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CIPS L4M3 Exam
Commercial Contracting (Page 2 )

Updated On: 1-Feb-2026
Page 2 of 39
PDF with 189 Questions

Which of the following is the model form of contract for construction which is recommended by World Bank?

  1. ITC
  2. JCT
  3. CIPS
  4. FIDIC

Answer(s): D

Explanation:

FIDIC is the International Federation of Consulting Engineers (or Fédération Internationale des Ingénieurs Conseils in French). FIDIC has produced many publications, including the model form contracts, best practice guidances, research on sustainability, integrity and risk management. FIDIC model form contracts have been developed by this organisation since 1999, now they consist of several different books which are marked by colours. Thus, FIDIC model contracts also have the nickname "Rainbow suite of contracts". Basically, the "Rainbow Suite" include the following books:
* Yellow book: Plant and Design-Build Contract (2 editions: 1999 and 2017)
* Silver book: EPC/Turnkey Contract (2 editions: 1999 and 2017)
* Red book: Construction Contracts (2 editions: 1999 and 2017)
* Emerald book: Conditions of Contract for Underground Works (1st Ed 2019)
* Blue-Green book: Dredgers Contract (2 editions: 2006 and 2016)
* Gold book: Design, Build and Operate Contract Guide
* Pink book: Construction Contract Multilateral Development Bank Harmonised Ed (2 editions: 2005 and 2010)

This type of model contract is commonly used around the world because its author, International Federation of Consulting Engineers, collaborates closely with development banks such as World Bank, Africa Development Bank, Asia Development Bank, etc. Every construction project that is financed by these institutions must adopt the FIDIC contracts. The Joint Contracts Tribunal, also known as the JCT, produces standard forms of contract for construction, guidance notes and other standard documentation for use in the construction industry in the United Kingdom. From its establishment in 1931, JCT has expanded the number of contributing organisations.

ITC (International Trade Centre) produces contracts specifically designed for small companies doing international business, covering the sale of goods, distribution, services and joint ventures. Many small companies are now engaged in international trade, but don't have access to the necessary contract forms to protect themselves. ITC and leading legal experts developed eight generic contract templates that incorporate internationally recognized standards and laws for most small business situations.
CIPS has several model forms of contract designed specifically for IT buying and servicing.


Reference:

CIPS study guide page 142 LO 3, AC 3.1



ABC Ltd is a UK based company. It plans to enter into a contract with XYZ Ltd which is based in Singapore.
Which of the following are the mandatory elements for the contract between ABC Ltd and

XYZ Ltd to be legally binding? Select THREE that apply.

  1. All parties must have capacity to contract
  2. The two parties must have intention to be bound
  3. The invitation to tender must be sent by the agreed deadline
  4. There must be an offer and an acceptance
  5. An amount of money must be paid upfront
  6. There must be an invitation to treat

Answer(s): B,D

Explanation:

The formation of the contract is where the contractual journey begins; if no contract is formed, neither of the parties can be under any obligations. Therefore, it is very important to have an understanding of each part of a contract's formation.
In order for a legally binding agreement to be formed, there are four basic requirements to be met:
2.1 Offer
2.2 Acceptance
2.3 Certainty & Intention to Create Legal Relations
2.4 Consideration & Promissory Estoppel


Reference:

- CIPS study guide page 28-42
- Formation of the contract LO 1, AC 1.2



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?

  1. Fire and explosion insurance
  2. Product liability insurance
  3. Professional indemnity insurance
  4. Public liability insurance

Answer(s): B

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:

CIPS study guide page 150-153 LO 3, AC 3.2



Transformers & Rectifiers Ltd wanted to buy some specialist gaskets. They sent a request for quotation with specification to Needs Ltd. The supplier replied with a quotation in which had its own terms and conditions. The buyer edited delivery terms on the quotation and sent the document back to Needs Ltd. Gaskets were delivered to Transformers' premise with an invoice from Needs Ltd.
Which of the following is most likely to be the governing terms if the two companies must settle the dispute at court?

  1. Edited terms and conditions
  2. Terms and conditions in the request for quotation
  3. Terms and conditions in the invoice
  4. Terms & conditions in the original quotation

Answer(s): A

Explanation:

In the 'battle of the forms', generally who shot the last will win. This is not applied to this case. Initial RFQ is an invitation to treat, then the quotation forms an offer. Transformers & Rectifiers Ltd edits terms and conditions then sends back to supplier, this act terminates Needs's offer and makes a new offer. Delivery of goods can be deemed as acceptance from Needs Ltd. The contract is formed with its details in the edited terms and conditions.


Reference:

CIPS study guide page 43-44 LO 1, AC 1.2



Which of the following are always considered as minimum preconditions for a contract? Select TWO that apply:

  1. Specification
  2. Promise
  3. Omission
  4. Consideration
  5. Intention to be bound

Answer(s): D,E

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:

CIPS study guide page 28-43 LO 1, AC 1.2



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