Free L4M3 Braindumps Download Updated on Aug 12, 2023 with 161 Questions
CIPS L4M3 Exam Practice Test Questions
CIPS L4M3 exam is ideal for procurement professionals who are involved in commercial contracting, whether they are working in the public or private sector. L4M3 exam covers a range of topics, including contract development, negotiation, contract management, and performance evaluation. It is designed to test the candidate's ability to apply theoretical knowledge in practical situations.
To prepare for the CIPS L4M3 exam, candidates typically take a course or training program that covers the exam syllabus in detail. They may also use practice exams and other study materials to reinforce their learning and identify areas where they need to improve. L4M3 exam itself is a three-hour, closed-book exam consisting of multiple-choice questions and short-answer questions. Candidates who pass the exam earn the CIPS Advanced Certificate in Commercial Contracting, which is recognized globally as a mark of excellence in contract management.
NEW QUESTION # 63
To check whether supplier actually complies with the labour standards set out in the contract, the purchaser should have...?
- A. Right to terminate the contract
- B. Right to penalise the supplier
- C. Right to rescind the contract
- D. Right of audit
Answer: D
Explanation:
Many firms have compliance policies for suppliers in place. To ensure that the supplier actually comply with the standards set out, the purchaser can employ the right to audit. The buyer usually obtains the right to examine records of a vendor to determine if a fraud or a violation of company policy has occurred through the following methods:
- Right-to-audit agreement The agreement can be printed on the back of a purchase order, contract, or other procurement form.
- A simple request If the right-to-audit agreement wasn't included on the procurement form, and the buyer suspects irregularities, he may have to beg the vendor to allow an audit to be performed. If the buyer is a major customer of the vendor, the buyer may be able to wield a big enough stick to obtain permission to look at the records.
- Right-to-audit Pitfalls
Reference:
- CIPS study guide page 160
- Reserving the Right to Audit the Suspicious Vendor: Right-to-audit clauses in vendor contracts help control fraud and abuse by affording discovery devices in examinations.
LO 3, AC 3.2
NEW QUESTION # 64
An organization has a normal tender process that often last 1 month from defining the needs to contract award. Manufacturing department suddenly required a new special part that they could not foresee within a month. Which of the following should be the priority actions of procurement manager in this urgent situation? Select TWO that apply:
- A. Submit full business justification
- B. Design new specification
- C. Review contract performance
- D. Get high-level authority approval
- E. Develop relationships with potential suppliers
Answer: A
Explanation:
This urgent needs occasionally occur due to a sudden change in circumstances. The process for selecting a replacement supplier must still be controlled. If there is a reason for normal processes to be waived, this must be fully documented and approved at a high level.
Reference:
LO 1, AC 1.1
NEW QUESTION # 65
Which of the following are reasons why a buying organisation adopts a model contract?
1. Extremely advantageous terms for buyer
2. Correct legal terminology
3. Supplier cannot make variation to the model form
4. Specific to industry
- A. 1 and 2 only
- B. 1 and 4 only
- C. 2 and 3 only
- D. 2 and 4 only
Answer: D
Explanation:
Advantages for the use of model forms of contract include:
* Helps to reduce the time and cost in contract development, particularly in detailed negotiation of terms and conditions.
* Avoids starting from the beginning each time, avoids" re-inventing the wheel" each time.
* Model contract forms may be widely accepted by both buyers and sellers across the industry or sector.
* Model contract forms are even handed and designed to be fair to both parties in the contract.
* Model contract forms include standard clauses that can be selected or deleted on an as required basis.
* Model contract form's standard clauses are more likely to contain the correct legal terminology without recourse to third party experts.
Disadvantages of this type of contract include:
* Terms may be less advantageous, than may be achieved through negotiations, particularly where there is one party who is much stronger than the other.
* The generic contract may be difficult to adapt to the specific circumstances between two parties.
* Terms may not necessarily include special clauses or requirements to cover a particular or unusual situation.
* Legal advice and input may still be required, particularly where significant variations to the norm are required.
* There may be costs associated with training staff in the detailed application of the model forms of contract.
Reference:
- D5 Sample QUESTION and answer
- CIPS study guide page 147
LO 3, AC 3.1
NEW QUESTION # 66
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. Quantum meruit
- B. Liquidated damages
- C. Penalty
- D. Caveat Emptor
Answer: B
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 # 67
Which of the following is the term that describes an item bought for a single and non-recurring use or purpose?
- A. Call-off purchase
- B. Stock purchase
- C. Ad-hoc purchase
- D. Operational purchase
Answer: C
Explanation:
Ad-hoc purchase is the item bought for a single and non-recurring use or purpose.
A call-off contract, also known as a blanket order, is a purchase order which enables bulk orders over a period of time.
Operational procurement refers to the procurement of goods and services that are required to sustain an organization's day-to-day business operations.
Reference:
LO 1, AC 1.3
NEW QUESTION # 68
Which of the following is the set of principles that enables courts to determine exactly what the written contract says and what that must mean, then the court will uphold that?
- A. Order of precedence
- B. Rules of contract formation
- C. Rules of interpretation
- D. Unfair Contract Act 1977
Answer: C
Explanation:
Courts may be called upon to interpret a statute due to disputes over the meaning of a word or phrase contained within a statute. These disputes may arise through a variety of reasons. It has long been held that words are an imperfect means of communication. Omissions may have occurred at the drafting stage, word or phraseology ambiguity, etymological change through time, oversight on specific points, or a failure to adapt legislation to new developments. This may result in the judiciary providing a role in statutory interpretation. Statutory interpretation in its broadest sense is the process of determining the true meaning of a written document. In UK, the Interpretation Act 1978 provides limited scope to assist judges with statutory interpretation in that it only provides standard definitions to common provisions such as a rebuttable presumption that terminology in the masculine gender also include the feminine, and that the singular includes plural.
An order of precedence clause sets out the order in which the contract documents take precedence in the event of an inconsistency.
The Unfair Contract Terms Act 1977 (c 50) is an Act of Parliament of the United Kingdom which regulates contracts by restricting the operation and legality of some contract terms. It extends to nearly all forms of contract and one of its most important functions is limiting the applicability of disclaimers of liability. The terms extend to both actual contract terms and notices that are seen to constitute a contractual obligation.
Reference:
- Rules of Statutory Interpretation
- CIPS study guide page 43-46
LO 1, AC 1.2
NEW QUESTION # 69
Which of the following is the most suitable model contract for car lift manufacturing?
- A. FIDIC
- B. ITC
- C. CIPS
- D. IMechE/IET
Answer: D
Explanation:
IMechE/IET: Institution of Mechanical Engineers/Institution of Engineering and Technology - two separate institutes that issue jointly agreed model forms covering the design, supply and installation of electrical, electronic and mechanical plant including special conditions for the ancillary development of software. Car lifts are mechanical products, so IMechE/IET is the most suitable model contract for this type of product.
FIDIC is a French language acronym for Federation Internationale Des Ingenieurs-Conseils, which means the international federation of consulting engineers. It was started in 1913 by the trio of France, Belgium and Switzerland. The United Kingdom joined the Federation in 1949. FIDIC is headquartered in Switzerland and now boasts of membership from over 60 different countries. FIDIC published its first contract, titled The Form of contract for works of Civil Engineering construction, in 1957. As the title indicated, this first contract was aimed at the Civil Engineering sector and it soon became known for the colour of its cover, and thus, The Red Book. It has become the tradition that FIDIC contracts are known in popular parlance by the colour of their cover. This first contract by FIDIC was undertaken jointly with the International federation of Building and Public works. FIDIC's concerted effort at achieving broad consultation and acceptance of its contract forms has seen subsequent editions of its contracts being ratified by the International Federation of Asian and Western Pacific Contractors Association, Associated General Contractors of America and the Inter-American Federation of the Construction Industry, Multilateral Development Banks among others. Because of the broad support it enjoys, FIDIC contracts are the foremost contracts in international construction.
The Chartered Institute of Procurement and Supply (CIPS) has some model contracts for IT functions including: supply and installation of computer equipment, support and maintenance of bespoke software, servicing of computer equipment,...
The International Trade Centre (ITC) produces contracts specifically designed for small companies doing international business, covering the sale of goods, distribution, services and joint ventures.
Reference:
LO 3, AC 3.1
NEW QUESTION # 70
Which of the following should include in the service level agreement that is an appendix of a contract?
1. How often the service is measured
2. Minimum qualification of supplier staffs
3. Remedies to resolve dispute
4. On time service delivery
- A. 1, 3 and 4 only
- B. 1, 2 and 3 only
- C. 2, 3 and 4 only
- D. 1, 2 and 4 only
Answer: D
Explanation:
When the SLA is a schedule or an appendix to the contract, it should clearly state the following:
1. KPIs: how they are to be measured, who measures them and how often
2. How the measurements convert into scores
3. Any other service level standards, which may be of lesser importance than the KPIs
4. Minimum acceptable standards or scores in each case
5. Range of scores both above and below the minimum acceptable
6. Any mitigating factors which might apply in the event of poor performance
7. Any time period permitted in which to remedy a situation or poor performance.
In this question, "2. Minimum qualification of supplier staffs" and "4. On time service delivery" are the KPIs, while "1. How often the service is measured" is the frequency in which the KPIs are measured.
The remedies available in the event of poor performance should be set out in the body of the contract, along with those for any other contractual breach. These clauses should be cross-referenced in the SLA.
Reference:
LO 2, AC 2.2
NEW QUESTION # 71
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. 1 and 2 only
- B. 1 and 4 only
- C. 1 and 3 only
- D. 2 and 3 only
Answer: D
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 # 72
A large company supplies a lot of products. Their shipments are often delayed and customers are not satisfied. Which of the following KPIs is most likely to be applied to this situation?
- A. Technical support
- B. Consignment stock availability
- C. OTIF delivery
- D. Delay damages
Answer: C
Explanation:
If the deliveries often delay, buyer should use KPI to measure how many missed deliveries there are and the percentage of total missed deliveries on total number of deliveries for period. OTIF (one-time in-full) delivery might help.
Consignment stock availability means that the supplier holds adequate range/number of units of stock to offer a reliable service Delay damages are the consequences caused by delay of deliveries Technical support is the acceptable quality of technical information/support provided by supplier for goods supplied.
LO 2, AC 2.2
NEW QUESTION # 73
Which of the following is most likely to be an one-off contract?
- A. Contract for construction of a power plant
- B. Framework Agreement for supply of mono-crystalline silicon
- C. Commercial lease agreement of an office building
- D. Franchise Agreement
Answer: A
Explanation:
One-off contracts are used where a supplier is only needed for a single activity unlikely to be repetitive, and where the need of the buyer is concrete and finite. Among the answers, only construction for power plant is one-off since the work is non-repetitive and the need is clearly defined.
A framework agreement is an agreement between one or more businesses or organisations, "the purpose of which is to establish the terms governing contracts to be awarded during a given period, in particular with regard to price and, where appropriate, the quantity envisaged".
A Commercial Lease Agreement is a contract used when renting business property to or from another individual or company. It gives the tenant (or renter) the right to use the property for business purposes during the term of the lease in exchange for payment to the landlord.
A franchise agreement is a legally binding document that outlines a franchisor's terms and conditions for a franchisee. Every franchise is governed by these terms, which are generally outlined in a written agreement between both parties.
Reference:
LO 1, AC 1.3
NEW QUESTION # 74
In which of the following section of a specification, requirements for training to use the equipment will be set out?
- A. Consultation requirements
- B. Issue reference
- C. Performance
- D. Implementation
Answer: D
Explanation:
Implementation is a substantive requirement which covers the following areas:
- Will there be a need to train the staff to use the equipment?
- Are there integration requirements with other systems or processes?
- How will this work?
- What are the timescales?
- Are detailed method statements required?
Consultation requirements regards to explicitness of compliance with any national or local legal requirements Reference:
LO 2, AC 2.1
NEW QUESTION # 75
Which of the following are likely to be advantages of using invitation to tender? Select TWO that apply:
- A. Quick implementation
- B. Driving forward planning culture
- C. Reducing risks of bribery and corruption
- D. Lower administration costs
- E. Short turnaround times
Answer: B,C
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 # 76
Which of the following is regulated by standard ISO 14001?
- A. Environmental management
- B. Energy management
- C. Information security management
- D. Quality management systems
Answer: A
Explanation:
ISO has about 22,000 international standards covering a vast range of aspects of product or service quality. Below are some of the most common ISO standards:
- ISO 9001: Quality management system
- ISO 27001: Information security management
- ISO 5001: Energy management
- ISO 14001: Environmental management
Reference:
- ISO 14001:2015 Environmental management systems - Requirements with guidance for use
- CIPS study guide page 86
LO 2, AC 2.1
NEW QUESTION # 77
Which of the following will be always automatically deemed as a consideration?
- A. Implied consideration
- B. Promise given to a third party
- C. Past consideration
- D. Promise to perform over and above an existing obligation
Answer: D
Explanation:
Consideration only appears in common law countries. Below are some examples of what is and what is not consideration:
- Past consideration is something that has already been done or given. This cannot act as consideration
- Implied consideration: if the detail of a promise to pay is expressed after the provision of goods or services, but there is an implication that such promise would be forthcoming, this may (depending on the facts) be valid consideration.
- A promise given to a third party: this is not normally consideration, and is based on a concept known as privity of contract. Anyone who is not a party to the contract, even if they are beneficiary of it, cannot sue if the terms of the contract are breached.
- A promise to perform over and above an existing obligation: This is always consideration Reference:
- Consideration & Promissory Estoppel
- CIPS study guide page 36-40
LO 1, AC 1.2
NEW QUESTION # 78
Cleveland Insurance (Cleveland) offers a range of insurance services. The main software used in the call centre is a customer relationship management (CRM) system. Cleveland perceived an urgent need to replace the existing CRM system to deal with the increasing number of customers and services.
Urgent Digital Ltd (Digital) is one of the bidders of Cleveland's ITT for designing, building and managing the new CRM system. Its bid team is led by Hank Irvine, its technical director. Hank realises that winning the Cleveland contract (valued at approximately £50M) will enhance his career. During discussions with Cleveland, Hank offers certain assurances regarding timescales for the project. He has not carried out any investigations into the viability of the timescales. Hank has little idea whether the timescales can be met.
Cleveland decides that Digital's bid meets with its requirements, especially given the assurances in timescale offered by Hank, and decides to proceed with it, subject to a formal contract. Eventually, a formal contract is signed by both parties. The initial assurances given by Hank about the timing of the project are never going to be achieved and are at best grossly exaggerated.
Cleveland brought the case to the court and sought rescission of contract with Digital. Is Cleveland's claim appropriate in this case?
- A. No, because the work had been carried out which could not be returned
- B. Yes, because Cleveland needs to seek rescission first before claiming for damages
- C. Yes, because both parties agreed with rescission of their contract
- D. No, because the contract does not include any provision on rescission
Answer: A
Explanation:
Hank's pre-contractual assurances may amount to misrepresentation. Remedies for misrepresentation could be rescission of contract or damages. Rescission will be impossible in the following instance:
- Where the innocent party has affirmed the contract; that is, acted in a way confirming that they wish it to continue
- Where the claim has not been brought within a reasonable time (this is a point of general law)
- Where restitution (returning to the pre-contractual position) is impossible (e.g. because the goods have been consumed or have deteriorated)
- Where there has been intervention of innocent third-party (e.g., if the goods have been sold on) In this case, the subject of contract is designing, building and managing the new CRM system which is impossible to be restituted. Therefore, the contract cannot be rescinded.
Reference:
LO 1, AC 1.2
NEW QUESTION # 79
Sally places a purchase order to the supplier for some components that her company requires. The supplier delivers the goods as she asks, but the quality assurance team finds that these components are defective and unfit for the company's operations. Which document is the ground to decide whether the goods received are fit for purpose?
- A. CSR policies
- B. Pre-qualification questionnaire
- C. Specification
- D. Code of conduct
Answer: C
Explanation:
According to USLegal Inc, fitness for purpose refers to the standard that must be met by a seller in the course of a business. Generally, when a buyer makes known to a seller the particular purpose for which the goods are bought, there is an implied condition that the goods are reasonably fit for that purpose (customer's requirements, needs, or desires). Specification is the ground for deciding whether goods received are fit for purpose.
We already know that there are two types of specifications: conformance and performance specifications. With conformance specification, the buyer lists out technical requirements to which the goods must conform. Lacking of any requirement may be enough for the goods to be unfit. On the other hand, if performance specification is in use, the goods must be fit for specific outputs that buyer has listed in the specification.
Providing the 'fit for purpose' goods is one of the fundamental obligations of seller in sale contract. Unfulfilling this obligation would lead to legal consequences. If the goods are unfit for purpose, seller may have to:
- replace the non-conforming goods
- pay the damages to the buyer
Reference:
- Why you should keep attention to the specification when contracting with suppliers
- CIPS study guide page 137
LO 3, AC 3.1
NEW QUESTION # 80
In which of the following conditions, request for quotation produces the best results?
- A. With strategic items
- B. Under framework agreements
- C. Under a complex process
- D. With an ambiguous specification
Answer: B
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 # 81
Which of the following are driving forces for increasing use of social and environmental criteria in specifications? Select TWO that apply.,
- A. Scarcity of environmentally sustainable suppliers
- B. Carbon footprint measure
- C. Insufficient financial resources
- D. Stakeholder pressure
- E. Process efficiencies
Answer: D,E
Explanation:
Reasons for including social and environmental criteria may include the following:
- Expected Cost Savings and Financial Motives
- Management Support and Commitment
- Employees
- Altruistic Values
- Power Imbalances along the supply chain
- Image and Reputation
- Government Regulations
- Customers
- Competitors
Management, employees, government, customers and competitors are among the stakeholders that make pressures to the organisation on social and environmental criteria.
Reference:
- Drivers and Barriers to the Adoption of Sustainable Procurement in SMEs
- CIPS study guide page 95-96
LO 2, AC 2.1
NEW QUESTION # 82
A purchase order can become a contract between supplier and purchaser if it is...?
- A. Received by the supplier
- B. Edited by the supplier
- C. Accepted by the supplier
- D. Issued by the buyer
Answer: C
Explanation:
A purchase order is a document sent from a buyer to a seller, with a request to order a product. The purchase order often has its number, description and quantity of the goods, unit prices and total price, name of issuer, time of delivery, standard terms and conditions, etc. It is effectively an offer to supplier. The purchase order will become a formal contract if supplier accepted it by written notice or by performance (such as deliver the goods to the buyer's premise).
Reference:
LO 1, AC 1.2
NEW QUESTION # 83
In a sale contract, a clause requires the seller to "defend, reimburse, and hold harmless" the buyer and its personnel from and against any and all damages arising in connection with some specific circumstances. This clause is an example of...?
- A. Indemnity
- B. Insurance
- C. Force Majeure
- D. Liquidated damages
Answer: A
Explanation:
An indemnity is a promise by one party to compensate another for the loss suffered as a consequence of a specific event, called the ''trigger event''.
The trigger event can be anything defined by the parties, including:
- A breach of contract;
- A party's fault or negligence;
- A specific action.
An indemnity operates as a transfer of risks between the parties, and changes what they would otherwise be liable for or entitled to under a normal damage claim.
Force Majeure Provisions: A force majeure event refers to the occurrence of an event which is outside the reasonable control of a party and which prevents that party from performing its obligations under a contract.
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.
LO 3, AC 3.2
NEW QUESTION # 84
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