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CIPS L4M3 (CIPS Commercial Contracting) Certification Exam is an essential certification for professionals who are looking to enhance their skills and knowledge in commercial contracting. CIPS Commercial Contracting certification covers a wide range of topics related to commercial contracting and is designed to test candidates' understanding of these topics and their ability to apply this knowledge in real-world scenarios. L4M3 exam is available globally and can be taken in person or online.
NEW QUESTION # 16
Nestle gave away records of "Rockin' Shoes" or a voucher to people who sent in three wrappers from Nestle' s 6d. milk chocolate bars as well as 1s 6d. Which of the following were the consideration of Nestle's customer? Select TWO that apply
- A. Three wrappers
- B. Milk chocolate bar
- C. 1s 6d
- D. "Rockin' Shoes" record
- E. The voucher
Answer: A,C
Explanation:
Consideration is one thing given in exchange for another.
In this case, considerations of customers are three wrappers and 1s6d. Consideration of Nestle is Rockin' Shoes record or a voucher.
Reference: CIPS study guide page 36-40
LO 1, AC 1.2
NEW QUESTION # 17
Which of the following are reasons why a purchaser wants to embed a subcontracting clause into the main contract? Select TWO that apply:
- A. To keep main contractor liable
- B. To condemn whole liabilities to subcontractors
- C. To reduce the main contract complexity
- D. To induce the conflicts between the main contractor and subcontractors
- E. To improve supply chain transparency
Answer: A
Explanation:
There are number of reasons why the purchaser will want to control the supplier's subcontracting:
- Supply chain transparency: Normally the purchaser has invested a lot of effort into selecting the right contractor. However, the main contractor's selection of subcontractor might not be in such careful manner, which may result in poor performance. Purchaser must know who subcontractors are. Controlling the subcontracting process can help the purchaser control the outcome.
- Contract terms: the purchaser's requirements must be reflected in the subcontracts. The subcontracting clauses may require the main contractor to do this.
- Liability: the main contractor may subcontract the whole or a part of its liabilities. Subcontracting clause may bind the contractor to be liable with the work, it cannot just blame the subcontractor for any faults.
Reference:
LO 3, AC 3.2
NEW QUESTION # 18
Which of the following are always considered as minimum preconditions for a contract? Select TWO that apply:
- A. Intention to be bound
- B. Specification
- C. Promise
- D. Omission
- E. Consideration
Answer: A,E
Explanation:
In order to form a contract to come into being, there are five conditions:
- Offer
- Acceptance
- Consideration
- Intention to be legally bound
- Capacity to contract
Reference:
LO 1, AC 1.2
NEW QUESTION # 19
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 type of arrangement would provide absolute certainty when budgeting
- B. Yes, this pricing arrangement would reimburse the fluctuation of material prices
- C. No, variable pricing would only benefit the suppliers
- D. No, price adjustment should be applied to short-term supply contract only (3-month duration or less)
Answer: B
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 # 20
Company A buys a lorry from Company B on hire purchase. During the contractual period, Company A makes default in paying the instalment. Company B has...?
- A. No right to take repossession
- B. The right to take repossession of the lorry
- C. Company B has to approach the court
- D. The option to repossess the lorry
Answer: B
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 that Company B has the right to take repossession of the lorry.
Reference:
- Hire Purchase Agreements
- CIPS study guide page 70
LO 1, AC 1.3
NEW QUESTION # 21
Which of the following are express terms?
Sale by description
Fitness for purpose
Passing of risk
Passing of title
- A. 1 and 2 only
- B. 2 and 4 only
- C. 2 and 3 only
- D. 3 and 4 only
Answer: D
Explanation:
Express terms are those specifically stated and agreed upon in the contract. "Passing of risk" and "Passing of title" are typically included explicitly in contract terms, especially in contracts involving the sale of goods. In contrast, "Sale by description" and "Fitness for purpose" are usually implied terms under the Sale of Goods Act 1979, unless expressly stated.
Reference:
CIPS L4M3 Commercial Contracting Study Guide, Chapter 3, Section 3.1.1 - Express and implied terms in contracts.
NEW QUESTION # 22
A senior procurement specialist in UK is preparing a specification in which ISO standards are used to send to global suppliers. Is this action appropriate?
- A. Yes, evert specification must have ISO standards
- B. No, the procurement specialist must use BSI standards instead
- C. No, ISO standards are unfamiliar to global suppliers
- D. Yes, ISO standards are globally recognisable
Answer: D
Explanation:
ISO standards are internationally agreed by worldwide experts. They overcome countries' differences and facilitate global trade. If a buying organisation is sourcing globally, they should use ISO standards within the specification.
Reference: CIPS study guide page 93-94
LO 2, AC 2.1
NEW QUESTION # 23
Adornical Toys Ltd have recently declared their commitment to international labour standards. Karim is sourcing a supplier for a new range of wooden toys and is keen to ensure that the organisation's corporate objectives are met. Which of the following approaches could he include as part of his specification requirements to achieve this labour outcome?
- A. Formally measure their carbon footprint
- B. Certification to an ethical trading initiative
- C. Accreditation to waste reduction schemes
- D. Use ecologically certified raw materials
Answer: B
Explanation:
International labour standards concern working conditions, fair pay, and human rights. Requiring certification to an ethical trading initiative (A) directly addresses these labour issues (e.g. ETI, SA8000).
The other options address mainly environmental performance (carbon footprint, ecological materials, waste).
Reference: CIPS L4M3 Commercial Contracting - Labour standards and ethical trading requirements in specifications.
NEW QUESTION # 24
Which of the following are most likely to be liabilities of suppliers under a guarantee clause?(SelectAny Two)
- A. Replacement
- B. Repair
- C. Decommissioning
- D. TWO that apply
- E. Upgrading
- F. Installation
Answer: A,B
Explanation:
A guarantee is an agreement given by a trader to a consumer, without any extra charge, to repair, replace or refund goods that do not meet the specifications set out in the guarantee. A guarantee is usually issued by the manufacturer of goods or by a trader that provides goods as part of a service - replacement windows, for instance. Generally, a guarantee provider undertakes to carry out free repairs, for a set period of time, for problems that can be attributed to manufacturing defects.
Reference:
- Guarantees and warranties
- CIPS study guide page 157-159
LO 3, AC 3.2
NEW QUESTION # 25
Electro Systems PLC is a public sector manufacturer of highly technical solutions for the telecommunications industry. The market in which it operates is fast-paced and ever-changing because of the latest inventions and developments. The products it 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. Improve supplier product quality
- C. Enable the use of e-tendering
- D. Enable the use of mini-competitions
Answer: D
Explanation:
Framework agreements allow for pre-approved suppliers to be used over a contract period with simplified ordering processes. A key benefit is the use of mini-competitions among these suppliers to secure value and innovation without repeating the full tender process. This approach is highly effective in dynamic sectors like telecommunications.
Reference:CIPS L4M3 Commercial Contracting Study Guide, Chapter 4, Section 4.1.2 - Framework agreements and mini-competitions.
NEW QUESTION # 26
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. No, the display on shop window is just an invitation to treat and the owner may change the price at his will
- B. Yes, $120 for a coat is extremely unreasonable and the owner's later offer therefore void
- 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: A
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:
LO 1, AC 1.2
NEW QUESTION # 27
Which of the following is the model form of contract for construction which is recommended by World Bank?
- A. CIPS
- B. FIDIC
- C. JCT
- D. ITC
Answer: B
Explanation:
FIDIC is the International Federation of Consulting Engineers (or Federation Internationale des Ingenieurs Conseils in French). FIDIC has produced many publications, including the model form contracts, best practice guidances, research on sustainability, integrity and risk management. FIDIC model form contracts have been developed by this organisation since 1999, now they consist of several different books which are marked by colours. Thus, FIDIC model contracts also have the nickname "Rainbow suite of contracts". Basically, the
"Rainbow Suite" include the following books:
* Yellow book: Plant and Design-Build Contract (2 editions: 1999 and 2017)
* Silver book: EPC/Turnkey Contract (2 editions: 1999 and 2017)
* Red book: Construction Contracts (2 editions: 1999 and 2017)
* Emerald book: Conditions of Contract for Underground Works (1st Ed 2019)
* Blue-Green book: Dredgers Contract (2 editions: 2006 and 2016)
* Gold book: Design, Build and Operate Contract Guide
* Pink book: Construction Contract Multilateral Development Bank Harmonised Ed (2 editions: 2005 and
2010)
This type of model contract is commonly used around the world because its author, International Federation of Consulting Engineers, collaborates closely with development banks such as World Bank, Africa Development Bank, Asia Development Bank, etc. Every construction project that is financed by these institutions must adopt the FIDIC contracts.
The Joint Contracts Tribunal, also known as the JCT, produces standard forms of contract for construction, guidance notes and other standard documentation for use in the constructionindustry in the United Kingdom.
From its establishment in 1931, JCT has expanded the number of contributing organisations.
ITC (International Trade Centre) produces contracts specifically designed for small companies doing international business, covering the sale of goods, distribution, services and joint ventures. Many small companies are now engaged in international trade, but don't have access to the necessary contract forms to protect themselves. ITC and leading legal experts developed eight generic contract templates that incorporate internationally recognized standards and laws for most small business situations.
CIPS has several model forms of contract designed specifically for IT buying and servicing.
Reference: CIPS study guide page 142
LO 3, AC 3.1
NEW QUESTION # 28
Which of the following are the 'fundamental' labour standards laid down by the International Labour Organisation?
1. Elimination of child labour
2. Payment of a minimum wage
3. The right to collective bargaining
4. Abolition of forced labor
- A. 1, 3 and 4 only
- B. 1, 2 and 4 only
- C. 2, 3 and 4 only
- D. 1, 2 and 3 only
Answer: A
Explanation:
ILO Declaration on Fundamental Principles and Rights at Work was adopted in 1948. The Declaration commits Member States to respect and promote principles and rights in four categories, whether or not they have ratified the relevant Conventions.
These categories are: freedom of association and the effective recognition of the right to collective bargaining, the elimination of forced or compulsory labour, the abolition of child labour and the elimination of discrimination in respect of employment and occupation.
Reference:
- ILO Declaration on Fundamental Principles and Rights at Work
- CIPS study guide page 161-163
LO 3, AC 3.2
NEW QUESTION # 29
Which of the following are the conditions for revocation of offer to be valid?
1. The offeree has not received the offer yet
2. Revocation of offer must be communicated with the offeree
3. Revocation of offer must be sent via email
4. Offeree has not accepted the offer yet
- A. 1 and 4 only
- B. 2 and 3 only
- C. 1 and 3 only
- D. 2 and 4 only
Answer: D
Explanation:
A revocation of offer is the withdrawal of a previous offer to engage in some sort of legally binding contract. The previous offer had to have been such that it would have immediately become legally binding if the other party had formally agreed to it.
A core ruling defining revocation of offers was established by Payne v. Cave. This case established that neither party is bound to an agreement until an offer has been made by one and formally accepted by the other.
If an offer has been made, the offering party has a right to withdraw it up to formal acceptance by the offeree. Revocation basically serves as formal, legally verifiable notice that a withdrawal was made, and it's valid so long as it is communicated to the offeree before they accept.
The case of Byrne v. Van Tienhoven supports this by establishing that the withdrawal of an offer by telegram is only valid if the telegram is received before the offer is accepted. The case of Dickinson v. Dodds further establishes that the party making the offer can communicate the revocation through a third party.
Reference:
- What Is a Revocation of Offer?
- CIPS study guide page 31
LO 1, AC 1.2
NEW QUESTION # 30
A fashion company is drafting a specification for an order in next year. The company wants to expand its supply base in low cost countries. The procurement department is considering applying standard ISO 3759 on method for the preparation, marking and measuring of textile fabrics, garments and fabric assemblies for use in tests for assessing dimensional change after a specified treatment. Which of the following should be taken into account when embedding this standard into the specification?
- A. Supplier selection
- B. Date of publication
- C. Legality
- D. Type of specification
Answer: B
Explanation:
Standards are incorporated into specifications by simply cross-refering to the relevant standard by its number and date of publication. It is important to include the date of publication. All standardsare reviewed from time to time and their content changes. The absence of the publication date will lead to disrupts over which version of the standard actually applies to the contract.
Reference: CIPS study guide page 85-89
LO 2, AC 2.1
NEW QUESTION # 31
In which scenarios would it be appropriate for a procurement organisation to include contractual indexation and/or price adjustment formulae clauses in a services contract? Select TWO that apply.
- A. The supplier's directors shall be paid dividends during the term
- B. The supplier's preference is to switch to a more expensive material specification
- C. The material components were tendered as fixed costs for the term
- D. The market rates for the supplier's material costs will vary during the term
- E. The supplier's contract staffing costs will be subject to regulatory increase
Answer: A,B,D,E
Explanation:
Indexation and price adjustment clauses are appropriate when future costs are uncertain or likely to change, such as regulatory-driven wage increases (B) or fluctuating material costs (E). These clauses allow adjustments based on objective indices while preserving the integrity of the contract.
Reference:CIPS L4M3 Commercial Contracting Study Guide, Chapter 4, Section 4.2.2 - Index-linked pricing and adjustments.
NEW QUESTION # 32
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