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CIPS L5M3 Certification Exam is a globally recognized qualification that demonstrates a candidate's expertise in managing contractual risks. Managing Contractual Risk certification is highly valued by employers in procurement and supply chain management, as it signifies that the candidate has a deep understanding of the complexities and challenges involved in managing contracts. Additionally, the certification enhances the candidate's career prospects, as it demonstrates a commitment to continuing professional development and a desire to stay up-to-date with the latest industry trends and best practices.
NEW QUESTION # 46
A buyer and supplier have a contract and the supplier has committed a major breach. However, as they are the sole supplier to the buyer, the buyer has decided not to terminate the contract and instead to work with the supplier to remedy the situation. What is this called?
- A. affirmation of the contract
- B. awarding damages
- C. conflict resolution
- D. assigning liability
Answer: A
Explanation:
This is affirmation of the contract. When a breach occurs the injured party has two options; termi-nate the contract or affirm the contract. In this example they have affirmed the contract- they have chosen to continue working with the offending party. See p.60.
NEW QUESTION # 47
GoGo Ltd has contracted Reny Manufacturing to produce a bespoke piece of equipment for them. It is an asset and costs a significant amount of money. A contract is drawn up which states that GoGo Ltd has the right to terminate the contract at any time for any reason. Halfway through production of the asset, GoGo Ltd calls Reny Manufacturing to cancel the order. Reny Manufacturing has incurred many costs already. Can GoGo Ltd cancel the order?
- A. no- Reny Manufacturing will sue for damages
- B. yes- there is a termination clause in the contract
- C. no- the termination clause is unfair
- D. yes- the order has not yet been delivered meaning that GoGo Ltd can cancel- there has been no transfer of ownership
Answer: B
Explanation:
The correct answer is 3 - 'yes there is a termination clause in the contract'. In this scenario it would be immoral for GoGo Ltd to cancel, but it wouldn't be illegal. They have the right to use the clause that's been put into the contract. It's possible that Reny might sue for damages, but this doesn't prevent GoGo Ltd from cancelling the order (they might be okay with paying the damages). There is a very similar question to this in the exam. Termination clauses are discussed on p.134 - I recommend brushing up on this topic before the exam.
NEW QUESTION # 48
What is the purpose of a liability clause in a contract?
- A. to give an approximate pre-determined value of loss
- B. to ensure adherence to legal standards
- C. to limit commercial and financial exposure
- D. to punish the supplier for poor performance
Answer: C
Explanation:
The purpose of liability clauses is "to limit commercial and financial exposure"- this is a direct quote from p.2. Liability is the amount that a company owes to another party- this is why contracts will focus on limiting their liability as much as possible.
NEW QUESTION # 49
Which of the following situations would be considered a minor breach of a contract? Select TWO:
- A. a zoo orders three baby lions and is given three baby tigers
- B. A supplier delivers a lorry-load of produce six hours late due to a burst tyre.
- C. a painter is contracted to paint a room white but paints it magnolia as there was no white paint available
- D. a supplier has breached a non-disclosure agreement
- E. a consultant has given bad advice
Answer: C,D
Explanation:
The correct answers are: 1) the painter using magnolia instead of white, and 5) the supplier who was late on his delivery. These are considered minor breaches because the contract was still fulfilled and it didn't affect the contract in any significant way. In this type of question you have to use logic to deduce the right answer; 2) A consultant giving bad advice would be a major breach - it would be a huge issue, particularly if that advice led to an accident or death. Think about an Architect advising on a type of pillar, and it turns out that pillar can't support the weight of the building. That would be bad. 3) Lions and Tigers are not the same thing - so that would be a pretty fundamental mistake in a contract. 4) Breaching a non-disclosure agreement is usually considered a major breach of a contract (this is mentioned in chapter 2.1). See p. 48 for more information on minor breaches.
NEW QUESTION # 50
Derrek owns a factory and employs a Facilities Management Company called Balls FM to look after certain aspects of the factory including cleaning and testing the machinery to ensure they are in good working condition. One day he realises that one of the cleaners doesn't work for Balls FM, he works for another company called Bells FM. Which of the following statements regarding subcontracting is true?
- A. It is okay for Balls FM to subcontract out part of the contract to Bells FM if they are unable to fulfil their obligations
- B. Subcontracting is never allowed in a contract unless specifically mentioned.
- C. Subcontracting would be if Derrek delegated responsibility for managing the contract to a member of his team
- D. Balls FM have committed a fundamental breach of the contract
Answer: A
Explanation:
"It is okay for Balls to subcontract" is the correct answer. This question is testing whether you know that subcontracting can be a remedy in a contract. It is usually okay for a supplier to use a subcontractor if they're unable to fulfil their responsibilities and the alternative would be to breach the contract. This is a difficult question because you don't get a lot of context- it's based on a similar question in the exam- but just remember subcontracting can be a solution if one party can't fulfil their obligations in a contract. This is better than them breaching the contract. See p.89 for more information on subcontracting
NEW QUESTION # 51
Terry's Toys is a Toy Manufacturer who has an agreement to provide Toys to an online re-tailer. The retailer has ordered 500 toys from Terry and Terry has incurred costs of £3000 manufacturing the toys. Halfway through production the retailer calls Terry to cancel the order. Terry reads through the contract and sees a liquidated damages clause of £1000. What should Terry do?
- A. Terry can apply to the court to increase the liquidated damages to £3000
- B. Terry can sue the retailer for the additional costs incurred above the liquidated damages
- C. Terry can deliver the toys as agreed as there is a contract in place
- D. Terry can do nothing and must pay the additional £2000 out of his own pocket
Answer: D
Explanation:
The correct answer is 4- Terry can do nothing and must pay the additional £2000 out of his own pocket. Liquidated damages are a pre-estimate of loss - they can't be changed by a court and you can't demand the buyer pays any higher than this if you actually lose more than is stated. This is one of the major disadvantages of having liquidated damages. Option 3 is a bad idea- the retailer has communicated that they do not want the toys so Terry is likely to only incur additional costs if he continues manufacturing them and delivers them. See p.106. There are lots of questions like this in the exam. Remember to think what the study guide would say- rather than what would happen in real life. Don't over complicate things.
NEW QUESTION # 52
Restitution damages are often calculated before contracts are signed and are clearly stated within a contract. Which of the following statements is not true?
- A. restitution damages means you are unable to claim for future losses
- B. restitution damages may leave the breaching party in a worse position than they were in before the contract began
- C. restitution damages are calculated based on how much the breaching party gained, ra-ther than how much the innocent party lost
- D. restitution damages cannot be mitigated by the actions of the innocent party
Answer: D
Explanation:
"restitution damages cannot be mitigated by the actions of the innocent party" is the untrue state-ment out of these four. The general principle of Restitution Damages is that the innocent party is expected to be proactive in mitigating the consequences of any breach and should not allow costs to spiral out of control. See p. 124
NEW QUESTION # 53
David is selling his house and Barbera would like to buy it. David is expecting to get £100,000 for his house. Barbera offers £80,000 and David asks Barbera if she'll pay £90,000 instead. Barbera says no. After a week David hasn't had any other offers so would like to accept Bar-bera's offer. Can he do this?
- A. yes- Barbera's offer is the best he will receive
- B. no - David's counter offer rescinded Barbera's offer
- C. yes- Barbera's offer is still valid as it didn't come with a time clause attached
- D. no- he waited too long and Barbera's offer has expired
Answer: B
Explanation:
"No - David's counter offer rescinded Barbera's offer" is the correct answer. Remember: "once a counter offer is made, the original offer is viewed as rejected" - p.6 of the study guide. What this means is when David goes back to Barbera about the £80,000 - he is now the offeror - and Barbera has the option to reject this. David is no longer in a position to accept or reject - Barbera is.
NEW QUESTION # 54
Which of the following will you put into box 1?
- A. Subcontracting
- B. Specification
- C. Time is of the Essence
- D. Payment Term
Answer: C
Explanation:
The correct answers are as follows:
This is 'Time is of the Essence' - failure to deliver the food on time will have consequences.
NEW QUESTION # 55
Harry is negotiating a contract for a new IT system for his business. He is investing heavily in the system and wants the system to be able to provide the services he requires for the next 10 years. However he is aware that technology is changing quickly and would like to include a clause in the contract to ensure that the system he is purchasing is useable for the next 10 years. What should Harry include in the contract?
- A. limitation of liability
- B. benchmarking
- C. change control
- D. service credits
Answer: B
Explanation:
Benchmarking should be included- this is common in long-term contracts where variables can af-fect the market over time. By including benchmarking, harry gets assurance that the product he purchases will meet the market expectations over the next 10 years. The other answers are incorrect; 1- there is no mention of liability in the question so this is incorrect. 2- service credits would be used if he is concerned the product would be offline/ not perform (it's a form of damages) but this isn't the case in this scenario. He's not worried about underperformance, he's worried about obsolescence. 4- change control is for when there are multiple versions of a contract due to amendments being made.
NEW QUESTION # 56
Which of the following will you put into box 5?
- A. adjudication
- B. mediation
- C. arbitration
- D. litigation
Answer: A
Explanation:
The correct answers are as follows:
This is adjudication. Adjudication is the only option which has a specified timeframe.
NEW QUESTION # 57
Which of the following statements about 'Specific Performance' are TRUE? Select TWO.
- A. Orders for Specific Performance can be a lengthy and costly process
- B. If a party is ordered to complete a 'Specific Performance' and doesn't, they can be ar-rested
- C. Orders for Specific Performance can be a cheap and quick way to remedy a breach in contract
- D. The innocent party must mitigate all losses
Answer: A,B
Explanation:
1+3 are correct. Specific Performance tend to go through the courts so this is a lengthy and costly process. Because it's mandated by the courts it means that if the offending party doesn't comply, this is a criminal offence and they can be arrested. Option 2 is incorrect as it is the opposite of option 1. Option 4 is incorrect because there is no need for the innocent party to mitigate any losses. See p. 132 for more information on Specific Performance
NEW QUESTION # 58
A failure to perform a provision of a contract which does not affect the end performance of the contract is known as what?
- A. warranty breach
- B. small breach
- C. major breach
- D. minor breach
Answer: D
Explanation:
This is a minor breach. This is the definition as given in the study guide on p. 48
NEW QUESTION # 59
Which of the following would be included in a contract to assign costs and responsibilities be-tween buyer and seller when products are delivered?
- A. Indemnity
- B. Liquidated Damages
- C. Liability
- D. Incoterms
Answer: D
Explanation:
Incoterms assign costs and responsibilities about when products are delivered. See p. 37 for a full list of the different Incoterms. You don't need to know all Incoterms for the exam, but it's a good idea to know what they are and why they'd be put into a contract
NEW QUESTION # 60
Which of the following processes is the most adversarial?
- A. adjudication
- B. negotiation
- C. litigation
- D. mediation
Answer: C
Explanation:
Litigation is the most adversarial. It's usually the last resort and shouldn't be used if you want to preserve the working relationship. P. 145
NEW QUESTION # 61
Mark is a consultant who works with building managers and advises them on how to make their buildings safer. What type of insurance should Mark have?
- A. Property Insurance
- B. Professional Indemnity
- C. Product Liability
- D. Public Liability
Answer: B
Explanation:
Mark needs professional indemnity insurance. Types of insurance is a known exam topic and the study guide does not cover this particularly well. Types of insurance is mentioned on p.25 but Pro-fessional Indemnity Insurance isn't really explained and this does come up in the exam. Professional Indemnity Insurance is needed when your job is to give advice to people (like as a Consultant). It's used for if the advice you give turns out to be bad. For example, if Mark told the building manager he should get ABC Fire Alarm installed, and actually this Fire Alarm doesn't meet the necessary Health and Safety standards, he could get sued by the building manager. He could then claim on his Professional Indemnity Insurance.
NEW QUESTION # 62
Which of the following will you put into box 7?
- A. adjudication
- B. litigation
- C. mediation
- D. arbitration
Answer: B
Explanation:
The correct answers are as follows:
This is litigation as it involves a legal team and it's public. Out of the 4 options only litigation is a public dispute resolution.
NEW QUESTION # 63
What is a boilerplate clause?
- A. a type of warranty
- B. a clause that allows the contract to be modified if both parties are in agreement
- C. a set of clauses that are commercially standard and expected in all contracts
- D. the clause that will take precedent if there are conflicting pieces of information within a contract
Answer: C
Explanation:
This is #4. This exact definition is given on p.116 under the section 'Giving Notice'
NEW QUESTION # 64
Which of the following conflict resolution styles involves a strict timeline and is commonly used within the construction industry?
- A. conciliation
- B. adjudication
- C. arbitration
- D. litigation
Answer: B
Explanation:
Adjudication has strict timescales (this is one of the advantages of using this conflict resolution method). It has roots in the construction industry and has been widely used since the 1990s. See p.76 for more information
NEW QUESTION # 65
When assessing damages caused by a breach, which of the following statements is true?
- A. damages attempt to compensate the innocent party for errors made by the offending party
- B. damages can be difficult to assess before a breach has occurred and therefore should be decided through conflict resolution
- C. damages are limited to what is stated within the contract
- D. damages attempt to position the innocent party in the position that they would have been in had the contract been performed as expected
Answer: D
Explanation:
The correct answer is: 'damages attempt to position the innocent party in the position that they would have been had the contract been performed as expected'. This is a quote from p. 121 Option1 is incorrect as unliquidated damages aren't stated in a contract. Option 2 is incorrect because liquidated damages are an assessment of damages before a breach. Option 4 is incorrect because not all breaches are caused by errors (they can be caused by negligence or the offending party withholding something).
NEW QUESTION # 66
A large financial organisation ensures that they have contracts with all of their suppliers. In which instance would indemnity not necessarily form part of the contract?
- A. A Deed of Appointment of a Consultant
- B. A confidentiality agreement
- C. A software licence agreement
- D. In assignment of intellectual property rights
Answer: B
Explanation:
Indemnity isn't usually used for confidentiality agreements - this is stated on p.21 of the study guide. This is because it's hard to indemnify against- you don't know what the consequence of a breach of confidentiality is going to be so it's hard to quantify. Unliquidated damages is more suitable. The study guide does state that indemnity is frequently used in intellectual property rights, software licence agreements and share purchase agreements. This is also written on p. 21.
NEW QUESTION # 67
Tyrone Enterprises has just come out of a meeting with one of its suppliers Bob. The meeting has not gone well and the contract has become frustrated. What does this mean?
- A. the supplier has committed a major breach and is unable to fulfil the contract
- B. The buyer no longer requires the supplier but is tied into the contract
- C. a situation has occurred which means that the contract can no longer be performed
- D. Negotiations between the buyer and supplier have failed and dispute resolution will need to take place
Answer: C
Explanation:
Frustrated is when "a situation has occurred which means that the contract can no longer be per-formed". The situation is one which is outside of the control of either party and its no one's fault that this has happened. A common example of this is when contracts were unable to be performed due to Covid-19 and the national lockdown. The government mandated everyone 'stay at home' and therefore some business contracts were unable to be fulfilled, and were therefore 'frustrated' (for example the delivery of popcorn to cinemas- the cinemas were told by the government to close so the popcorn couldn't be delivered. This wasn't anyone's fault). See p. 47 for more information on Contract Frustration
NEW QUESTION # 68
Alan has an ongoing contract with a supplier for the provision of gardening tools to his horti-culture business. He has been working with the supplier for over 20 years and has recently discovered that the supplier committed a breach in a warranty 3 years ago. Can Alan claim damages?
- A. yes- Alan can claim damages and rescind the contract
- B. no- Alan could only claim if the breach was of a condition, not a warranty
- C. yes- the breach has occurred and a contract is in place
- D. no- Alan cannot claim because the breach was so long ago
Answer: C
Explanation:
"Yes- A Breach has occurred and a contract is in place" - this is the correct answer. Claims against warranties can be made up to six years from the date the contract is breached. Option 2 isn't correct as a breach in warranty does not allow you to rescind the contract. Options 3 and 4 are incorrect because Alan CAN claim damages. There's a useful table about warranties and conditions on p. 127
NEW QUESTION # 69
Which of the following will you put into box 7?
- A. Warranty
- B. Innominate Term
- C. Condition
Answer: C
Explanation:
The correct answers are as follows:
This is a condition. Again the food being organic would be fundamental to the contract as the health of the llamas depend on it.
NEW QUESTION # 70
Which of the following will you put into box 3?
- A. specification
- B. fundamental breach
- C. anticipatory breach
- D. payment terms
Answer: B
Explanation:
The correct answers are as follows:
This is a fundamental breach. The key here is the scenario says 'huge issue'. Out of the four scenarios this one is the most important / serious and therefore will be the fundamental breach.
NEW QUESTION # 71
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