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The CIPS L4M3 certification is a valuable qualification for procurement and supply chain professionals who are looking to enhance their knowledge and skills in commercial contracting. It provides a comprehensive understanding of the legal and commercial aspects of contracting, and is designed to equip professionals with the skills required to effectively negotiate and manage contracts with suppliers and other external parties.
NEW QUESTION # 61
A company needs to source a product from overse
a. It wants to overcome technical barrier to cross-border trade by using standards in the specification. Which of the following is most likely to be incorporated into that specification?
- A. Brands
- B. International standards
- C. National standards
- D. Company standards
Answer: B
Explanation:
Exporting enterprises must sometimes incur additional costs as they adapt their production to the changing legal requirements of the recipient country. Such requirements can thus create technical barriers to trade. Discrepancies between product rules adopted by different countries can involve numerous aspects: weight, size, packaging, ingredients, mandatory labeling, shelf-life conditions, testing and certification procedures etc.
One way to overcome these barriers is to adopt international standards. Overseas companies may be more familiar with international standards without looking at specific regulations of importing countries.
Reference:
- What is a technical barrier to trade?
- CIPS study guide page 88-89
LO 2, AC 2.1
NEW QUESTION # 62
When a contract has been agreed on the basis of a fraudulent misrepresentation, which of the following remedies are available?
- A. An injunction only
- B. Both damages and rescission
- C. Damages only
- D. Rescission only
Answer: A
Explanation:
An untrue statement of fact or law made by Party A (or its agent) to Party B, which induces Party B to enter a contract with Party A thereby causing Party B loss. An action for misrepresentation can be brought in respect of a misrepresentation of fact or law.
There are three types of misrepresentation:
- Fraudulent misrepresentation: where a false representation has been made knowingly, or without belief in its truth, or recklessly as to its truth.
- Negligent misrepresentation: a representation made carelessly and in breach of duty owed by Party A to Party B to take reasonable care that the representation is accurate. If no "special relationship" exists, there may be a misrepresentation under section 2(1) of the Misrepresentation Act 1967 where a statement is made carelessly or without reasonable grounds for believing its truth.
- Innocent misrepresentation: a representation that is neither fraudulent nor negligent.
The remedies for misrepresentation are rescission and/or damages. For fraudulent and negligent misrepresentation, the claimant may claim rescission and damages. For innocent misrepresentation, the court has a discretion to award damages in lieu of rescission; the court cannot award both (see section 2(2) of the Misrepresentation Act 1967). For more information, see Practice note, Misrepresentation.
Reference:
- Misrepresentation
- CIPS study guide page 55
LO 1, AC 1.2
NEW QUESTION # 63
A purchase order can become a contract between supplier and purchaser if it is...?
- A. Issued by the buyer
- B. Received by the supplier
- C. Accepted by the supplier
- D. Edited by the supplier
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 # 64
A retailer prefers to display its best selling products and promotion programme on the building windows. According to rule of contract formation, this act will generally constitute...?
- A. An offer
- B. An invitation to treat
- C. A mailbox rule
- D. A legal capacity
Answer: B
Explanation:
Fisher v Bell [1960] and Pharmaceutical Society of Great Britain v Boots Cash Chemists [1953] identified that the courts will generally consider goods advertised in shop windows or those with a price tag attached to constitute an invitation to treat. An invitation to treat is a concept in contract law. It refers to an invitation for a party to make an offer enter into contractual negotiations.
Invitations to treat can be anything displayed to a large number of people, as long as there is no defined way to choose who can accept. Items on display in a shop, advertisements, and catalogues are all common examples of invitations to treat.
However, there are cases in the US shows that under some circumstances an advertisement can become an offer (see Leftkowitz v Great Minneapolis Surplus Stores [1957]).
Reference:
- What is an Invitation to Treat in Contract Law?
- CIPS study guide page 29
LO 1, AC 1.2
NEW QUESTION # 65
A service contract is going to be expired, which data source is good to create specifications for ITT?
1. Incumbent supplier
2. Maintenance services
3. Alternative supplier
4. User's knowledge
- A. 1, 2 and 4
- B. 1, 2 and 3
- C. 2, 3 and 4
- D. 1, 3 and 4
Answer: D
Explanation:
There are a number of shortcuts that can be taken when drafting the specification. These include the following:
- The use of brand names
- The use of recognised standards
- The use of samples
- Information and knowledge from users/other buyers: Drafting a specification should naturally include those already used within the organisation itself, but also variants used by other companies in the same sector and other companies in different sectors
- Information from suppliers: suppliers will always be willing to assist in specification development, as this this one way in which they can seek to influence the design to favour their own products.
Reference:
LO 2, AC 2.1
NEW QUESTION # 66
Which of the following are likely to be advantages of using request for quotation? Select TWO that apply:
- A. No specification required
- B. Lower administration costs
- C. Short turnaround times
- D. Encouraging suppliers to submit creative solutions
- E. Helping the buying organisation assess both price and quality
Answer: B,C
Explanation:
One of the advantages of using the RFQ method to procure pricing is that the company making the solicitation does not need to prepare any documentation, as requests are sent out privately. With less paperwork to prepare, turnaround times for quotes are reduced. Administration cost is also lower in compare with other procurement method like ITT or RFP. RFQ is usually used in low value purchase, where buyer knows the detailed specification and the price is the only variable that need to consider.
To use RFQ effectively, the buyer should attach the detailed specification and standard terms & conditions. The RFQ should only be sent to verified suppliers.
Reference:
- What is an RFQ?
- CIPS study guide page 3-4
LO 1, AC 1.1
NEW QUESTION # 67
In which of the following conditions, request for quotation produces the best results?
- A. With an ambiguous specification
- B. With strategic items
- C. Under framework agreements
- D. Under a complex process
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 # 68
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 3 only
- D. 1 and 4 only
Answer: C
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 # 69
CISG will be most likely to apply to which of the following transactions?
- A. Sale of iron ores
- B. Sale of a property
- C. Sale of a ship
- D. Sale of electricity
Answer: A
Explanation:
Article 2 of CISG states that:
This Convention does not apply to sales:
(a) of goods bought for personal, family or household use, unless the seller, at any time before or at the conclusion of the contract, neither knew nor ought to have known that the goods were bought for any such use; (b) by auction; (c) on execution or otherwise by authority of law; (d) of stocks, shares, investment securities, negotiable instruments or money; (e) of ships, vessels, hovercraft or aircraft; (f) of electricity.
LO 1, AC 1.2
NEW QUESTION # 70
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. 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.
Hank's pre-contractual assurance is most likely to be an example of which of the following?
- A. Fraudulent misrepresentation
- B. Threat
- C. Initial impossibility
- D. Inaccuracy in communication
Answer: C
Explanation:
Hank's pre-contractual assurances may amount to misrepresentation. Fraudulent misrepresentation is a strong possibility since Hank had carried out no investigations into the viability of the project timescales. This could amount to recklessness in using information without taking any steps to see if it is true or not.
The scenario above was constructed based on the case BSkyB v EDS, a famous case in IT sector.
LO 1, AC 1.2
NEW QUESTION # 71
Which of the following is likely to reduce risks of different rules regarding when offers and acceptance become effective between legal systems?
- A. Letter of intent
- B. Withdrawal protocol
- C. Deemed receipt protocol
- D. Time lapse
Answer: C
Explanation:
Regarding rule of offer and acceptance, there are some differences among legal system around the world. For example, mailbox rule is generally applied in common law countries such as UK, US, Australia,.. while it is ignored in civil law countries. To clarify on rule of offer and acceptance in international trade, offerors may use expressed terms in their offers. These terms known as deemed receipt protocol.
Reference:
LO 1, AC 1.2
NEW QUESTION # 72
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. Unfair Contract Act 1977
- B. Rules of interpretation
- C. Rules of contract formation
- D. Order of precedence
Answer: B
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 # 73
Which of the following should be specially noticed in market dialogue with suppliers in specification development?
- A. Market dialogue is banned in the public sector
- B. Market dialogue should only be conducted with well-known supplier
- C. Both parties must respect confidentiality
- D. The buying organisation must avoid social media at all cost
Answer: C
Explanation:
Being clear on your objectives helps you to design the best approach to the dialogue. There are some notices in developing dialogue with suppliers:
- All meetings should be documented
- Respect commercial confidentiality. Although insights gained from one conversation lead to questions in another, you must be very careful not to allow this to happen in a way that breaches the confidentiality of the first conversation.
Reference:
LO 2, AC 2.1
NEW QUESTION # 74
Which of the following should be done by procurement professionals right after obtaining a pre-written specification for a critical item so that the added value will be the greatest?
- A. Evaluate tender or quotation
- B. Issue invitation to tender or request for quotation
- C. Challenge the used specification
- D. Select the best supplier
Answer: C
Explanation:
A previously used specification must always be robustly challenged to see how well it fits the proposed circumstances. Aspects which appear not to fit should be analysed to understand why they were included in the sample specification and whether this changes the view on whether or not they should be omitted or changed.
Reference:
LO 2, AC 2.1
NEW QUESTION # 75
What is the pricing method that incentivises the supplier to control their costs?
- A. Skimming pricing
- B. Penetration pricing
- C. Target Costing
- D. Cost-plus pricing
Answer: C
Explanation:
Penetration pricing is a marketing strategy used by businesses to attract customers to a new product or service by offering a lower price during its initial offering. The lower price helps a new product or service penetrate the market and attract customers away from competitors.
Price skimming is a product pricing strategy by which a firm charges the highest initial price that customers will pay and then lowers it over time. As the demand of the first customers is satisfied and competition enters the market, the firm lowers the price to attract another, more price-sensitive segment of the population. The skimming strategy gets its name from "skimming" successive layers of cream, or customer segments, as prices are lowered over time.
Incentive contracts allow sharing of the risks between the contractor and the client. The contractor is reimbursed all its justifiable costs in addition to a calculated fee. Target costing is an element of incentive contracts.
Cost-plus pricing is also known as markup pricing. It's a pricing method where a fixed percentage is added on top of the cost to produce Reference:
LO 3, AC 3.3
NEW QUESTION # 76
Which of the following are likely to feature within an outcome-specification?
1. Dimension
2. Performance requirement
3. Input material
4. Product function
- A. 1 and 3 only
- B. 2 and 4 only
- C. 1 and 2 only
- D. 3 and 4 only
Answer: B
Explanation:
There are two main types of specification: performance specification and conformance specification (sometimes called prescriptive or technical specifications).
Performance specifications have following features:
- Focus on outputs
- Set out result to be achieved
- The 'what', not the 'how'
- Give supplier flexibility to present solutions that the buyer may not have considered Reference:
LO 1, AC 1.1
NEW QUESTION # 77
Which of the following is used to detail the complex matter that may be verbiage to the main document?
- A. Subcontracting
- B. Schedule
- C. Standard terms and conditions
- D. Contract variation
Answer: B
Explanation:
Without further explanation, a schedule may be deemed to form an integral part of the obligations of either or both parties. Obviously, the scope or binding nature of such schedule depends on the way it is referred to in the obligatory language of the main agreement. Accordingly, merely attaching the general terms and conditions of sale without explaining to which part of the sale they apply or which provisions apply does not subject a sale pursuant to the body text of the agreement to those general terms and conditions.
Subcontracting is the practice of assigning, or outsourcing, part of the obligations and tasks under a contract to another party known as a subcontractor.
Reference:
- Schedules, annexes and exhibits
- CIPS study guide page 22-26
LO 1, AC 1.1
NEW QUESTION # 78
Which of the following are likely to be advantages of using invitation to tender? Select TWO that apply:
- A. Quick implementation
- B. Lower administration costs
- C. Short turnaround times
- D. Reducing risks of bribery and corruption
- E. Driving forward planning culture
Answer: D,E
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 # 79
A supermarket purchases a new batch of house cleaner from new supplier. The supermarket is concerned about possible damage that the house cleaner may cause to consumers' floor. What type of insurance must they cover?
- A. Public liability insurance
- B. Professional indemnity insurance
- C. Fire and explosion insurance
- D. Product liability insurance
Answer: D
Explanation:
Product Liability Insurance is a form of general liability insurance meant to protect a business from financial and legal consequences as a result of bodily injury or property damage due to the use of the business's sold goods or products. Situations that are typically covered by Product Liability Insurance may include:
- A customer harms herself because of the faulty packaging on one of your products
- A drapery set that a customer purchased from your business was highly flammable and caught on fire, eventually damaging her entire kitchen
- A customer with a severe allergy finds trace amounts of tree nuts in your homemade gourmet muffins
- A homemade house cleaner that you sell damaged one of your customer's entire hardwood floor
- A customer becomes sick with food poisoning after eating old shellfish at your restaurant, goes to the hospital, and incurs medical costs caused by your contaminated food products
- A customer's pet becomes ill from ingesting some lining in a pet toy product that you sell In the scenario above, the supermarket is purchasing and reselling house cleaner, which can be covered by product liability insurance.
Public liability insurance is a type of business insurance that covers the cost of claims made by the public that happen in connection with the business activities.
Professional indemnity (PI) insurance is a commercial policy designed to protect business owners, freelancers and the self-employed if clients claim a service is inadequate.
Reference:
LO 3, AC 3.2
NEW QUESTION # 80
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The CIPS L4M3 exam covers a range of topics related to commercial contracting, including contract formation, contract types, contract negotiation, contract management, and dispute resolution. The exam is divided into two parts: the first part consists of multiple-choice questions, while the second part is a case study that requires candidates to apply their knowledge and skills to a real-life scenario. The exam is designed to test candidates' understanding of the principles of commercial contracting and their ability to apply these principles in a practical setting.
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