L4M3 Exam Questions & Answers
Commercial Contracting • CIPS
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Sample L4M3 Questions
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A procurement manager is preparing a long-term contract with a major supplier. She decides to use the variable pricing arrangement using price indices. The payment terms describe the circumstances and mechanism where the price is allowed to change. In order to successfully manage this type of contract, the buying organisation should have...?
There are several approaches to price adjustment for long-term contract. Describing circumstances and mechanism is one of them. Although this approach has some limitations, it is the best option. It relies on good market knowledge but provides the most equitable approach to satisfying the needs of the purchaser and the supplier.
LO 3, AC 3.3
Buyer D agrees a contract with Supplier C which includes the words 'to be agreed' in relation to the date for delivery of the goods. At the time of the contract, Buyer D is aware that the goods take two days to produce and one day to deliver. Buyer D contacts the supplier one week later, requesting the goods be delivered the following day. Supplier C is unable to deliver the next day but rather delivers the goods three days later. Is it the case that Buyer D can legally refuse to pay for the goods because Supplier C is in breach of contract?
In the absence of a clearly defined delivery date, contract law defaults to performance within a ''reasonable time.'' Given that no firm delivery date was agreed upon and the goods were delivered in a timeframe consistent with known production and delivery times, the supplier is not in breach.
Blakenall District Hospital (BDH) is a large hospital that is a major part of the government's health service. Purchasing staff are in the habit of placing many long-term contracts with suppliers and sub-contractors. Whilst these contracts are usually carried out successfully, prices are often paid that are well over budget. The purchasing manager is concerned to find that, in some cases, members of staff are forcing suppliers to accept fixed price contracts. The policy hascaused several problems such as some suppliers refusing to deal with BDH and a few going out of business mid-way through performing a contract with BDH. This is due to fluctuating market prices of materials. The procurement manager suggests supplier to adopt variable pricing arrangement with price index. Is this a right course of action?
Procurement staff in the Hospital is forcing suppliers into fixed price contract. If the costs generally rise, supplier may operate at a loss. This situation can disrupt the relationship, that is the reason why some suppliers refusing to deal with BDH and a few going out of business mid-way.
Alternative methods could be variable pricing arrangement. This method would reimburse the fluctuation of market price. It will also benefit buyer if the market price drops. This type of arrangement should be applied to long-term contracts (i.e. 18 months or more).
LO 3, AC 3.3
Which of the following is a key element for the development of a contract?
Scoping specifications are fundamental in the development of a contract as they define the requirements, standards, and expectations for the goods or services to be provided. This clarity ensures that both parties have a mutual understanding of the deliverables, which is essential for a legally binding agreement. While contract management and supplier management are critical post-contract award activities, and budget approval is an internal process, scoping specifications directly contribute to the contract's formation.
Which of the following should include in the service level agreement that is an appendix of a contract?
1. How often the service is measured
2. Minimum qualification of supplier staffs
3. Remedies to resolve dispute
4. On time service delivery
When the SLA is a schedule or an appendix to the contract, it should clearly state the following:
1. KPIs: how they are to be measured, who measures them and how often
2. How the measurements convert into scores
3. Any other service level standards, which may be of lesser importance than the KPIs
4. Minimum acceptable standards or scores in each case
5. Range of scores both above and below the minimum acceptable
6. Any mitigating factors which might apply in the event of poor performance
7. Any time period permitted in which to remedy a situation or poor performance.
In this question, '2. Minimum qualification of supplier staffs' and '4. On time service delivery' are the KPIs, while '1. How often the service is measured' is the frequency in which the KPIs are measured.
The remedies available in the event of poor performance should be set out in the body of the contract, along with those for any other contractual breach. These clauses should be cross-referenced in the SLA.
LO 2, AC 2.2
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