Latest [Jul 28, 2023] CIPS L4M3 Real Exam Dumps PDF
L4M3 Practice Test Questions Updated 161 Questions
CIPS L4M3 exam is a level 4 qualification, which means that it is designed for procurement professionals who have some experience in the field. Candidates who pass the exam will gain a deep understanding of the legal and commercial aspects of contracting, as well as the tools and techniques used to manage contracts successfully.
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.
CIPS L4M3: CIPS Commercial Contracting exam covers various topics related to commercial contracting activities such as contract formation, contract terms and conditions, contract management, dispute resolution, and contract performance. L4M3 exam is based on the UK legal system, but it also covers international contract law and best practices.
NEW QUESTION # 87
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. Get high-level authority approval
- B. Submit full business justification
- C. Review contract performance
- D. Develop relationships with potential suppliers
- E. Design new specification
Answer: B
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 # 88
Which of the following indicates the ratio between profit and costs?
- A. Mark-up
- B. Gearing
- C. Liquidity
- D. Margin
Answer: A
Explanation:
Mark up is the profit as a percentage of total costs.
LO 3, AC 3.3
NEW QUESTION # 89
Which of the following KPIs is qualitative?
1. Openness and co-operation of supplier
2. Responsiveness of supplier
3. Customer satisfactory ratings
4. Cost management
5. OTIF deliveries
- A. 2 and 5 only
- B. 2 and 3 only
- C. 1 and 4 only
- D. 1 and 3 only
Answer: D
Explanation:
Qualitative KPIs are based on pure opinions about how well or otherwise the goods are performing or the service is being delivered. Most often, these will be linked to, or converted into, a numerical measure. However, such satisfaction surveys often also include free fields for respondents to explain why they feel the way they do, and what they might have liked to have been different.
On the other hand, quantitative KPIs are based on numerical measure with either definite number (e.g., actual number of orders incomplete or otherwise inaccurate during the time period) or as a percentage (e.g. number of inaccurate orders as a percentage of the total number of orders).
Openness and co-operation means that supplier is open and co-operative in its relationship with purchaser, e.g., in terms of joint problem solving. This KPI is qualitative since it is measured by individual judgement.
Responsiveness of supplier means the supplier responds rapidly to requests for information and support without having to be chased. It is measured by the number of times requests chased as a percentage of number of requests. It is a quantitative KPI.
Customer satisfactory ratings means the level of customer's satisfaction. This KPI is measured by periodic survey and it is a qualitative KPI.
Cost management is another quantitative KPI. It can be measured by comparing between the actual costs and the contractual costs.
OTIF (one-time in-full) deliveries is a quantitative KPI. It can be measured by counting the inaccurate deliveries in the period or inaccurate deliveries as a percentage of total number of deliveries for period.
Reference:
LO 2, AC 2.2
NEW QUESTION # 90
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. Force Majeure
- B. Insurance
- C. Indemnity
- D. Liquidated damages
Answer: C
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 # 91
XYZ Ltd and Engineer Corp signed a long-term supply contract in which both parties had agreed on performance targets. Recently, due to increased customer demands, XYZ Ltd realises that they should make changes to the contract with Engineer Corp with regards to performance management. These changes are approved and signed by both the buyer and seller. The changes to the contract are known as...?
- A. A stand-alone subcontract to the prime contract
- B. A separate counter-offer to the supplier
- C. An amendment to the prime contract
- D. An appendix to the prime contract
Answer: C
Explanation:
The changes are made to the prime contract. They are also signed and approved by both parties. These changes are known as amendment (variation) to the contract. A contract amendment allows the parties to make a mutually agreed-upon change to an existing contract. An amendment can add to an existing contract, delete from it, or change parts of it. The original contract remains in place, only with some terms altered by way of the amendment.
Reference:
- Modify an Existing Contract with a Contract Amendment
- CIPS study guide page 26-28
LO 1, AC 1.1
NEW QUESTION # 92
Carillion Ltd is a major construction contractor in the UK. The company commits to continuous improvement and sets out a performance management program that is integrated across the organisational, individual, and supplier levels. To ensure that the suppliers acknowledge the program, every time negotiating the contract terms with suppliers, the procurement team of Carillion appends a performance management framework to the draft document as a schedule. Is the action of procurement team appropriate?
- A. No, because the framework will increase the complexity of the contract
- B. No, because the performance management should be solely developed by suppliers
- C. Yes, because Carillion wants to implement early supplier involvement
- D. Yes, because the framework should have legal standing as a part of contract
Answer: D
Explanation:
Performance management framework often consists of KPIs, targets and consequences that arise from achieved scores. To ensure that the framework has binding effect on contracting parties, it should be developed, appended to the main contract document and agreed by both parties. So the answer should be "Yes, because the framework should have legal standing as a part of contract".
Reference:
LO 1, AC 1.1
NEW QUESTION # 93
Which of the following regulates barriers to the provision of services between countries?
- A. Incoterms
- B. CISG
- C. GATS
- D. ADA
Answer: C
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 # 94
GPP, the employer, and Prosolia UK, the contractor, entered into five EPC contracts for the development of five different solar power generation plants in the United Kingdom. Four out of the five developments failed to be commissioned by the relevant due dates, with the delays ranging from 44 to 285 days.
Among other claims, GPP, acting through its two investment vehicles, claimed liquidated damages of £500 per day in all four contracts for Prosolia UK's failure to achieve completion of the plants by the due date. The liquidated damages claimed amounted to £1,804,221 across the four delayed contracts.
Prosolia, alongside various other defences, raised the defence that the liquidated damages provision in each contract was a penalty, and therefore unenforceable against it. Is Prosolia contractually obliged to make the payment to the plaintiff?
- A. No, the amount claimed is too excessive and it may put Prosolia into insolvency. The clause must be void
- B. Yes, the clause is a genuine estimate of possible losses that GPP may have suffered and therefore, it is enforceable.
- C. Yes, the amount is a reward to the employer as they have supervised and monitored the projects
- D. No, the clause must be treated as a penalty clause which is unenforceable in UK
Answer: B
Explanation:
A liquidated damages clause specifies a predetermined amount of money that must be paid as damages for failure to perform under a contract. The amount of the liquidated damages is supposed to be the parties' best estimate at the time they sign the contract of the damages that would be caused by a breach. If a breach occurs and the liquidated damages clause is enforceable, the parties do not calculate the actual damages (i.e., how much money a party actually lost as a result of the breach). Instead, the breaching party pays the predetermined sum provided by the liquidated damages provision.
To be enforceable, a liquidated damages clause should meet the following criteria.
Damages are difficult to estimate. A court will be more likely to enforce a liquidated damages provision if the damages that will be incurred as a result of a breach of the contract are difficult to estimate when the contract is entered into. In certain situations, injuries are easy to prove. For example, if a breach will result in the loss of sales, it is easy to determine the actual damages by calculating lost profits. Others are more difficult, like the harm caused by breach of a confidentiality agreement or theft of trade secrets. To be enforceable, the damages should be either uncertain or difficult to quantify at the time the contract is entered into.
The amount is reasonable and not a penalty. If the amount of the liquidated damages is grossly disproportionate to the actual harm incurred, a court will likely find it is a penalty or punishment and will not enforce the provision. When making this analysis, courts usually consider what was reasonable at the time the contract was entered into as opposed to when the breach occurred. There have been cases, however, where courts will decide the reasonableness of the damage estimate based on the actual harm at the time of the breach.
The scenario is excerpted and edited based on a real world case law. In that case, the court held that GPP was entitled to liquidated damages under all four of the EPC contracts, ruling that the provisions did not amount to unenforceable penalties in each of the contracts.
Reference:
- CIPS study guide page 158-159
- Liquidated damages in energy projects
- What Is a Liquidated Damages Provision?
LO 3, AC 3.2
NEW QUESTION # 95
Which of the following should be taken to avoid the conflicts between orally negotiated terms before the conclusion of contract and the final written contract?
- A. Prevailing orally negotiated terms over the final written contract
- B. Embedding a term excluding all prior oral discussions that are not mentioned in the final written contract
- C. Avoiding long negotiation
- D. Finding signs of misrepresentation of the other contracting party
Answer: B
Explanation:
When a written contract is based on oral negotiation, to avoid the conflicts between orally negotiated terms and final written contract, the contract should include an express term that specifically excludes all prior oral discussion. However, orally negotiated terms can be used to interpret the final contract.
This practice (excluding prior discussion) is so common in international commercial contract that UNIDROIT Principles of International Commercial Contracts have an article (2.1.17) dealing with this.
Reference:
LO 3, AC 3.1
NEW QUESTION # 96
Which of the following are true statements about RFQ process? Select TWO that apply.
- A. RFQ process creates heavier administrative burdens than tendering process
- B. Price is often the only variable in the RFQ and quotations
- C. RFQ process is not suitable for low value purchase
- D. Buying organisation should only send RFQ to pre-qualified suppliers
- E. RFQ process requires the suppliers to submit their technical proposals
Answer: B,D
Explanation:
Request for quotations is often used when the only variable is price and the purchase value is under a financial threshold. This process is less formal than ITT. RFQ should be used in the following circumstances:
- Low-value, low-risk purchases
- When the specifications are sufficiently defined or the product/service is standardised
- Where the suppliers are pre-qualified
- Where there is a framework agreement which specifies the contract terms and conditions.
Reference:
LO 1, AC 1.1
NEW QUESTION # 97
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. Yes, ISO standards are globally recognisable
- D. No, ISO standards are unfamiliar to global suppliers
Answer: C
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:
LO 2, AC 2.1
NEW QUESTION # 98
A company is considering entering a new market. Which of the following are the external factors that influence the difference between cost and price of this company? Select THREE that apply
- A. Competitiveness of the market
- B. Business strategy
- C. Threat of substitution
- D. Process efficiency
- E. Relative bargaining power of supplier and purchaser
- F. Procurement policy
Answer: A,C,E
Explanation:
The difference between cost and price is profit. According to Michael E.
Porter, the profitability of an industry is shaped by five forces:
1. Competition in the industry
2. Potential of new entrants into the industry
3. Power of suppliers
4. Power of customers
5. Threat of substitute products
The Question: only mentions
external factor, then business strategy is not accepted.
Reference:
LO 3, AC 3.3
NEW QUESTION # 99
Which of the following are always included within a framework agreement? Select TWO that apply:
- A. Exact price to be paid
- B. Insurance
- C. Exact quantity to be purchased
- D. Duration
- E. Call-off procedure
Answer: D,E
Explanation:
A framework agreement will set out the following:
- How call offs can be made - whether a mini-competition is required or a direct call off can be made
- How price is calculated
- The specification - this may have various options to cater for different needs
- The duration of the agreement
- Who can access the agreement
- Any limitations
- The main terms to be included in the contract or the form of contract to be used, where this is intended to be a standard form.
Reference:
LO 1, AC 1.3
NEW QUESTION # 100
XYZ Ltd is negotiating a long-term supply contract of important parts with a supplier. Dave, procurement manager teams up with Alla, legal manager to construct a service level agreement. Dave is concerned that poor performance of supplier may cause damages to the operations of the organisation. Which of the following can be used in conjunction with SLA to compensate the buying organisation in case of supplier's poor performance?
1. Warranties
2. Force majeure clauses
3. Penalty clauses
4. Service credits
- A. 3 and 4 only
- B. 1 and 2 only
- C. 4 and 2 only
- D. 1 and 3 only
Answer: B
Explanation:
Service level agreement often sets out the minimum quality standards of the services provided, remedies if that standards are not met, consequences if the targets are exceeded. Penalty clauses and service credits are remedies that are often used in conjunction with service level agreement to ensure the performance and to compensate the purchaser if targets are not met.
Reference:
LO 2, AC 2.2
NEW QUESTION # 101
Which of the following will always give rise to a claim of misrepresentation?
1. Silence
2. False thought
3. Statement of fact
4. Representation by conduct
- A. 3 and 4 only
- B. 1 and 2 only
- C. 2 and 4 only
- D. 1 and 3 only
Answer: A
Explanation:
A misrepresentation is a false statement of fact or law which induces the representee to enter a contract. Where a statement made during the course of negotiations is classed as a representation rather than a term an action for misrepresentation may be available where the statement turns out to be untrue.
For a party to claim for misrepresentation, there must be a false statement of fact or law as oppose to opinion or estimate of future events. It does not matter whether the incorrect information is given by words or takes the form of misleading conduct.
Silence will not generally amount to a misrepresentation. However, it can become a misrepresentation in some exceptional circumstances.
In the L4M3 study guide, the author states that "A statement of law is not misrepresentation". This is untrue in both common law and civil law systems. In the UK, false statement of law will now amount to an actionable misrepresentation (see Pankhania v Hackney [2002] EWHC 2441).
Reference:
- Misrepresentation
- L4M3 study guide page 53-55
LO 1, AC 1.2
NEW QUESTION # 102
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