and schedule appropriately. It also allows them the opportunity to limit the damage claims of the owner.
Reference:
- Construction Contract Clauses: What Is a Liquidated Damages Clause?
- CIPS study guide page 158-159
LO 3, AC 3.2
NEW QUESTION # 44
Which of the following are key features of standard terms and conditions? Select TWO that apply
- A. Non-negotiable
- B. Non-disclosure
- C. Specific to each purchase order
- D. Standard terms always comply with implied terms
- E. Designed to be used in repetitive transactions
Answer: A,E
Explanation:
The key features, advantages and disadvantages of standard terms are summarised below:
- Form: Concise, generic and designed to be attached to purchase or sales orders
- Non-negotiable
- Ineffective terms: may be replaced by implied terms or national legal code rules, or subject to court 'balance of interest' judgement.
- Advantages: Basic contractual protection for most common circumstances; Avoid having to create new contract for repeat business.
- User friendly
- Usage: Low value, low risk, repetitive transactions
- Coverage: Definitions, relationship to other contracts, formation of the contract, order of precedence, price, invoicing and payment, specification, legal compliance, warrantee and liability, ownership and risk, intellectual property, data management and ethics.
- Disadvantages: Does not allow for specific circumstances; Risk for creating battle of the forms; Can create contractual uncertainty if used with purchase orders under call-off contracts.
Reference:
LO 3, AC 3.1
NEW QUESTION # 45
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