CIPS L4M3 Commercial Contracting Online Training
CIPS L4M3 Online Training
The questions for L4M3 were last updated at Nov 23,2024.
- Exam Code: L4M3
- Exam Name: Commercial Contracting
- Certification Provider: CIPS
- Latest update: Nov 23,2024
Cleveland Insurance (Cleveland) offers a range of insurance services. The main software used in the call centre is a customer relationship management (CRM) system. Cleveland perceived an urgent need to replace the existing CRM system to deal with the increasing number of customers and services.
Urgent Digital Ltd (Digital) is one of the bidders of Cleveland’s ITT for designing, building and managing the new CRM system. Its bid team is led by Hank Irvine, its technical director. Hank realises that winning the Cleveland contract (valued at approximately £50M) will enhance his career. During discussions with Cleveland, Hank offers certain assurances regarding timescales for the project. He has not carried out any investigations into the viability of the timescales. Hank has little idea whether the timescales can be met.
Cleveland decides that Digital’s bid meets with its requirements, especially given the assurances in timescale offered by Hank, and decides to proceed with it, subject to a formal contract. Eventually, a formal contract is signed by both parties. The initial assurances given by Hank about the timing of the project are never going to be achieved and are at best grossly exaggerated.
Cleveland brought the case to the court and sought rescission of contract with Digital. Is Cleveland’s claim appropriate in this case?
- A . Yes, because Cleveland needs to seek rescission first before claiming for damages
- B . Yes, because both parties agreed with rescission of their contract
- C . No, because the work had been carried out which could not be returned
- D . No, because the contract does not include any provision on rescission
C
Explanation:
Hank’s pre-contractual assurances may amount to misrepresentation. Remedies for misrepresentation could be rescission of contract or damages.
Rescission will be impossible in the following instance:
– Where the innocent party has affirmed the contract; that is, acted in a way confirming that they wish it to continue
– Where the claim has not been brought within a reasonable time (this is a point of general law)
– Where restitution (returning to the pre-contractual position) is impossible (e.g. because the goods have been consumed or have deteriorated)
– Where there has been intervention of innocent third-party (e.g., if the goods have been sold on)
In this case, the subject of contract is designing, building and managing the new CRM system which is impossible to be restituted. Therefore, the contract cannot be rescinded.
Reference: CIPS study guide page 53-55
LO 1, AC 1.2
Cleveland Insurance (Cleveland) offers a range of insurance services. The main software used in the call centre is a customer relationship management (CRM) system. Cleveland perceived an urgent need to replace the existing CRM system to deal with the increasing number of customers and services.
Urgent Digital Ltd (Digital) is one of the bidders of Cleveland’s ITT for designing, building and managing the new CRM system. Its bid team is led by Hank Irvine, its technical director. Hank realises that winning the Cleveland contract (valued at approximately £50M) will enhance his career. During discussions with Cleveland, Hank offers certain assurances regarding timescales for the project. He has not carried out any investigations into the viability of the timescales. Hank has little idea whether the timescales can be met.
Cleveland decides that Digital’s bid meets with its requirements, especially given the assurances in timescale offered by Hank, and decides to proceed with it, subject to a formal contract. Eventually, a formal contract is signed by both parties. The initial assurances given by Hank about the timing of the project are never going to be achieved and are at best grossly exaggerated.
Cleveland brought the case to the court and sought rescission of contract with Digital. Is Cleveland’s claim appropriate in this case?
- A . Yes, because Cleveland needs to seek rescission first before claiming for damages
- B . Yes, because both parties agreed with rescission of their contract
- C . No, because the work had been carried out which could not be returned
- D . No, because the contract does not include any provision on rescission
C
Explanation:
Hank’s pre-contractual assurances may amount to misrepresentation. Remedies for misrepresentation could be rescission of contract or damages.
Rescission will be impossible in the following instance:
– Where the innocent party has affirmed the contract; that is, acted in a way confirming that they wish it to continue
– Where the claim has not been brought within a reasonable time (this is a point of general law)
– Where restitution (returning to the pre-contractual position) is impossible (e.g. because the goods have been consumed or have deteriorated)
– Where there has been intervention of innocent third-party (e.g., if the goods have been sold on)
In this case, the subject of contract is designing, building and managing the new CRM system which is impossible to be restituted. Therefore, the contract cannot be rescinded.
Reference: CIPS study guide page 53-55
LO 1, AC 1.2
Cleveland Insurance (Cleveland) offers a range of insurance services. The main software used in the call centre is a customer relationship management (CRM) system. Cleveland perceived an urgent need to replace the existing CRM system to deal with the increasing number of customers and services.
Urgent Digital Ltd (Digital) is one of the bidders of Cleveland’s ITT for designing, building and managing the new CRM system. Its bid team is led by Hank Irvine, its technical director. Hank realises that winning the Cleveland contract (valued at approximately £50M) will enhance his career. During discussions with Cleveland, Hank offers certain assurances regarding timescales for the project. He has not carried out any investigations into the viability of the timescales. Hank has little idea whether the timescales can be met.
Cleveland decides that Digital’s bid meets with its requirements, especially given the assurances in timescale offered by Hank, and decides to proceed with it, subject to a formal contract. Eventually, a formal contract is signed by both parties. The initial assurances given by Hank about the timing of the project are never going to be achieved and are at best grossly exaggerated.
Cleveland brought the case to the court and sought rescission of contract with Digital. Is Cleveland’s claim appropriate in this case?
- A . Yes, because Cleveland needs to seek rescission first before claiming for damages
- B . Yes, because both parties agreed with rescission of their contract
- C . No, because the work had been carried out which could not be returned
- D . No, because the contract does not include any provision on rescission
C
Explanation:
Hank’s pre-contractual assurances may amount to misrepresentation. Remedies for misrepresentation could be rescission of contract or damages.
Rescission will be impossible in the following instance:
– Where the innocent party has affirmed the contract; that is, acted in a way confirming that they wish it to continue
– Where the claim has not been brought within a reasonable time (this is a point of general law)
– Where restitution (returning to the pre-contractual position) is impossible (e.g. because the goods have been consumed or have deteriorated)
– Where there has been intervention of innocent third-party (e.g., if the goods have been sold on)
In this case, the subject of contract is designing, building and managing the new CRM system which is impossible to be restituted. Therefore, the contract cannot be rescinded.
Reference: CIPS study guide page 53-55
LO 1, AC 1.2
Offeree has not accepted the offer yet
- A . 2 and 4 only
- B . 1 and 4 only
- C . 1 and 3 only
- D . 2 and 3 only
A
Explanation:
A revocation of offer is the withdrawal of a previous offer to engage in some sort of legally binding contract. The previous offer had to have been such that it would have immediately become legally binding if the other party had formally agreed to it.
A core ruling defining revocation of offers was established by Payne v. Cave. This case established that neither party is bound to an agreement until an offer has been made by one and formally accepted by the other.
If an offer has been made, the offering party has a right to withdraw it up to formal acceptance by the offeree. Revocation basically serves as formal, legally verifiable notice that a withdrawal was made, and it’s valid so long as it is communicated to the offeree before they accept.
The case of Byrne v. Van Tienhoven supports this by establishing that the withdrawal of an offer by telegram is only valid if the telegram is received before the offer is accepted. The case of Dickinson v. Dodds further establishes that the party making the offer can communicate the revocation through a third party.
Reference:
– What Is a Revocation of Offer?
– CIPS study guide page 31
LO 1, AC 1.2
Express terms in a contract are stated in which of the following? Select TWO that apply
- A . Orality
- B . Idea
- C . Trade customs
- D . Writing form
- E . Statutes
A,D
Explanation:
Express terms are the terms of the agreement which are expressly agreed between the parties. Ideally, they will be written down in a contract between the parties but where the contract is agreed verbally, they will be the terms discussed and agreed between the parties.
Implied terms are terms implied into the contract by the courts. They are not expressly set out in the contract but are taken to be as effective as if they were and as if they had been included from day one of the contract. The express terms and any implied terms together create the legally binding obligations on the parties.
Reference:
– Contracts: Express and Implied Terms
– CIPS study guide page 126-132
LO 3, AC 3.1
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…?
- A . Good market knowledge
- B . Selection of base year
- C . Value for money
- D . Economy of scale
A
Explanation:
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.
Reference: CIPS study guide page 184
LO 3, AC 3.3
Is the government only source of industrial standards within a country?
- A . No, the government can only adopt standards regarding security and defence
- B . Yes, while ISO make standards for international trade, the government standardises other facets of their country
- C . No, an organisation can also generate its own internal standards
- D . Yes, the standards must be made by legislative branch of the country
C
Explanation:
A standard is a document that sets out requirements for a specific item, material, component, system or service, or describes in detail a particular method or procedure. Standards are established by consensus and approved by recognized standardization bodies.
There are several different types of standards. Some of the most commonly-used standards set out the requirements that a particular kind of product, service or process must fulfil, in order to establish that it is ‘fit for purpose’. Other types of standard relate to methods of testing, terminology and definitions, information requirements, or the compatibility of connections.
Standards provide individuals, businesses and all kinds of organizations with a common basis for mutual understanding. They are especially useful for communication, measurement, commerce and manufacturing.
Standards make trade easier by ensuring compatibility and interoperability of components, products and services. They bring benefits to businesses and consumers in terms of reducing costs, enhancing performance and improving safety.
Standards are voluntary, which means that businesses and other organizations are not legally obliged to apply them. However, in certain cases standards may facilitate compliance with legal requirements, such as those contained in European directives and regulations.
Standards can be made by a company, a standard organisation (such as ISO or BSI) or regulatory bodies.
Reference:
– CIPS study guide page 93-94
– Standards and your business LO 2, AC 2.1
Which of the following is most likely to be an one-off contract?
- A . Franchise Agreement
- B . Framework Agreement for supply of mono-crystalline silicon
- C . Contract for construction of a power plant
- D . Commercial lease agreement of an office building
C
Explanation:
One-off contracts are used where a supplier is only needed for a single activity unlikely to be repetitive, and where the need of the buyer is concrete and finite. Among the answers, only construction for power plant is one-off since the work is non-repetitive and the need is clearly defined.
A framework agreement is an agreement between one or more businesses or organisations, "the purpose of which is to establish the terms governing contracts to be awarded during a given period, in particular with regard to price and, where appropriate, the quantity envisaged".
A Commercial Lease Agreement is a contract used when renting business property to or from another individual or company. It gives the tenant (or renter) the right to use the property for business purposes during the term of the lease in exchange for payment to the landlord.
A franchise agreement is a legally binding document that outlines a franchisor’s terms and conditions for a franchisee. Every franchise is governed by these terms, which are generally outlined in a written agreement between both parties.
Reference: CIPS study guide page 55-58
LO 1, AC 1.3
XYZ Ltd and Engineer Corp signed a long-term supply contract in which both parties had agreed on performance targets. Recently, due to increased customer demands, XYZ Ltd realises that they should make changes to the contract with Engineer Corp with regards to performance management. These changes are approved and signed by both the buyer and seller.
The changes to the contract are known as…?
- A . An amendment to the prime contract
- B . A stand-alone subcontract to the prime contract
- C . An appendix to the prime contract
- D . A separate counter-offer to the supplier
A
Explanation:
The changes are made to the prime contract. They are also signed and approved by both parties. These changes are known as amendment (variation) to the contract. A contract amendment allows the parties to make a mutually agreed-upon change to an existing contract. An amendment can add to an existing contract, delete from it, or change parts of it. The original contract remains in place, only with some terms altered by way of the amendment.
Reference:
– Modify an Existing Contract with a Contract Amendment
– CIPS study guide page 26-28
LO 1, AC 1.1
XYZ Ltd and Engineer Corp signed a long-term supply contract in which both parties had agreed on performance targets. Recently, due to increased customer demands, XYZ Ltd realises that they should make changes to the contract with Engineer Corp with regards to performance management. These changes are approved and signed by both the buyer and seller.
The changes to the contract are known as…?
- A . An amendment to the prime contract
- B . A stand-alone subcontract to the prime contract
- C . An appendix to the prime contract
- D . A separate counter-offer to the supplier
A
Explanation:
The changes are made to the prime contract. They are also signed and approved by both parties. These changes are known as amendment (variation) to the contract. A contract amendment allows the parties to make a mutually agreed-upon change to an existing contract. An amendment can add to an existing contract, delete from it, or change parts of it. The original contract remains in place, only with some terms altered by way of the amendment.
Reference:
– Modify an Existing Contract with a Contract Amendment
– CIPS study guide page 26-28
LO 1, AC 1.1
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