CIPS L4M3 Commercial Contracting Online Training

Question #51

Which of the following are likely to be advantages of using invitation to tender? Select TWO that apply:

A . Short turnaround times
B . Quick implementation
C . Driving forward planning culture
D . Lower administration costs
E . Reducing risks of bribery and corruption

Correct Answer: C,E
C,E

Explanation:

Advantages of using invitation to tender may be as below:

No Nepotism: Tenders or bids are evaluated on the basis of certain predetermined criteria, such as price, quality and value for money. In other words, the firm offering the highest quality product or service at the lowest price point would win the contract. As most tender documents are opened and evaluated in a public process, I think that there remains little room for nepotism or favoritism of any kind.

Value for Money: From the perspective of the client, tenders offer the greatest value for the amount of money spent. This is due to the fact that the client can choose from a wide pool of potential suppliers to select the ones that can produce the highest quality product or service at the lowest price point. This allows the company, establishment or organization to save money without having to compromise on quality. Therefore, despite being quite time consuming, tendering is, in my opinion, a profitable long-term process from an organization’s point of view.

Encourages Competition: The process of tendering helps promote a competitive market. This is because a number of potential contractors, firms or suppliers get a chance to bid for every project. And because selection depends on quality and price, every bidder tries to reduce operational inefficiencies and redundancies as much as possible in order to lower expenses and improve quality. This entire process encourages healthy competition in the market and prevents complacency and laziness, which in turn provides a boost to innovation and new ideas.

Easier Entry: The system of tendering makes it easier and simpler for new firms to enter the market or even a particular industry. This is due to the fact that contracts under this system are awarded on the basis of predetermined, objective criteria. As a result, even a

firm that is a new entrant to the market, having no connections or contacts in the industry, can win a prestigious and lucrative contract by providing the highest value for the client’s money. This process therefore helps new firms to quickly get a foothold in the market or industry, thus significantly lowering the traditional barriers to entry.

Reference:

– Characteristics and Benefits of the Tendering Process

– CIPS study guide page 6-8

LO 1, AC 1.1

Question #52

CMS Corp goes into a gainshare agreement with the contractor, EIP Ltd. Both parties agree that the final fee will be calculated on target cost – target fee basis.

Which of the following will affect the final fee payable in this gainshare agreement? Select TWO that apply:

A . Accrual expense
B . Final price
C . Purchaser goodwill
D . Supplier share
E . Actual cost

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Correct Answer: D,E
D,E

Explanation:

An incentive contract is a sub-segment of a fixed-price or cost-reimbursement contract when there are specific cost or time commitments that are desired for a project. The standard incentive contract will allow for a fixed price to be paid for work to be completed by a specific deadline and at a specific cost.

There are two major types of incentive contracts: Cost-plus-incentive fee and Fixed-price incentive (firm target) contracts. Both types have the same formula for calculating final fee and final price.

The target fee is the amount that will be paid if the actual costs (which can be proven) match the target costs

The actual fee will be adjusted in proportion to the difference between the target cost and the actual cost.

The usual calculation is:

Target fee + ((target cost – actual cost) x Supplier share) = final fee

The final price then becomes:

Actual cost + final fee = final price

Reference: CIPS study guide page 185

LO 3, AC 3.3

Question #53

Which of the following is the set of principles that enables courts to determine exactly what the written contract says and what that must mean, then the court will uphold that?

A . Order of precedence
B . Rules of interpretation
C . Unfair Contract Act 1977
D . Rules of contract formation

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Correct Answer: B
B

Explanation:

Courts may be called upon to interpret a statute due to disputes over the meaning of a word or phrase contained within a statute. These disputes may arise through a variety of reasons. It has long been held that words are an imperfect means of communication. Omissions may have occurred at the drafting stage, word or phraseology ambiguity, etymological change through time, oversight on specific points, or a failure to adapt legislation to new developments. This may result in the judiciary providing a role in statutory interpretation. Statutory interpretation in its broadest sense is the process of determining the true meaning of a written document. In UK, the Interpretation Act 1978 provides limited scope to assist judges with statutory interpretation in that it only provides standard definitions to common provisions such as a rebuttable presumption that terminology in the masculine gender also include the feminine, and that the singular includes plural.

An order of precedence clause sets out the order in which the contract documents take precedence in the event of an inconsistency.

The Unfair Contract Terms Act 1977 (c 50) is an Act of Parliament of the United Kingdom which regulates contracts by restricting the operation and legality of some contract terms. It extends to nearly all forms of contract and one of its most important functions is limiting the applicability of disclaimers of liability. The terms extend to both actual contract terms and notices that are seen to constitute a contractual obligation.

Reference:

– Rules of Statutory Interpretation

– CIPS study guide page 43-46

LO 1, AC 1.2

Question #54

Which of the following should be specially noticed in market dialogue with suppliers in specification development?

A . Both parties must respect confidentiality
B . The buying organisation must avoid social media at all cost
C . Market dialogue is banned in the public sector
D . Market dialogue should only be conducted with well-known supplier

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Correct Answer: A
A

Explanation:

Being clear on your objectives helps you to design the best approach to the dialogue.

There are some notices in developing dialogue with suppliers:

– All meetings should be documented

– Respect commercial confidentiality. Although insights gained from one conversation lead to questions in another, you must be very careful not to allow this to happen in a way that breaches the confidentiality of the first conversation.

Reference: CIPS study guide page 84-85

LO 2, AC 2.1

Question #55

According to mailbox rule in some common law countries, at which point the offeree’s acceptance will be effective?

A . When the letter of acceptance is opened and its contents read by the offeree.
B . When the letter of acceptance is received by the offeror.
C . When the letter of acceptance has been written.
D . When the letter of acceptance has been correctly addressed, its postage paid, and posted.

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Correct Answer: D
D

Explanation:

When parties do not negotiate face-to-face, a key QUESTION NO: becomes when things like acceptances, rejections and revocations take effect. The general rule is that acceptances are effective on dispatch (when they are mailed). Everything else becomes effective when the offeror actually receives them. This idea is codified by the “mailbox rule” which states that acceptance is effective on dispatch, even before the offeror has received it. (The one minor exception to this rule involves option contracts for which acceptances are not effective until they are received by the offeror.)

Reference:

– The Mailbox Rule

– CIPS study guide page 34

Question #56

Which of the following is always an advantage of using fixed price arrangement in a contract for buying organisation?

A . Buyer can allocate budget with certainty
B . Buyer can harness falling market price
C . Supplier always receives a fixed margin
D . Suitable for contracts that last 5 years or more

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Correct Answer: A
A

Explanation:

Advantages of using fixed pricing arrangement are as below:

– Budget/income certainty – prices are fixed up front and should not change

– The impact of changes to the supplier’s cost base is not fed through to the purchaser. If costs diminish, the supplier will benefit from this, and if costs rise, the purchaser will benefit

Reference: CIPS study guide page 172-176

LO 3, AC 3.3

Question #57

Which of the following should be taken to avoid the conflicts between orally negotiated terms before the conclusion of contract and the final written contract?

A . Finding signs of misrepresentation of the other contracting party
B . Prevailing orally negotiated terms over the final written contract
C . Embedding a term excluding all prior oral discussions that are not mentioned in the final written contract
D . Avoiding long negotiation

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Correct Answer: C
C

Explanation:

When a written contract is based on oral negotiation, to avoid the conflicts between orally negotiated terms and final written contract, the contract should include an express term that specifically excludes all prior oral discussion. However, orally negotiated terms can be used to interpret the final contract.

This practice (excluding prior discussion) is so common in international commercial contract that UNIDROIT Principles of International Commercial Contracts have an article (2.1.17) dealing with this.

Reference: CIPS study guide page 130

LO 3, AC 3.1

Question #57

Which of the following should be taken to avoid the conflicts between orally negotiated terms before the conclusion of contract and the final written contract?

A . Finding signs of misrepresentation of the other contracting party
B . Prevailing orally negotiated terms over the final written contract
C . Embedding a term excluding all prior oral discussions that are not mentioned in the final written contract
D . Avoiding long negotiation

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Correct Answer: C
C

Explanation:

When a written contract is based on oral negotiation, to avoid the conflicts between orally negotiated terms and final written contract, the contract should include an express term that specifically excludes all prior oral discussion. However, orally negotiated terms can be used to interpret the final contract.

This practice (excluding prior discussion) is so common in international commercial contract that UNIDROIT Principles of International Commercial Contracts have an article (2.1.17) dealing with this.

Reference: CIPS study guide page 130

LO 3, AC 3.1

Question #57

Which of the following should be taken to avoid the conflicts between orally negotiated terms before the conclusion of contract and the final written contract?

A . Finding signs of misrepresentation of the other contracting party
B . Prevailing orally negotiated terms over the final written contract
C . Embedding a term excluding all prior oral discussions that are not mentioned in the final written contract
D . Avoiding long negotiation

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Correct Answer: C
C

Explanation:

When a written contract is based on oral negotiation, to avoid the conflicts between orally negotiated terms and final written contract, the contract should include an express term that specifically excludes all prior oral discussion. However, orally negotiated terms can be used to interpret the final contract.

This practice (excluding prior discussion) is so common in international commercial contract that UNIDROIT Principles of International Commercial Contracts have an article (2.1.17) dealing with this.

Reference: CIPS study guide page 130

LO 3, AC 3.1

Question #57

Which of the following should be taken to avoid the conflicts between orally negotiated terms before the conclusion of contract and the final written contract?

A . Finding signs of misrepresentation of the other contracting party
B . Prevailing orally negotiated terms over the final written contract
C . Embedding a term excluding all prior oral discussions that are not mentioned in the final written contract
D . Avoiding long negotiation

Reveal Solution Hide Solution

Correct Answer: C
C

Explanation:

When a written contract is based on oral negotiation, to avoid the conflicts between orally negotiated terms and final written contract, the contract should include an express term that specifically excludes all prior oral discussion. However, orally negotiated terms can be used to interpret the final contract.

This practice (excluding prior discussion) is so common in international commercial contract that UNIDROIT Principles of International Commercial Contracts have an article (2.1.17) dealing with this.

Reference: CIPS study guide page 130

LO 3, AC 3.1