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CIPS Managing Contractual Risk Sample Questions (Q65-Q70):

NEW QUESTION # 65
Which of the following statements about penalty clauses is not true?

• A. they can harm the working relationship
• B. they provide damages in excess of the true cost of a breach
• C. they are illegal
• D. they are used to deter the parties from breaching the contract

Answer: C Explanation:
2 - penalty clauses are not illegal. However they may be judged excessive in a court of law and thrown out. Most contracts will instead opt for liquidated damages rather than a penalty clause. See p.90
NEW QUESTION # 66
Which of the following will you put into box 1?

• A. Subcontracting
• B. Payment Term
• C. Specification
• D. Time is of the Essence

Answer: D Explanation:
The correct answers are as follows:

This is 'Time is of the Essence' - failure to deliver the food on time will have consequences.
NEW QUESTION # 67
Which of these statements about Guarantees are TRUE? Select 2

• A. A guarantee is a promise to repair or replace an item within a defined period of time
• B. A guarantor's responsibility cannot be higher than the Principle
• C. A Guarantee is a secondary obligation of a contract
• D. A guarantor's responsibility is higher than the Principle

Answer: B,C Explanation:
"A Guarantee is a secondary obligation of a contract' and 'A guarantor's responsibility cannot be higher than the Principle' are the correct answers. Guarantees are explained on p.28. Be careful not to confuse this with Warranty. A promise to repair or replace an item within a defined period of time is the definition of a warranty. That was put in there to trick you. Sorry. Remember a Guaran-tee is to do something when the Principle of the contract fails to do it. It's most common in leasing agreements- if you're a young person, you'll often need a responsible adult / parent to sign the lease as your Guarantor. As a Guarantor, they promise to pay the rent if you're unable to. Legally they can't be asked to do any more than you are assigned to do in the contract. So if your rent is £500 a month, that's all they can be asked to pay if you don't pay it. The primary obligation is between you and the landlord. The secondary obligation is between the guarantor and you.
NEW QUESTION # 68
Which of the following must a legally binding contract contain? Select THREE

• A. Intention
• B. Liability
• C. Capacity
• D. Indemnity
• E. Consideration

Answer: A,C,E Explanation:
Intention, Consideration and Capacity are the correct answers. A contract must contain 5 elements to be legally binding. As well as these three, the other two factors are offer and acceptance. P.2 of the study guide.
NEW QUESTION # 69
What is a Prime Contract?

• A. A contract between a supplier and a subcontractor
• B. A contract between a public sector organisation and the taxpayer
• C. A contract between an end customer and a company which has full responsibility for its performance
• D. A contract between a buyer and main supplier

Answer: C Explanation:
"A contract between an end customer and a company which has full responsibility for its perfor-mance" is the correct answer. This is the definition of Prime Contract given on p. 47
NEW QUESTION # 70
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