CIPS L4M3 Dumps - 100% Cover Real Exam Questions (Updated 161 Questions)
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CIPS L4M3 exam is an excellent opportunity for procurement professionals to demonstrate their expertise in commercial contracting and advance their careers in this field. By passing L4M3 exam, candidates can gain recognition from employers and peers, as well as enhance their knowledge and skills in procurement and supply chain management.
NEW QUESTION # 91
Which of the following should be used in a contract for window cleaning during the next three months?
- A. Cost-plus arrangement
- B. Standard schedule of rates
- C. Variable pricing arrangement
- D. Fixed pricing arrangement
Answer: D
Explanation:
A contract for window cleaning during the next three months is a short-term service contract in which changes of input costs (labour, tools,...) are very unlikely to happen.
Fixed pricing arrangement is useful for small to medium scope project, with short timelines, where what is delivered can be adequately specified and the likelihood of changes to the specification, scope and input costs is limited.
Reference:
LO 3, AC 3.3
NEW QUESTION # 92
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. 1 and 3 only
- D. 4 and 2 only
Answer: A
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 # 93
To check whether supplier actually complies with the labour standards set out in the contract, the purchaser should have...?
- A. Right to rescind the contract
- B. Right to penalise the supplier
- C. Right of audit
- D. Right to terminate the contract
Answer: C
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 # 94
Which of the following best defines an 'express' term in general contract arrangements?
- A. It is the term that is added to the contract by the law or based upon the facts of the case.
- B. It is not necessarily discussed by the parties, but nonetheless forms part of the contract
- C. It is clearly agreed between the parties, and is virtually always written down in the contract
- D. It is a standard set of terms and conditions published by CIPS
Answer: C
Explanation:
Express terms are the terms of the agreement which are expressly agreed between the parties. Ideally, they will be written down in a contract between the parties but where the contract is agreed verbally, they will be the terms discussed and agreed between the parties.
Implied terms are terms implied into the contract by the courts. They are not expressly set out in the contract but are taken to be as effective as if they were and as if they had been included from day one of the contract. The express terms and any implied terms together create the legally binding obligations on the parties.
Reference:
- Contracts: Express and Implied Terms
- CIPS study guide 126-132
LO 3, AC 3.1
NEW QUESTION # 95
Which of the following is the term that describes an item bought for a single and non-recurring use or purpose?
- A. Ad-hoc purchase
- B. Stock purchase
- C. Operational purchase
- D. Call-off purchase
Answer: A
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 # 96
In the UK, Unfair Contract Terms Act 1977 regulates which of the following?
- A. Validity of a contract when it is formed on the basis of misrepresentation
- B. Effectiveness of contract terms in the standard terms and conditions
- C. Rule of offer and acceptance
- D. Rules regarding battle of the forms
Answer: B
Explanation:
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.
Under this regulation, if a clause within the standard terms in use is considered as 'unfair', the clause will be ineffective (or the other party will be entitled to avoid the clause). At court, the clause that is deemed to be unfair will undergo a 'reasonableness' test or an 'unfairness' test.
Reference:
- Maybe your standard terms are ineffective. Here's why
- CIPS study guide page 135
LO 3, AC 3.1
NEW QUESTION # 97
Which of the following statement is true about insurance?
- A. The supplier must always pay the insurance premium for goods-in-transit
- B. An insurance policy can be mechanism of substance to back up indemnity
- C. An insurance policy transfers the legal liabilities from the insured to the insurer
- D. Professional indemnity insurance provides the insured business with financial protection against the liabilities caused by or arising out of the products supplied
Answer: B
Explanation:
An insurance policy transfers a risk from one party to another in exchange for payment, it does not transfer the liabilities from the insured to insurer.
Insurance policies are taken out as a form of protection against a specific risk or unfortunate occurrence. If one party indemnifies another to protect that other party in the event of a risk occurring then the indemnity itself is merely a statement of intent. There also need to be some mechanism of substance to back up that indemnity. This BACK UP is the insurance policy which can be relied upon to meet the indemnity being given. In fact, most indemnity provisions are backed up by insurance coverage.
Professional indemnity or liability insurance offers such coverage to professional advice or service providing individuals and companies ensuring protection against any legal costs and damages awarded as a result of claims relating to negligence. Whereas more general forms of liability insurance focus on direct forms of harm such as sustaining injuries, professional indemnity insurance provides a far more detailed and comprehensive form of coverage. The cover protects a firm or individual's liability relating to any financial loss caused by errors or omissions in the service provided as well as any alleged failure to perform on behalf of a client.
Goods in transit insurance does what it says on the tin, protecting any goods your business delivers or transports from place to place. The responsibility to pay the insurance premium is negotiable, it may belong to the supplier or the buyer.
Reference:
- Is that Covered? Insurance and Indemnity Clauses
- Professional Indemnity Insurance
- Goods in transit insurance
- CIPS study guide page 150-153
LO 3, AC 3.2
NEW QUESTION # 98
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. Time lapse
- C. Withdrawal protocol
- D. Deemed receipt protocol
Answer: D
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 # 99
Which of the following are the conditions for revocation of offer to be valid?
1. The offeree has not received the offer yet
2. Revocation of offer must be communicated with the offeree
3. Revocation of offer must be sent via email
4. Offeree has not accepted the offer yet
- A. 2 and 3 only
- B. 2 and 4 only
- C. 1 and 4 only
- D. 1 and 3 only
Answer: B
Explanation:
A revocation of offer is the withdrawal of a previous offer to engage in some sort of legally binding contract. The previous offer had to have been such that it would have immediately become legally binding if the other party had formally agreed to it.
A core ruling defining revocation of offers was established by Payne v. Cave. This case established that neither party is bound to an agreement until an offer has been made by one and formally accepted by the other.
If an offer has been made, the offering party has a right to withdraw it up to formal acceptance by the offeree. Revocation basically serves as formal, legally verifiable notice that a withdrawal was made, and it's valid so long as it is communicated to the offeree before they accept.
The case of Byrne v. Van Tienhoven supports this by establishing that the withdrawal of an offer by telegram is only valid if the telegram is received before the offer is accepted. The case of Dickinson v. Dodds further establishes that the party making the offer can communicate the revocation through a third party.
Reference:
- What Is a Revocation of Offer?
- CIPS study guide page 31
LO 1, AC 1.2
NEW QUESTION # 100
Which of the following indicates the ratio between profit and costs?
- A. Mark-up
- B. Margin
- C. Liquidity
- D. Gearing
Answer: A
Explanation:
Mark up is the profit as a percentage of total costs.
LO 3, AC 3.3
NEW QUESTION # 101
Which of the following is an agreement between service provider and user that quantifies the minimum quality of service?
- A. Service standard
- B. Service guarantee
- C. SLA
- D. Service charter
Answer: C
Explanation:
A service-level agreement (SLA) is a commitment between a service provider and a client. Particular aspects of the service - quality, availability, responsibilities - are agreed between the service provider and the service user. The most common component of an SLA is that the services should be provided to the customer as agreed upon in the contract.
A customer service charter is a document that outlines how an organization promises to work with its customers along with providing insights into how an organization operates.
A service guarantee is a marketing tool service firms have increasingly been using to reduce consumer risk perceptions, signal quality, differentiate a service offering, and to institutionalize and professionalize their internal management of customer complaint and service recovery.
Reference:
LO 2, AC 2.2
NEW QUESTION # 102
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. Yes, because Carillion wants to implement early supplier involvement
- B. No, because the framework will increase the complexity of the contract
- C. Yes, because the framework should have legal standing as a part of contract
- D. No, because the performance management should be solely developed by suppliers
Answer: C
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 # 103
Which of the following are likely to feature within an outcome-specification?
1. Dimension
2. Performance requirement
3. Input material
4. Product function
- A. 2 and 4 only
- B. 1 and 2 only
- C. 1 and 3 only
- D. 3 and 4 only
Answer: A
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 # 104
When a contract has been agreed on the basis of a fraudulent misrepresentation, which of the following remedies are available?
- A. Rescission only
- B. An injunction only
- C. Both damages and rescission
- D. Damages only
Answer: B
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 # 105
If service level agreement is used as a schedule that makes up the contract, it will be most likely to be a part of...?
- A. Specifications
- B. Exclusion of liabilities
- C. Pricing arrangement
- D. Performance management framework
Answer: D
Explanation:
If a service level agreement is used as a schedule to a contract, it will generally have the following contents:
- Service definitions. If the service information is provided by the specification, SLA should only refer to the specification to avoid any inconsistencies.
- Details on how to measure KPIs, who will measure KPIs
- Minimum requirements or targets
- Remedies if the minimum requirements are not met
...
Since SLA often lists out the KPI targets, consequences for not meeting the KPI targets and remedies to situation of poor performance, it is a part of performance management.
Reference:
LO 2, AC 2.2
NEW QUESTION # 106
Which of the following is an example of liquidated damages clause?
1. "In the event of a delay to the Offshore Installation Completion Date as per the Contract Schedule for which Contractor is solely responsible, Contractor shall pay to Company 0.25% per day of delay, subject to a maximum of 10% of the Initial Contract Price."
2. "If Seller breaches its obligation to deliver goods in accordance with the schedule provided for in this contract, Seller shall pay Buyer $x per day for each day of delay"
3. "The Contractor shall defend and hold the Buyer, its officers, officials, employees and volunteers harmless from any and all claims, injuries, damages, losses or suits including attorney fees, arising out of or in connection with the performance of this Agreement, except for injuries and damages caused by the sole negligence of the Buyer."
4. "The contract is subjected to delay remedies. The amount will be agreed by both parties during the delivery"
- A. 1 and 2 only
- B. 2 and 4 only
- C. 1 and 3 only
- D. 3 and 4 only
Answer: A
Explanation:
Liquidated damages, also referred to as "liquidated and ascertained damages" (LADs) are damages whose amount the parties designate during the formation of a contract[2] for the injured party to collect as compensation upon a specific breach (e.g. late performance). In supply contracts and work contracts, the liquidated damages clause often take form as known damages to be paid per day delayed. Number 1 and 2 are examples of this clause.
Reference:
- Liquidated damages
- CIPS study guide 158-159
LO 3, AC 3.2
NEW QUESTION # 107
A procurement manager is setting KPIs measurement for user satisfaction. He also wants to encourage users to share the reason why they feel the way they do. Which of the following types of KPI should the procurement manager apply?
- A. Qualitative assessment
- B. Quantitative measure
- C. Numerical measure
- D. Binary measure
Answer: A
Explanation:
There are 3 types of KPI measure:
- Binary KPIs
- Quantitative KPIs (or numerical)
- Qualitative KPIs
User satisfaction is subjective, therefore, using qualitative assessment is the best answer.
Reference:
LO 2, AC 2.2
NEW QUESTION # 108
Which of the following are always considered as minimum preconditions for a contract? Select TWO that apply:
- A. Promise
- B. Specification
- C. Intention to be bound
- D. Consideration
- E. Omission
Answer: C,D
Explanation:
In order to form a contract to come into being, there are five conditions:
- Offer
- Acceptance
- Consideration
- Intention to be legally bound
- Capacity to contract
Reference:
LO 1, AC 1.2
NEW QUESTION # 109
Which of the following are reasons why a purchaser wants to embed a subcontracting clause into the main contract? Select TWO that apply:
- A. To improve supply chain transparency
- B. To condemn whole liabilities to subcontractors
- C. To induce the conflicts between the main contractor and subcontractors
- D. To keep main contractor liable
- E. To reduce the main contract complexity
Answer: D
Explanation:
There are number of reasons why the purchaser will want to control the supplier's subcontracting:
- Supply chain transparency: Normally the purchaser has invested a lot of effort into selecting the right contractor. However, the main contractor's selection of subcontractor might not be in such careful manner, which may result in poor performance. Purchaser must know who subcontractors are. Controlling the subcontracting process can help the purchaser control the outcome.
- Contract terms: the purchaser's requirements must be reflected in the subcontracts. The subcontracting clauses may require the main contractor to do this.
- Liability: the main contractor may subcontract the whole or a part of its liabilities. Subcontracting clause may bind the contractor to be liable with the work, it cannot just blame the subcontractor for any faults.
Reference:
LO 3, AC 3.2
NEW QUESTION # 110
Which of the following is the best definition of "ultra vires"?
- A. From one party
- B. Beyond powers
- C. In good faith
- D. Let the buyer beware
Answer: B
Explanation:
Ultra vires is a Latin phrase, meaning "beyond the powers." Describes actions taken by government bodies or corporations that exceed the scope of power given to them by laws or corporate charters. When referring to the acts of government bodies (e.g., legislatures), a constitution is most often the measuring stick of the proper scope of power.
Reference:
LO 1, AC 1.2
NEW QUESTION # 111
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