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CIPS L4M3 Exam
Commercial Contracting (Page 3 )

Updated On: 1-Feb-2026
Page 3 of 39
PDF with 189 Questions

A procurement professional is preparing a sale & purchase contract of a machinery.
Which of the following clauses should be added to the contract? Select TWO that apply

  1. Supplier selection mechanism
  2. Insurance requirements
  3. Period of hire
  4. Ratio decidendi
  5. Guarantees

Answer(s): B,E

Explanation:

The complexity of the contract will reflect the complexity of the purchase. For simple, low-value purchases, standard terms and conditions may be all that is required, but do not assume that just because the purchase is one-off, the contract will be simple. It may still need to cover the following areas:
- Warranties and guarantees if the one-off purchase has a considerable life-span and is business- critical (e.g., a back-up generator for the office which houses the national computer servers).
- Insurance requirements: including professional indemnity, public/products liability, employer's liability, and cover for any specific risks such as pollution or working at height.
- Specification requirements on quality, timing and delivery
- Minimum quality standards on the business operation (e.g., a catering provider might only be providing sandwiches for a team meeting lunch, but you still need to know its hygiene practices).
- Built-in change process for any goods or services that are beyond very simple (e.g., works contracts always have variations procedures because of the unpredictable nature of such projects).
- Ability to extend the scope of the contract should be minimal or none, and restrained to the single requirement.
- Ability to extend the duration of the contract should be limited to the ability to accommodate unexpected time overruns (which itself should be subject to a damages/penalty provision where they are attributable to the supplier, and an extension to overheads costs where they are attributable to the purchaser).
- Data security protocols need to be considered if personal data is being shared.


Reference:

CIPS study guide page 57 LO 1, AC 1.3



Which of the following is the best definition of consideration in contract law?

  1. Full statement about something to provide
  2. The act of thinking carefully about one thing
  3. One thing given in exchange
  4. Formal discussion between people who are trying to reach an agreement

Answer(s): C

Explanation:

A simple definition of consideration is as follows ­ an exchange between the parties which results in a benefit to one party, and a detriment to the other. The case of Currie v Misa (1874) LR 10 Ex 153 provides an apt description of this:
"A valuable consideration, in the sense of the law, may consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss, or responsibility, given, suffered, or undertaken by the other."
A practical example of this can be found by examining a simple contract. Party A offers £500 to Party B, who in exchange will fit his car with a new engine. Party A receives the benefit of his car being fixed, whilst Party B incurs the detriment of having to take time, effort, and perhaps expenses to fix the car.


Reference:

- Consideration & Promissory Estoppel
- CIPS study guide page 36-40 LO 1, AC 1.2



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

  1. 1, 2 and 3
  2. 1, 3 and 4
  3. 1, 2 and 4
  4. 2, 3 and 4

Answer(s): B

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:

CIPS study guide page 81-85 LO 2, AC 2.1



The model form contract invented by Institute of Civil Engineers is...?

  1. NEC
  2. IMechE/IET
  3. FIDIC
  4. JCT

Answer(s): A

Explanation:

NEC - New Engineering Contracts is a family of contracts invented by Institute of Civil Engineers. The contracts are suitable for procuring a diverse range of works, services and supply, ranging from major framework projects through to minor works and the purchase of supplies and goods. FIDIC is a French language acronym for Fédération Internationale Des Ingénieurs-Conseils, which means the international federation of consulting engineers. It was started in 1913 by the trio of France, Belgium and Switzerland. The United Kingdom joined the Federation in 1949. FIDIC is headquartered in Switzerland and now boasts of membership from over 60 different countries. FIDIC published its first contract, titled The Form of contract for works of Civil Engineering construction, in 1957. As the title indicated, this first contract was aimed at the Civil Engineering sector and it soon became known for the colour of its cover, and thus, The Red Book. It has become the tradition that FIDIC contracts are known in popular parlance by the colour of their cover. This first contract by FIDIC was undertaken jointly with the International federation of Building and Public works. FIDIC's concerted effort at achieving broad consultation and acceptance of its contract forms has seen subsequent editions of its contracts being ratified by the International Federation of Asian and Western Pacific Contractors Association, Associated General Contractors of America and the Inter- American Federation of the Construction Industry, Multilateral Development Banks among others. Because of the broad support it enjoys, FIDIC contracts are the foremost contracts in international construction.
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.
IMechE/IET: Institution of Mechanical Engineers/Institution of Engineering and Technology - two separate institutes that issue jointly agreed model forms covering the design, supply and installation of electrical, electronic and mechanical plant including special conditions for the ancillary development of software.


Reference:

CIPS study guide page 142 LO 3, AC 3.1



Which of the following is the procedure that makes no further competition under a framework agreement?

  1. Closed system
  2. Direct call-off
  3. Standing offer
  4. Blanket order

Answer(s): B

Explanation:

Direct call off is the act of placing an order under a framework agreement without having further competition.
Standing offer is an available offer.
Blanket order is another name of framework agreement
Closed system is a requirement of framework agreement. It is a system or process that, once started, does not allow new entrants.


Reference:

CIPS study guide page 59-62 LO 1, AC 1.3



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