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CIPS L4M3 Exam Syllabus Topics:

Topic	Details
Topic 1	Recognise types of pricing arrangements incommercial agreements The battle of the forms and precedence of contract terms
Topic 2	Defining contractual performance measures or key performance indicators (KPI) Understand the key clauses that are included informal contracts
Topic 3	Risks presented by contracting on suppliers terms or through oral contracts Analyse the content of specifications for procurements
Topic 4	Appraise examples of key performance indicators (KPIs) in contractual agreements Analyse the legal issues that relate to the creation of commercial agreements with customers or suppliers
Topic 5	Compare types of contractual agreements made between customers and suppliers Standardisation of requirements versus increasing the range of products
Topic 6	Terms that apply to labour standards and ethical sourcing Including social and environmental criteria inspecifications

CIPS Commercial Contracting Sample Questions (Q46-Q51):

NEW QUESTION # 46
A manufacturing company signed a contract with a raw material supplier. The contract includes a clause on liquidated damages in case of late delivery. Purchaser was obliged to pay after 30 days from delivery. Eventually raw material was delivered 1 week later than initial plan due to supplier's slow production process. There is no defect in the delivered batch. Which of the following can be claimed by the manufacturing company?

• A. Right of third party
• B. Right of extending payment
• C. Rights to refunds or repairs
• D. Right of set-off

Answer: D Explanation:
In certain circumstances, where two parties have monetary debts against each other, the right to set-off may arise. A right of set-off allows a ("Party 1") to take into account the amount owed to it by the second party ("Party 2") against any amount owed by Party 1 to Party 2, each party must be a debtor and a creditor.
Common law provides the key features that must be present for set-off to arise are;
1. mutuality of debts (each party must be the sole beneficial owner of the debt it is owed and the sole person liable for the debt it owes)
2. the claims each party has must be for non-payment of money
The common law provisions of set-off can be greatly enhanced by the inclusion of a contractual right to set-off (this is discussed further below) so that set-off is applicable in a greater range of situations. If you envisage set-off being a useful right it is not advisable to rely on the implied ability to use it (via common law or equitable set-off). Common law and equitable set-off are subject to various conditions and limitation however, a contractual right of set-off can be drafted to ensure parties are able to agree exactly how and when set-off should be applied.
In the above scenario, the supplier owes the manufacturer the payment for damages, while the manufacturer owes the supplier the payment for goods. This is mutuality of debts, which leads to right of set off.
Reference:
- Set-off on the right foot: a practical guide to set-off
- CIPS study guide page 158-159
LO 3, AC 3.2
NEW QUESTION # 47
When should liquidated damages clauses be written into a contract?

• A. When the breaching party wants to exclude all its liabilities
• B. When the innocent party wants to punish the breaching party.
• C. When the court approves the damages amount before the contract is executed.
• D. When the loss to the innocent party will be either too uncertain or too difficult to calculate.

Answer: D Explanation:
Liquidated damages are presented in certain legal contracts as an estimate of otherwise intangible or hard-to-define losses to one of the parties. It is a provision that allows for the payment of a specified sum should one of the parties be in breach of contract.
Liquidated damages are meant as a fair representation of losses in situations where actual damages are difficult to ascertain. In general, liquidated damages are meant to be fair, rather than punitive.
Limitations of Liquidated Damages
It is possible that a liquidated damages clause might not be enforced by the courts. This can occur if the monetary amount of liquidated damages cited in the clause is extraordinarily disproportional to the scope of what was affected by the breached contract.
Such limitations prevent a plaintiff from attempting to claim an unsubstantiated exorbitant amount from a defendant. For instance, a plaintiff might not be able to claim liquidated damages that amount to multiples of its gross revenue if the breach only affected a specific portion of its operations. The concept of liquidated damages is framed around compensation related to some harm and injury to the party rather than a fine imposed on the defendant.
The courts typically require that the parties involved make the most reasonable assessment possible for the liquidated damages clause at the time the contract is signed. This can provide a sense of understanding and reassurance of what is at stake if that aspect of the contract is breached. A liquidated damages clause can also give the parties involved a basis to negotiate from for an out-of-court settlement.
Reference:
- Liquidated Damages
- CIPS study guide page 158-159
LO 3, AC 3.2
NEW QUESTION # 48
Which of the following will be included in a conformance specification?
1. Brand names
2. Description of the operating environments
3. Chemical formulae
4. Required safety level

• A. 2 and 3 only
• B. 1 and 4 only
• C. 1 and 3 only
• D. 1 and 2 only

Answer: A Explanation:
According to CIPS, there are two main types of specification:
- Conformance specification - is more output driven as it outlines the product details exactly which may include the material, dimensions, tolerances, source, ingredients, packaging, storage of the part or material.
- Performance specification - is more output driven in terms of what the part or material must achieve.
Among the four options, only 2. 'Description of the operating environments' and 3. 'Chemical formulae' are possible components of a conformance specification. Brand names can be a part of a performance specification, according to a document published by CIPS and NIGP.

Reference:
- CIPS study guide page 8-10
- Knowledge Byte - Specification Development
- Principles and Practices of Public Procurement: Specifications
LO 1, AC 1.1
NEW QUESTION # 49
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. One off contract
• B. Framework agreement
• C. Call off contract
• D. Spot transaction

Answer: C 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 # 50
Bandpro is a reseller of branded computer products to the private and public sector. The procurement team must purchase 500 items each day solely by multiple phone calls and emails to suppliers. Due to this practice, it takes a lot of time to track and collect relevant documents. Some important documents even get lost, which makes procurement audit more burdensome. Which of the following would increase the robustness of audit trails in procurement activities?

• A. Every evidence must be recorded by paper
• B. Spend less time on auditing procurement procedures
• C. Rectify non-compliant activities
• D. Adopt e-procurement

Answer: D Explanation:
Audit trail is a chronological record the sequence of events connected to a given transaction, such as a purchase of raw materials, payroll disbursements, or a detailed financial statement. The record includes all the source documents connected to the transaction, providing context and clarity in the event a review is required. The more comprehensive the documentation, the more effective the audit trail is when used to create financial reports, verify information, and ensure compliance while eliminating fraud.
In the scenario, the procurement team gets the quotation from phone calls and emails which have weak audit trails and lack of transparency. One solution may be increasing the use of e-procurement system.
Reference:
- What is an audit trail?
- CIPS study guide page 6-7
LO 1, AC 1.1
NEW QUESTION # 51
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