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CIPS L4M3 Exam
Commercial Contracting (Page 4 )

Updated On: 1-Feb-2026
Page 4 of 39
PDF with 189 Questions

In order to monitor supplier's performance, an organization decides to draft performance management frameworks.
Which of the following are the components of a performance management framework? Select THREE that apply:

  1. Targets
  2. KPIs
  3. Consequences
  4. Indemnity
  5. Force majeure
  6. Justification

Answer(s): A,B,C

Explanation:

There are three key components of a performance management framework:
- Key performance indicators (KPIs) - What you are measuring
- Targets - the performance level to be achieved
- Consequences - what happens if the measures are not achieved and/or if they are exceeded


Reference:

CIPS study guide page 11-14 LO 1, AC 1.1



Which of the following should be used in a contract for window cleaning during the next three months?

  1. Variable pricing arrangement
  2. Fixed pricing arrangement
  3. Standard schedule of rates
  4. Cost-plus arrangement

Answer(s): B

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:

CIPS study guide page 172-176 LO 3, AC 3.3



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?

  1. Quantitative measure
  2. Numerical measure
  3. Binary measure
  4. Qualitative assessment

Answer(s): D

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:

CIPS study guide page 103,118 LO 2, AC 2.2



Which of the following are NOT covered by CISG? Select TWO that apply:

  1. Transfer of risks
  2. Contract validity
  3. Remedies for breach of contracts
  4. Liability of the seller for death or personal injury
  5. Liability to pay damages

Answer(s): B,D

Explanation:

United Nations Convention on Contracts for the International Sale of Goods (Vienna Convention or CISG)
Vienna Convention was prepared by by the United Nations Commission on ¬International Trade Law (UNCITRAL) and adopted by a diplomatic conference on 11 April 1980. The Convention was welcomed by several countries from different geographic areas, with different legal and political systems. As of 20 August 2020, the Convention has93 Contracting States. The Convention has proved the effectiveness of an uniform text on international trade law.
What CISG covers, and what it does not
In the 6 first articles of the Convention, the authors set up the boundaries of its application. First is about where it applies. According to UNCITRAL, the Convention applies to contracts of sale of goods between parties whose places of business are in different States and either both of those States are Contracting States or the rules of private international law lead to the law of a Contracting State. A few States have availed themselves of the authorisation in article 95 to declare that they would apply the Convention only in the former and not in the latter of these two situations. As the Convention becomes more widely adopted, the practical significance of such a declaration will diminish. Finally, the Convention may also apply as the law applicable to the contract if so chosen by the parties. In that case, the operation of the Convention will be subject to any limits on contractual stipulations set by the otherwise applicable law.
Second, the Convention has a list of goods that are not subject to its application in Article 2. Article 3 clarifies the differences between manufacturing contracts and sale contract. Third, Article 4 and 5 clearly states what CISG does not covers, including grounds for contract invalidity and liabilities to death or injury of person caused by the the goods Finally, the Convention respects the contractual freedom of the trading parties. Trading parties may select this convention as governing law or select other instrument, such as UPICC or domestic laws.


Reference:

- Governing law in International Contracts - Would you choose CISG or UPICC (Part 1)
- CIPS study guide page 49-52 LO 1, AC 1.2



Which of the following is a key feature of liquidated damage clauses?

  1. The amount of damage is predetermined
  2. Liquidated damage is a penalty
  3. The amount of liquidated damages must be exceptionally larger than the actual damages incurred
  4. The liquidated damages are non-negotiable

Answer(s): A

Explanation:

Liquidated damages are presented in certain legal contracts as an estimate of otherwise intangible or hard-to-define losses to one of the parties. It is a provision that allows for the payment of a specified sum should one of the parties be in breach of contract.
Understanding Liquidated Damages

Liquidated damages are meant as a fair representation of losses in situations where actual damages are difficult to ascertain. In general, liquidated damages are meant to be fair, rather than punitive. Liquidated damages may be referred to in a specific contract clause to cover circumstances where a party faces a loss from assets that do not have a direct monetary correlation. For example, if a party in a contract were to leak supply chain pricing information that is vital to a business, this could fall under liquidated damages.
A common example is a design phase for a new product that may involve consultation with outside suppliers and consultants in addition to a company's employees. The underlying plans or designs for a product might not have a set market value. This may be true even if the subsequent product is crucial to the progress and growth of a company. These plans may be deemed to be trade secrets of the business and highly sensitive. If the plans were exposed by a disgruntled employee or supplier, it could greatly hamper the ability to generate revenue from the release of that product. A company would have to make an estimation in advance of what such losses could cost in order to include this in a liquidated damages clause of a contract.
Limitations of Liquidated Damages
It is possible that a liquidated damages clause might not be enforced by the courts. This can occur if the monetary amount of liquidated damages cited in the clause is extraordinarily disproportional to the scope of what was affected by the breached contract. Such limitations prevent a plaintiff from attempting to claim an unsubstantiated exorbitant amount from a defendant. For instance, a plaintiff might not be able to claim liquidated damages that amount to multiples of its gross revenue if the breach only affected a specific portion of its operations. The concept of liquidated damages is framed around compensation related to some harm and injury to the party rather than a fine imposed on the defendant. The courts typically require that the parties involved make the most reasonable assessment possible for the liquidated damages clause at the time the contract is signed. This can provide a sense of understanding and reassurance of what is at stake if that aspect of the contract is breached. A liquidated damages clause can also give the parties involved a basis to negotiate from for an out-of- court settlement.


Reference:

- Liquidated Damages
- CIPS study guide page 158-159 LO 3, AC 3.2



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