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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 # 11:

When a contract becomes 'crystalised' what does this mean?

Options:

a fundamental breach has occurred

the contract has been terminated

a dispute has arisen which qualifies for resolution by adjudication

a minor dispute has occurred and has been resolved between the parties

Answer

Explanation

Crystalised means ' a dispute has occurred which qualifies for resolution by adjudication'. This is a direct quote from p. 144

Questions # 12:

What is the name given to a term in a contract where one party promises to compensate the other party for a trigger event?

Options:

liability

warranty

damages

indemnity

Answer

Explanation

Indemnity- this is the definition given on p. 20

Questions # 13:

Which of the following would not be considered a contract? Select TWO

Options:

A written agreement between two robbers to rob a bank which states that the money gained would be split evenly between the two.

a domestic agreement between two parents about who will pick the kids up from school

a phone call between a supplier and buyer in which the buyer agrees to purchase 100 teddy bears from the supplier for £100.

a written document in which Paul agrees to clean Freda's house for £10

an email chain between a buyer and supplier which includes a PO and Invoice

Answer

A, B

Explanation

The correct answers are; A written agreement between two robbers to rob a bank which states that the money gained would be split evenly between the two AND a domestic agreement between two parents about who will pick the kids up from school. There are 3 instances when a contract isn't considered a contract and these are; illegal activity (like example A), a social or domestic arrange-ment (like example B) and when something is an 'Invitation to Treat'. See p.2-3 Remember con-tracts don't have to be written - they can be verbal (example C), the exchange doesn't have to be fair (example D) and it can be implied by conduct (example E).

Questions # 14:

What is the purpose of conflict resolution?

Options:

to create a binding solution to an issue

to agree on a way forward

to ensure all parties are happy with the outcome

to punish the party who breaks the contract

Answer

Explanation

The purpose is 'to agree a way forward'. This is a direct quote from p.61. The other answers are incorrect- conflict resolution isn't always binding and sometimes not all parties are happy with the outcome. It certainly isn't about punishing about anyone (this is a common red herring option given in the exam)

Questions # 15:

Restitution damages are often calculated before contracts are signed and are clearly stated within a contract. Which of the following statements is not true?

Options:

restitution damages means you are unable to claim for future losses

restitution damages may leave the breaching party in a worse position than they were in before the contract began

restitution damages are calculated based on how much the breaching party gained, ra-ther than how much the innocent party lost

restitution damages cannot be mitigated by the actions of the innocent party

Answer

Explanation

"restitution damages cannot be mitigated by the actions of the innocent party" is the untrue state-ment out of these four. The general principle of Restitution Damages is that the innocent party is expected to be proactive in mitigating the consequences of any breach and should not allow costs to spiral out of control. See p. 124

Questions # 16:

David is selling his house and Barbera would like to buy it. David is expecting to get £100,000 for his house. Barbera offers £80,000 and David asks Barbera if she'll pay £90,000 instead. Barbera says no. After a week David hasn't had any other offers so would like to accept Bar-bera's offer. Can he do this?

Options:

yes- Barbera's offer is still valid as it didn't come with a time clause attached

yes- Barbera's offer is the best he will receive

no - David's counter offer rescinded Barbera's offer

no- he waited too long and Barbera's offer has expired

Answer

Explanation

"No - David's counter offer rescinded Barbera's offer" is the correct answer. Remember: "once a counter offer is made, the original offer is viewed as rejected" - p.6 of the study guide. What this means is when David goes back to Barbera about the £80,000 - he is now the offeror - and Barbera has the option to reject this. David is no longer in a position to accept or reject - Barbera is.

Questions # 17:

Which of the following must a legally binding contract contain? Select THREE

Options:

Intention

Indemnity

Consideration

Liability

Capacity

Answer

A, C, E

Explanation

Intention, Consideration and Capacity are the correct answers. A contract must contain 5 elements to be legally binding. As well as these three, the other two factors are offer and acceptance. P.2 of the study guide.

Questions # 18:

In which conflict resolution method is communication predominately written rather than spoken?

Options:

negotiation

adjudication

arbitration

conciliation

Answer

Explanation

Adjudication is written. The other conflict resolution methods involve talking to the other person, or presenting arguments orally to a judge. See p.77 for more info.

Questions # 19:

Logan Gin Distillery is creating a contract for one of its new suppliers. It is a complicated item that they are ordering and if things go wrong, it would have an extremely negative impact on production, and therefore on revenue. However it is impossible to say what the cost of this would be if things were to go wrong. What type of clause should be included in the contract?

Options:

liquidated damages

unliquidated damages

penalty clause

service credit

Answer

Explanation

Unliquidated damages would be the best to include as there is no way of identifying a figure for liquidated damages. This would be the safest thing for the buyer to do. P.108 - section on Unliqui-dated Damages.

Questions # 20:

Which TWO conflict resolution methods provide certainty of resolution?

Options:

adjudication and mediation

mediation and litigation

arbitration and conciliation

adjudication and litigation

Answer

Explanation

Adjudication and Litigation (and Arbitration too) all provide certainty of a resolution. The other methods don’t. There's a really useful table with this information on p.87 of the study guide.

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