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CIPS
CIPS Level 5 Advanced Diploma in Procurement and Supply
L5M3
Managing Contractual Risk Questions and Answers

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Questions # 1:

If an innocent party wishes to terminate a contract due to a breach, which of the following is true?

Options:

only future obligations of the parties are excused and discharged

all obligations of the innocent party are excused and discharged

all obligations of the offending party are excused and discharged

only past obligations of the parties are excused and discharged

Answer

Explanation

The correct answer is "only future obligations of the parties are excused and discharged" - all cur-rent and past obligations need to be fulfilled, or remedied (e.g. through liquidated damages). When an innocent party terminates a contract, they are still obliged to fulfil their own obligations. P.47

Questions # 2:

ABC has a contract with its supplier DEF who delivers pasta to ABC's manufacturing plant. DEF has committed a breach and conflict resolution has taken place. The Court has awarded ABC 'specific performance' damages. What could this involve?

Options:

DEF must pay money to ABC as stated in the liquidated damages clause

DEF must pay an amount of money as determined by the courts

DEF must deliver the pasta required by ABC

DEF must rescind the contract

Answer

Explanation

DEF must deliver the pasta required by ABC is the correct answer. Specific performance is when the innocent party is rewarded by receiving what was initially negotiated - in this case the delivery of pasta. It's basically a posh way of saying that the court mandates you to do what the contract says. See p. 129 for information on Specific Performance.

Questions # 3:

Which of the following will you put into box 7?

Options:

liability

payment terms

liquidated damages

Contract variation

Answer

Explanation

The correct answers are as follows:

This is a contract variation as they are changing the number of staff and their hours

Questions # 4:

Which of the following will you put into box 8?

Options:

Condition

Warranty

Innominate Term

Answer

Explanation

The correct answers are as follows:

Table Description automatically generated

This is a condition. Again the food being organic would be fundamental to the contract as the health of the llamas depend on it.

This is arbitration as it involves a panel.

This is an innominate term as it won't be mentioned in the contract. It won't be until a breach occurs when it is decided whether the issue of subcontracting is a condition or a warranty, and which one it will be, will likely depend on the situation. For example if they subcontract out to a non-organic llama food provider, that would probably be a Condition. If they get help fulfilling an order and the subcontractor is also organic, that's probably a warranty.

Questions # 5:

What is a boilerplate clause?

Options:

the clause that will take precedent if there are conflicting pieces of information within a contract

a type of warranty

a clause that allows the contract to be modified if both parties are in agreement

a set of clauses that are commercially standard and expected in all contracts

Answer

Explanation

This is #4. This exact definition is given on p.116 under the section 'Giving Notice'

Questions # 6:

Which of the following is not a way in which a contract can end?

Options:

performance

agreement

litigation

breach

Answer

Explanation

Litigation is the correct answer. This is not a way in which a contract can end- it is a conflict resolution method. The three ways in which a contract can end are; performance, agreement and breach. See p. 42 for more details on how contracts end

Questions # 7:

Sally is shopping and sees an advert in a travel agent's window that says that flights to Malta are 50% off. She enters the shop and begins to speak to a travel agent who informs her that the poster she'd seen is out of date. Is the travel agent obliged to give Sally the discounted flight?

Options:

yes- the offer was displayed and therefore must be honoured

yes- the offer is valid until another offer or counter offer is provided

no- the offer has been rescinded

no - the advert is an invitation to treat

Answer

Explanation

Adverts are invitations to treat - not offers. Therefore the travel agent isn't bound to provide the discounted flight. See p.3 for more information on offers and ITTs

Questions # 8:

Which of the following would be included in a contract to assign costs and responsibilities be-tween buyer and seller when products are delivered?

Options:

Indemnity

Liquidated Damages

Liability

Incoterms

Answer

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

Questions # 9:

A contract term which is difficult to classify at the time of drafting a contract is known as?

Options:

condition

warranty

consideration

innominate

Answer

Explanation

Innominate - the conflict resolution process would determine if the clause is a condition or a war-ranty. Before there's a breach there's no way to know, so it's classed as an Innominate Term. P. 43. Types of contract terms comes up a lot in the exam. Learn these.

Questions # 10:

Jenny has received a written offer from a supplier. She emails them to clarify if they can do next day delivery. The supplier does not reply. The next day Jenny makes the payment. Has a contract been formed?

Options:

yes- the supplier made an offer and Jenny accepted it by making a payment

yes- a counter offer has been made

no- the clarification constitutes a conditional acceptance

no- a contract has not been signed

Answer

Explanation

Yes- the supplier made an offer and Jenny accepted it by making a payment is the correct answer. The other three options are incorrect: 'yes- a counter offer has been made' = there is no counter-offer made in this example - a clarification is not a counter-offer / 'no- the clarification constitutes a conditional acceptance' = clarifications are not conditional acceptance / 'no- a contract has not been signed' = there doesn't need to be a signed document- acceptance can be through performance. Issuing the payment would be considered acceptance via performance. See p 2-12 for more information on conditional acceptance, counter offers and acceptance of offers.

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