CIPS L4M3 Exam Dumps - PDF Questions and Testing Engine
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CIPS L4M3 Exam is aimed at individuals who are currently working in or aspiring to work in procurement and contract management roles. L4M3 exam covers a range of topics related to commercial contracting, including contract formation, contract negotiation, contract administration, and contract close-out. Successful completion of the exam demonstrates an individual's proficiency in these areas and their ability to contribute to the success of their organization.
NEW QUESTION # 108
Which of the following are likely to be advantages of using invitation to tender? Select TWO that apply:
Short turnaround times
- A. Driving forward planning culture
- B. Lower administration costs
- C. Quick implementation
- D. Reducing risks of bribery and corruption
Answer: A,D
Explanation:
Advantages of using invitation to tender may be as below:
No Nepotism: Tenders or bids are evaluated on the basis of certain predetermined criteria, such as price, quality and value for money. In other words, the firm offering the highest quality product or service at the lowest price point would win the contract. As most tender documents are opened and evaluated in a public process, I think that there remains little room for nepotism or favoritism of any kind.
Value for Money: From the perspective of the client, tenders offer the greatest value for the amount of money spent. This is due to the fact that the client can choose from a wide pool of potential suppliers to select the ones that can produce the highest quality product or service at the lowest price point. This allows the company, establishment or organization to save money without having to compromise on quality. Therefore, despite being quite time consuming, tendering is, in my opinion, a profitable long-term process from an organization's point of view.
Encourages Competition: The process of tendering helps promote a competitive market. This is because a number of potential contractors, firms or suppliers get a chance to bid for every project. And because selection depends on quality and price, every bidder tries to reduce operational inefficiencies and redundancies as much as possible in order to lower expenses and improve quality. This entire process encourages healthy competition in the market and prevents complacency and laziness, which in turn provides a boost to innovation and new ideas.
Easier Entry: The system of tendering makes it easier and simpler for new firms to enter the market or even a particular industry. This is due to the fact that contracts under this system are awarded on the basis of predetermined, objective criteria. As a result, even a firm that is a new entrant to the market, having no connections or contacts in the industry, can win a prestigious and lucrative contract by providing the highest value for the client's money. This process therefore helps new firms to quickly get a foothold in the market or industry, thus significantly lowering the traditional barriers to entry.
Reference:
- Characteristics and Benefits of the Tendering Process
- CIPS study guide page 6-8
LO 1, AC 1.1
NEW QUESTION # 109
Which of the following regulates barriers to the provision of services between countries?
- A. Incoterms
- B. GATS
- C. ADA
- D. CISG
Answer: B
Explanation:
- The General Agreement on Trade in Services (GATS) is a treaty of the World Trade Organization (WTO) that entered into force in January 1995 as a result of the Uruguay Round negotiations. The treaty was created to extend the multilateral trading system to service sector, in the same way the General Agreement on Tariffs and Trade (GATT) provides such a system for merchandise trade.
- CISG is the Vienna Convention on Contracts for the International Sale of Goods. This is a voluntary treaty under United Nations Commission on International Trade Law (UNCITRAL). The purpose of the Vienna Convention is to set out a framework for international transactions based on a uniform approach. It establishes substantive rules that regulate the duties and obligations of both parties, including the delivery of goods, contract formation, and remedies for breach of contract.
- The Incoterms or International Commercial Terms are a series of pre-defined commercial terms published by the International Chamber of Commerce (ICC) relating to international commercial law. They are widely used in international commercial transactions or procurement processes and their use is encouraged by trade councils, courts and international lawyers. A series of three-letter trade terms related to common contractual sales practices, the Incoterms rules are intended primarily to clearly communicate the tasks, costs, and risks associated with the global or international transportation and delivery of goods. Incoterms inform sales contracts defining respective obligations, costs, and risks involved in the delivery of goods from the seller to the buyer, but they do not themselves conclude a contract, determine the price payable, currency or credit terms, govern contract law or define where title to goods transfers.
- ADA is Anti-Dumping Agreement (Implementation of Article VI of the GATT).
LO 1, AC 1.3
NEW QUESTION # 110
ABC Ltd is a UK based company. It plans to enter into a contract with XYZ Ltd which is based in Singapore. Which of the following are the mandatory elements for the contract between ABC Ltd and XYZ Ltd to be legally binding? Select THREE that apply.
- A. There must be an invitation to treat
- B. There must be an offer and an acceptance
- C. An amount of money must be paid upfront
- D. All parties must have capacity to contract
- E. The invitation to tender must be sent by the agreed deadline
- F. The two parties must have intention to be bound
Answer: B,F
Explanation:
The formation of the contract is where the contractual journey begins; if no contract is formed, neither of the parties can be under any obligations. Therefore, it is very important to have an understanding of each part of a contract's formation.
In order for a legally binding agreement to be formed, there are four basic requirements to be met:
2.1 Offer
2.2 Acceptance
2.3 Certainty & Intention to Create Legal Relations
2.4 Consideration & Promissory Estoppel
Reference:
- CIPS study guide page 28-42
- Formation of the contract
LO 1, AC 1.2
NEW QUESTION # 111
A tire manufacturer entered into a contract with a distributor. In the contract, the distributor is prohibited from selling the tire under the price list. The distributor must pay $5 for each tire sold in breach. The amount of $5 is known as...?
- A. Penalty
- B. Caveat Emptor
- C. Quantum meruit
- D. Liquidated damages
Answer: D
Explanation:
This scenario is in fact based on a famous case law: Dunlop Pneumatic Tyre Company v New Garage & Motor co [1915] AC 79. In this case law, the House of Lords identified the clause as liquidated damages, and therefore enforceable.
However, if this case had happened in 2015 or afterwards, there would be some legal issues:
- The price agreement is prohibited by Competition Act 1998
- If the agreement is allowed by Competition Act, as in the case Cavendish Square Holding BV (Appellant) v Talal El Makdessi (Respondent), the clause can also be identified as a penalty and it is still enforceable.
Reference:
LO 3, AC 3.2
NEW QUESTION # 112
SFO procurement manager sent a request for quotation to Vogon International in which he determined the contract terms and specification. In SFO's standard terms and conditions, it is stated that 'Goods shall be delivered and Services performed by the applicable Delivery Date. Supplier must notify Buyer 3 days prior to the Delivery Date if Supplier is likely to be unable to meet a Delivery Date.' Vogon replied with a quotation without any amendment to SFO's terms & conditions. The SFO procurement manager found the prices were reasonable and submitted to senior management. Senior management team accepted that quotation and sent a notification to Vogon. On the Delivery Date, Vogon said they had no capacity to supply the product as the quotation due to a workers' strike. Did Vogon breach any agreement with SFO?
- A. No, because the strike is a force majeur event, so Vogon did not breach any contract with SFO
- B. Yes, because the contract had been formed between SFO and Vogon with the quotation as an offer and the notification as an acceptance
- C. No, because Vogon had no intention to be bound by the quotation, therefore, it didn't constitute a contract
- D. Yes, because the contract was formed since Vogon had sent the quotation as an acceptance to SFO's offer
Answer: B
Explanation:
SFO issued an RFQ with defined terms and condition and detailed specification. This RFQ can be considered as an invitation to treat. Vogon's quotation is an answer to the purchaser's RFQ and is an offer to SFO. The contract come to life at the time Vogon received the notification from SFO senior management.
The strike may be a force majeur event, depending on the contract particular clauses and jurisdiction. In common law countries, force majeur is applicable as an exclusion of liability only if the contract allows it. In many civil law countries, force majeur is an implied term. But in every jurisdiction, force majeur is only a reason for excluding liability for non-performance of a contract. In other words, the non-performance party is not liable for any breach if force majeur event occurs but the event does not exclude the breach.
LO 1, AC 1.2
NEW QUESTION # 113
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. General networking
- B. Request for quotation from the suppliers
- 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:
LO 2, AC 2.1
NEW QUESTION # 114
John Powers is the managing director of ACC Trading Ltd, which provides components to the automotive industry. His company has been providing number plates to Elite Motors Ltd for many years. As John Powers and Peter Ellis, the MD of Elite, have been friends for a long time, there has never been a formal contract agreed between the companies. Following a downturn in the market, Elite Motors Ltd has now been placed in administration. ACC recently delivered 200 number plates but have not received payment. As the number plates have been fitted to some vehicles, the administrators are being very slow to return them. Which clause in a formal agreement would have helped John?
- A. Retention of Title (Romalpa)
- B. Penalty Clause
- C. Liquidated Damages
- D. Force Majeure
Answer: A
Explanation:
A Retention of Title clause allows the seller to retain ownership of goods until full payment is received. If included in a contract, this clause would have enabled ACC to claim ownership of the number plates and potentially recover them from Elite Motors Ltd, even in administration. It protects suppliers against buyer insolvency.
Reference:CIPS L4M3 Commercial Contracting Study Guide, Chapter 3, Section 3.2.1 - Retention of Title clauses.
NEW QUESTION # 115
Which of the following is a key feature of liquidated damage clauses?
- A. The amount of liquidated damages must be exceptionally larger than the actual damages incurred
- B. The amount of damage is predetermined
- C. Liquidated damage is a penalty
- D. The liquidated damages are non-negotiable
Answer: B
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.
Understanding Liquidated Damages
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.
Liquidated damages may be referred to in a specific contract clause to cover circumstances where a party faces a loss from assets that do not have a direct monetary correlation. For example, if a party in a contract were to leak supply chain pricing information that is vital to a business, this could fall under liquidated damages.
A common example is a design phase for a new product that may involve consultation with outside suppliers and consultants in addition to a company's employees. The underlying plans or designs for a product might not have a set market value. This may be true even if the subsequent product is crucial to the progress and growth of a company. These plans may be deemed to be trade secrets of the business and highly sensitive. If the plans were exposed by a disgruntled employee or supplier, it could greatly hamper the ability to generate revenue from the release of that product. A company would have to make an estimation in advance of what such losses could cost in order to include this in a liquidated damages clause of a contract.
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 # 116
Key performance indicators (KPIs) are used to measure supplier performance. Which of the following are KPIs that may be used? Select THREE that apply.
- A. Style of negotiation
- B. Timeliness of delivery
- C. Contract standardisation
- D. Employee attendance
- E. Cost management
- F. Quality conformance
Answer: B,E,F
Explanation:
KPIs should measure critical areas of supplier performance. Cost management, quality conformance, and timely delivery are all essential, quantifiable metrics used to track efficiency and contract compliance.
Employee attendance and negotiation style are not standard KPIs.
Reference:CIPS L4M3 Commercial Contracting Study Guide, Chapter 4, Section 4.3.1 - Selecting and applying KPIs in performance management.
NEW QUESTION # 117
A construction company often subcontracts approximately 50% of the project works because of unpredictable customer's demand. Although larger corporate customers require quick response to RFQ, the time lapse between tender bid submission and contract commencement is usually long. Which of the following arrangement would benefit both the contractor and customer?
- A. Framework agreement
- B. Collateral contract
- C. Indemnity agreement
- D. Bilateral contract
Answer: A
Explanation:
According to the scenario, customers' demand changes regularly but the construction project commencement often delays. If the contractor and the customer mutually sign a legally binding contract too soon long before the commencement, the contractor may suffer poor cash flow (it must buy the materials first but has to wait for long time to be paid). A framework agreement may help both parties.
A framework agreement is a formal agreement between two organisations that is intended to become legally binding in the event that a contract is created.
A framework agreement could benefit the both parties in the following ways:
- At the time of signing, the framework agreement has not yet become a legally binding contract. The contractor and client only agree on the principles of future contracts (such as whether the work can be subcontracted or how payment will be proceeded). A well structured framework agreement will allow both parties to apply changes before contract commencement, especially regarding price and quality.
- The framework agreement assures a certainty between the contractor and client.
- The administrative works is reduced under a framework agreement.
Reference:
- CIPS study guide page 60-62
- Framework Agreements: Practice and Pitfalls
LO 1, AC 1.3
NEW QUESTION # 118
Which of the following best defines an 'express' term in general contract arrangements?
- A. It is the term that is added to the contract by the law or based upon the facts of the case.
- B. It is a standard set of terms and conditions published by CIPS
- C. It is not necessarily discussed by the parties, but nonetheless forms part of the contract
- D. It is clearly agreed between the parties, and is virtually always written down in the contract
Answer: D
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.
Reference:
- Contracts: Express and Implied Terms
- CIPS study guide 126-132
LO 3, AC 3.1
NEW QUESTION # 119
Which of the following clauses addresses fraud, bribery and corruption?
The Company has undertaken commercially reasonable efforts to eliminate Conflict Minerals from each Company Product and any products currently proposed to be manufactured by the Company or on its behalf in the future. "Conflict Minerals" means columbite-tantalite (coltan), cassiterite, gold, wolframite, or their derivatives, which originate in the Democratic Republic of the Congo or other country the exploitation and trade of which is determined by the United States to be financing conflict in the Democratic Republic of the Congo or other country.
- A. Nothing in this Agreement shall prevent a Party from utilizing the services of any subcontractor as it deems appropriate to perform its obligations under this Agreement; provided, however, that each Party shall require its subcontractors to comply with all applicable terms and conditions of this
- B. Agreement in providing such services and each Party shall remain primarily liable to the other Party for the performance of such subcontractor.
- C. Each Party hereby undertakes that, at the date of the entering into force of the Contract, itself, its directors, officers or employees have not offered, promised, given, authorized, solicited or accepted any undue pecuniary or other advantage of any kind in any way connected with the Contract and that it has taken reasonable measures to prevent subcontractors, agents or any other third parties, subject to its control or determining influence, from doing so.
- D. Customer will be responsible for and shall ensure that while Service Provider employees, agents or contractors are on Customer's premises, all proper and legal health and safety precautions are in place and fully operational to protect such persons.
Answer: C
Explanation:
This question is intended to let students know about how contractual clauses regarding ethical issues is constructed. The exam paper may not ask about this.
"Each Party hereby undertakes that, at the date of the entering into force of the Contract, itself, its directors, officers or employees have not offered, promised, given, authorized, solicited or accepted any undue pecuniary or other advantage of any kind in any way connected with the Contract and that it has taken reasonable measures to prevent subcontractors, agents or any other third parties, subject to its control or determining influence, from doing so.": This is a clause addressing fraud, bribery and corruption. It is created to prevent any undue act by contracting parties. You may find other anti-corruption clause samples in this document.
"Nothing in this Agreement shall prevent a Party from utilizing the services of any subcontractor as it deems appropriate to perform its obligations under this Agreement; provided, however, that each Party shall require its subcontractors to comply with all applicable terms and conditions of this Agreement in providing such services and each Party shall remain primarily liable to the other Party for the performance of such subcontractor.": This clause is used to control the subcontracting and subcontractors.
"Customer will be responsible for and shall ensure that while Service Provider employees, agents or contractors are on Customer's premises, all proper and legal health and safety precautions are in place and fully operational to protect such persons.": This clause is used to ensure health and safety standards.
"The Company has undertaken commercially reasonable efforts to eliminate Conflict Minerals from each Company Product and any products currently proposed to be manufactured by the Company or on its behalf in the future. "Conflict Minerals" means columbite-tantalite (coltan), cassiterite, gold, wolframite, or their derivatives, which originate in the Democratic Republic of the Congo or other country the exploitation and trade of which is determined by the United States to be financing conflict in the Democratic Republic of the Congo or other country.": This is a clause addressing conflict minerals.
Reference:
LO 3, AC 3.2
NEW QUESTION # 120
Maximum Score 1
Which of the following are key performance indicators (KPIs) that could be used to monitor the safety of a workplace?
* The number of non-routine maintenance call-outs per month
* The number of orders and deliveries for personal protective equipment (PPE)
* The number of reported accidents and incidents per month
* A calculation of the number of injuries sustained per number of hours worked
- A. 1 and 3 only
- B. 3 and 4 only
- C. 2 and 4 only
- D. 1 and 2 only
Answer: B
Explanation:
Health and safety KPIs normally measure actual safety outcomes:
* Accidents and incidents (3) # key lagging indicator.
* Injury rate per hours worked (4) # standard metric (e.g. LTIFR).Ordering PPE or maintenance calls don' t directly reflect safety performance.
Reference: CIPS L4M3 Commercial Contracting - "KPIs and performance monitoring."
NEW QUESTION # 121
Which of the following shall help the purchaser control the selection of tier 2 suppliers?
- A. Insurance clause
- B. Subcontracting clause
- C. Warranty clause
- D. Guarantee clause
Answer: B
Explanation:
When a party takes on a contractual obligation, they are legally required to perform the obligation.
That same contracting party is still entitled to subcontract out the work to another service provider, unless the contract:
- is a contract for personal services, such an employment contract
- contains an express term preventing subcontracting out the work, or an implied term Subcontracting clauses are written to control whether the contractor is entitled to subcontract, and how purchaser shall control that subcontracting process.
Reference:
- Subcontracting clauses (delegation of contractual obligations to third parties)
- CIPS study guide page 153-157
LO 3, AC 3.2
NEW QUESTION # 122
Which of the following are implied terms in sales contracts? Select THREE that apply.
- A. Mode of transportation
- B. Transfer of ownership
- C. Payment method
- D. Customer satisfaction
- E. Risk transfer
- F. Fitness for purpose
Answer: B,E,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 # 123
If service level agreement is used as a schedule that makes up the contract, it will be most likely to be a part of...?
- A. Specifications
- B. Pricing arrangement
- C. Exclusion of liabilities
- D. Performance management framework
Answer: D
Explanation:
If a service level agreement is used as a schedule to a contract, it will generally have the following contents:
- Service definitions. If the service information is provided by the specification, SLA should only refer to the specification to avoid any inconsistencies.
- Details on how to measure KPIs, who will measure KPIs
- Minimum requirements or targets
- Remedies if the minimum requirements are not met
...
Since SLA often lists out the KPI targets, consequences for not meeting the KPI targets and remedies to situation of poor performance, it is a part of performance management.
Reference:
LO 2, AC 2.2
NEW QUESTION # 124
In which of the following conditions, request for quotation produces the best results?
- A. With an ambiguous specification
- B. Under a complex process
- C. Under framework agreements
- D. With strategic items
Answer: C
Explanation:
Request for quotation has valuable function when its use is properly controlled. It works the best under framework agreements where the contract terms are already fixed.
Reference:
LO 1, AC 1.1
NEW QUESTION # 125
Under general legal principles of contract formation, which of the following will always automatically result in the termination of an offer?
1. Negotiation
2. Rejection
3. Failure conditionality
4. Non-disclosure
- A. 3 and 4 only
- B. 2 and 3 only
- C. 1 and 2 only
- D. 1 and 4 only
Answer: B
Explanation:
There are a number of ways for an offer to be terminated. They are events that may occur after an offer has been made which bring it to an end so that it can no longer be accepted. An offer is terminated in the following circumstances:
1. Revocation
2. Rejection
3. Lapse of time
4. Conditional Offer (or Failure of Conditionality)
5. Operation of law
6. Death
7. Acceptance
8. Illegality
Reference:
- How Is an Offer Terminated?
- CIPS study guide page 31-32
LO 1, AC 1.2
NEW QUESTION # 126
......
By obtaining the CIPS L4M3 Certification, professionals can demonstrate their commitment to continuous learning and professional development, as well as their expertise in commercial contracting. CIPS Commercial Contracting certification can help individuals advance in their careers, increase their earning potential, and gain recognition and respect in the industry. It can also provide organizations with the assurance that their procurement and contract management professionals have the required knowledge and skills to effectively manage commercial contracts.
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