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NEW QUESTION # 112
Which of the following is the procedure that makes no further competition under a framework agreement?
- A. Closed system
- B. Standing offer
- C. Direct call-off
- D. Blanket order
Answer: C
Explanation:
Direct call off is the act of placing an order under a framework agreement without having further competition.
Standing offer is an available offer.
Blanket order is another name of framework agreement
Closed system is a requirement of framework agreement. It is a system or process that, once started, does not allow new entrants.
Reference:
LO 1, AC 1.3
NEW QUESTION # 113
In the application of price adjustment formulae, which of the following would be acceptable for a supplier to increase its selling price?
- A. Rising share prices
- B. Rising incidence of defects
- C. Rising market expectations
- D. Rising fuel costs
Answer: D
Explanation:
Price adjustment formulae are typically tied to objective, external indices such as fuel prices, labour rates, or commodity costs. Rising fuel costs directly affect logistics and production expenses and are a legitimate reason to activate such clauses.
Reference:CIPS L4M3 Commercial Contracting Study Guide, Chapter 4, Section 4.2.2 - Economic price adjustment clauses.
NEW QUESTION # 114
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?
- A. WTO rules
- B. CISG
- C. Canada's legal system
- D. Egypt's legal system
Answer: C
Explanation:
Where the sale of goods is between two businesses in different Contracting States, then it is international and the CISG rules of law automatically apply unless they have been excluded. A contract clause stating that the contract is subject to the legal systems and courts of a particular country overrides or excludes the CISG rules, since the local rules of that country would apply instead.
So the answer should be Canada's legal system.
Reference: CIPS study guide page 49-52
LO 1, AC 1.2
NEW QUESTION # 115
Maximum Score 1
Buyer O has placed an order for the supply and installation of six new servers for a total amount of £600,000 from Supplier A. Which of the following could potentially be treated as examples of a liquidated damages clause within the contract for the supply of the servers?
* If the supplier delivers any of the servers late, £1,000 per server will be deducted from the order per day
* This contract is subject to delay remedies of £X - the amount to be agreed by both parties during delivery
* 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
* If the performance of any of the servers degrades within five 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
Answer: C
Explanation:
Liquidated damages are pre-agreed fixed sums payable for specific breaches, such as late delivery.
Clauses 1 and 3 meet this definition.
Clause 2 is uncertain ("to be agreed") and unenforceable; clause 4 is a warranty, not LDs.
Reference: CIPS L4M3 Commercial Contracting - "Remedies for breach - liquidated damages."
NEW QUESTION # 116
Blakenall District Hospital (BDH) is a large hospital that is a major part of the government's health service. Purchasing staff are in the habit of placing many long-term contracts with suppliers and sub-contractors. Whilst these contracts are usually carried out successfully, prices are often paid that are well over budget. The purchasing manager is concerned to find that, in some cases, members of staff are forcing suppliers to accept fixed price contracts. The policy has caused several problems such as some suppliers refusing to deal with BDH and a few going out of business mid-way through performing a contract with BDH. This is due to fluctuating market prices of materials. The procurement manager suggests supplier to adopt variable pricing arrangement with price index. Is this a right course of action?
- A. Yes, this pricing arrangement would reimburse the fluctuation of material prices
- B. No, variable pricing would only benefit the suppliers
- C. No, price adjustment should be applied to short-term supply contract only (3-month duration or less)
- D. Yes, this type of arrangement would provide absolute certainty when budgeting
Answer: A
Explanation:
Procurement staff in the Hospital is forcing suppliers into fixed price contract. If the costs generally rise, supplier may operate at a loss. This situation can disrupt the relationship, that is the reason why some suppliers refusing to deal with BDH and a few going out of business mid-way.
Alternative methods could be variable pricing arrangement. This method would reimburse the fluctuation of market price. It will also benefit buyer if the market price drops. This type of arrangement should be applied to long-term contracts (i.e. 18 months or more).
Reference:
LO 3, AC 3.3
NEW QUESTION # 117
Procurement professionals must have an awareness of labour standards and environmental, social and governance issues when contracting with suppliers. Which TWO of the following are relevant for consideration?
- A. Warranty
- B. ISO9000 accreditation
- C. Indemnity
- D. Sustainability
- E. Modern Slavery
Answer: D,E
Explanation:
The question explicitly mentions labour standards and ESG (environmental, social, governance).
* Modern Slavery (C): relates directly to labour and human rights (forced labour, trafficking, child labour).
* Sustainability (D): covers environmental and social impacts, resource use, and long-term responsibility, key under ESG.
Indemnity and warranty are general legal/contractual concepts, and ISO9000 is a quality management standard, not specifically focused on labour/ESG.
Reference: CIPS L4M3 Commercial Contracting - Ethical and responsible procurement (modern slavery, sustainability, ESG).
NEW QUESTION # 118
Which of the following contracts would be best suited to a 'variable pricing' arrangement?
- A. A contract for the supply of 100 printing machines to be delivered next month
- B. A contract for road building estimated to take five years to complete
- C. A contract for window cleaning during the next three months
- D. A contract for the supply of lubricating oil for immediate delivery
Answer: B
Explanation:
Variable pricing is suitable to situations when the cost of certain elements of the product fluctuate unpredictably. For road building, asphalt fluctuates regularly. Furthermore, 5 years are long period, then variable pricing is the most appropriate method to achieve value for money and control budget.
A contract for window cleaning during the next three months is a short-term service contract, fixed price is the most suitable method.
A contract for the supply of lubricating oil for immediate delivery is an one-off contract, only fixed price is applicable.
A contract for the supply of 100 printing machines to be delivered next month is also an one-off contract.
Reference:
LO 3, AC 3.3
NEW QUESTION # 119
Under hire purchase agreement, when will the ownership of asset legally belong to the purchaser?
- A. When the down payment is made
- B. When the purchaser takes possession of the asset
- C. When the final instalment is paid
- D. When the agreement is signed
Answer: C
Explanation:
Hire purchase is an arrangement for buying expensive consumer goods, where the buyer makes an initial down payment and pays the balance plus interest in installments. Ownership is not transferred until the end of the agreement, hire purchase plans offer more protection to the vendor than other sales or leasing methods for unsecured items. That's because the items can be repossessed more easily should the buyer be unable to keep up with the repayments.
The answer is 'When the final instalment is paid'.
Reference:
- Hire Purchase Agreements
- CIPS study guide page 70
LO 1, AC 1.3
NEW QUESTION # 120
Bethy sees a coat on shop window with a $100 price tag. She comes and asks the shop owner to buy it. The owner states that the price has not been updated and the current price for the coat is $120. Bethy says the owner should honour the quoted price on window shop. Is Bethy correct?
- A. Yes, $120 for a coat is extremely unreasonable and the owner's later offer therefore void
- B. No, the display on shop window is just an invitation to treat and the owner may change the price at his will
- C. Yes, the owner has made an offer by showing his product on the shop window and he must honour that offer
- D. No, the owner is revoking his initial offer to sell at $100 and he is proposing new offer to Bethy
Answer: B
Explanation:
Based on two famous precedents, Fisher v. Bell (1961) and Pharmaceutical Society of Great Britain v. Boots Cash Chemists (1953), the display on shop window is considered as an invitation to treat. The shop owner can change the price when his customer asks to buy.
Reference: CIPS study guide page 29
LO 1, AC 1.2
NEW QUESTION # 121
Maximum Score: 1
Where a supplier is incentivised to deliver improvements that create added value for the buyer, this is described as what type of outcome?
- A. Lose-win
- B. Win-lose
- C. Win-win
- D. Lose-lose
Answer: C
Explanation:
Incentive mechanisms that reward suppliers for delivering improvements (such as cost reductions, quality enhancements, or innovation) create mutual benefit:
* The buyer gets better value or reduced costs.
* The supplier receives rewards such as bonuses, gain-share, or stronger relationships.
This is the definition of a win-win outcome (D).
Reference: CIPS L4M3 Commercial Contracting - Incentive contracts and win-win supplier relationships.
NEW QUESTION # 122
Which of the following is likely to reduce risks of different rules regarding when offers and acceptance become effective between legal systems?
- A. Time lapse
- B. Withdrawal protocol
- C. Letter of intent
- D. Deemed receipt protocol
Answer: D
Explanation:
Regarding rule of offer and acceptance, there are some differences among legal system around the world. For example, mailbox rule is generally applied in common law countries such as UK, US, Australia,.. while it is ignored in civil law countries. To clarify on rule of offer and acceptance in international trade, offerors may use expressed terms in their offers. These terms known as deemed receipt protocol.
Reference: CIPS study guide page 35
LO 1, AC 1.2
NEW QUESTION # 123
Maximum Score: 1
Which of the following are examples of implied terms in a contract? Select TWO that apply.
- A. Force Majeure
- B. Fit for purpose
- C. Reasonable care and skill
- D. The delivery schedule
- E. Contract definitions
Answer: B,C
Explanation:
Implied terms are inserted by law into contracts:
* Fit for purpose (B) - common implied term for goods.
* Reasonable care and skill (C) - implied for services.
Force majeure, contract definitions, and delivery schedules are express terms that must be written into the contract.
Reference: CIPS L4M3 Commercial Contracting - Implied terms under sale of goods and supply of services legislation.
NEW QUESTION # 124
Tony Campbell, a West Logistics Ltd (WLL) procurement manager, is working on a specification for a data storage solution. The current version of an Information Security Management standard (ISO 27001) has been identified as a suitable standard for potential suppliers to be certified to. What is the advantage to WLL of stipulating this type of standard within a product specification?
- A. It allows all suppliers to understand the common criteria that is required
- B. It removes the requirement for quality management measures
- C. It allows the buying organisation to set the pricing for its products
- D. It ensures the suppliers control spending and pass the savings on
Answer: A
Explanation:
Referencing recognised international standards like ISO 27001 in specifications ensures that all potential suppliers understand and meet a uniform set of expectations regarding data security. This not only promotes consistency but also reduces the burden on the buyer to evaluate varied, incompatible approaches.
Reference:
CIPS L4M3 Commercial Contracting Study Guide, Chapter 2, Section 2.1.3 - Use of international and industry standards in specifications.
NEW QUESTION # 125
What pricing arrangements or schedule would be used if the buyer is operating to an exact budget?
- A. Incentivised pricing arrangement
- B. Fixed pricing arrangement
- C. Indexation pricing arrangement
- D. Cost-plus pricing arrangement
Answer: B
Explanation:
A fixed pricing arrangement means the buyer and supplier agree on a set price that does not change regardless of market fluctuations or production costs. This gives the buyer full cost certainty, which is essential when operating to a strict or limited budget. It helps avoid financial risk over the contract duration.
Reference:CIPS L4M3 Commercial Contracting Study Guide, Chapter 4, Section 4.2.2 - Fixed pricing mechanisms and their application.
NEW QUESTION # 126
MWB operates serviced offices in central London. Rock entered a contractual licence with MWB to occupy office space in Marble Arch and had accumulated licence fees in arrears. The original licence agreement contained a 'No Oral Modification' clause that said: 'All variations to this licence must be agreed, set out in writing and signed on behalf of both parties before they take effect'.
After 6 months, Rock director re-negotiated to extend payment period over phone call and MWB credit controller agreed his proposal. Is this agreement considered as an effective variation to the original licence agreement?
- A. Yes, because the credit controller had agreed with Rock director's proposal
- B. No, because Rock director assumed that the variation was effective and convinced credit controller to believe it
- C. Yes, because parties who agree to altering the original contract orally despite a 'No Oral.
- D. Modification' clause, must have intended to dispense with the clause
- E. No, because the mechanism for variation has been set out in the original contract
Answer: E
Explanation:
The license can be amended during its lifespan. However, in this case, it already has a clauseallowing for mechanism of variation which sets out who can authorise changes and prohibits any oral variation. Therefore, the agreement between Rock's director and MWB credit controller is not an effective variation to the license.
Reference: CIPS study guide page 26-27
LO 1, AC 1.1
NEW QUESTION # 127
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?
- A. Employers' liability
- B. Public liability
- C. Product liability
- D. Professional indemnity
Answer: C
Explanation:
In the context of commercial contracting, it's crucial for buyers to ensure that suppliers have appropriate insurance coverage to mitigate potential risks associated with the products or services provided. Product liability insurance specifically covers the supplier against claims of personal injury or property damage caused by products they have supplied. This type of insurance is essential when introducing new or innovative products to the market, as there may be unforeseen risks associated with their use.
According to the CIPS L4M3 Commercial Contracting Study Guide, product liability insurance is designed to protect against claims arising from injuries or damages caused by defective products. This insurance is particularly important when the buyer is introducing a new product from a supplier with whom they have no prior experience, as it provides a safety net against potential legal and financial repercussions.
Reference:CIPS L4M3 Commercial Contracting Study Guide, Chapter 3, Section 3.2.1 - Key terms in contracts for indemnities and liabilities, sub-contracting, insurances, guarantees, and liquidated damages.
NEW QUESTION # 128
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