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2023 Realistic Verified Free CIPS L5M3 Exam Questions

The CIPS L5M3: Managing Contractual Risk exam is a key module in the Chartered Institute of Procurement and Supply (CIPS) Level 5 Advanced Diploma in Procurement and Supply. The exam is designed to test the knowledge and skills of procurement professionals in managing contractual risk.

The CIPS L5M3 certification exam is an essential qualification for procurement professionals who aim to master the intricacies of managing contractual risk. The exam is designed to assess the candidate's knowledge and understanding of the legal and commercial aspects of contract management. It covers various topics, including contract formation, contract types, risk assessment, and dispute resolution.

 

NEW QUESTION # 56
Which of the following situations would be considered a minor breach of a contract? Select TWO:

• A. A supplier delivers a lorry-load of produce six hours late due to a burst tyre.
• B. a zoo orders three baby lions and is given three baby tigers
• C. a supplier has breached a non-disclosure agreement
• D. a painter is contracted to paint a room white but paints it magnolia as there was no white paint available
• E. a consultant has given bad advice

Answer: C,D

Explanation:
The correct answers are: 1) the painter using magnolia instead of white, and 5) the supplier who was late on his delivery. These are considered minor breaches because the contract was still fulfilled and it didn't affect the contract in any significant way. In this type of question you have to use logic to deduce the right answer; 2) A consultant giving bad advice would be a major breach - it would be a huge issue, particularly if that advice led to an accident or death. Think about an Architect advising on a type of pillar, and it turns out that pillar can't support the weight of the building. That would be bad. 3) Lions and Tigers are not the same thing - so that would be a pretty fundamental mistake in a contract. 4) Breaching a non-disclosure agreement is usually considered a major breach of a contract (this is mentioned in chapter 2.1). See p. 48 for more information on minor breaches.

NEW QUESTION # 57
When drafting a liability clause in a contract, which of the following statements are TRUE? Select THREE

• A. the goal of the liability clause is to punish the contractor for poor performance
• B. liability can only be limited where there is valid insurance
• C. liability is a legal responsibility
• D. exclusions should be narrowly defined and clearly state which types of liabilities are excluded
• E. liability cannot be excluded for injury resulting from negligence

Answer: C,D,E

Explanation:
The correct answers are 1, 3 and 5: exclusions should be narrowly defined and clearly state which types of liabilities are excluded, liability is a legal responsibility and liability cannot be excluded for injury resulting from negligence. These are all explained on p. 22. Liability is never there to publish anyone (this is a red herring answer that CIPS like to put into different questions and it's usually the wrong answer - no one should look to publish anyone else). The option 'Liability can only be limited where there is valid insurance' is not true. A contract can state any limitations on liability so long as it's agreed by both parties, they're fair and don't contradict any laws. The thing about not being able to exclude liability regarding personal injury is a Law in the UK.

NEW QUESTION # 58
Which of the following is not a form of ADR (Alternative Dispute Resolution)?

• A. arbitration
• B. conciliation
• C. mediation
• D. negotiation

Answer: D

Explanation:
Negotiation isn't an alternative dispute resolution because it's supposed to be the 'default' dispute resolution- the one you automatically do when a problem occurs. Only if negotiation fails should you turn to ADR. P. 142

NEW QUESTION # 59
Which of these is NOT a stage in negotiation?

• A. adjourning
• B. agreement
• C. bargaining
• D. proposal

Answer: A

Explanation:
Adjourning is not a stage. The 6 stages of negotiation are; preparation, opening, discussion, pro-posal, bargaining and agreement. P.64

NEW QUESTION # 60
Which of the following will you put into box 8?

• A. adjudication
• B. litigation
• C. mediation
• D. arbitration

Answer: D

Explanation:
The correct answers are as follows:

This is arbitration as it involves a panel.

NEW QUESTION # 61
What is a Prime Contract?

• A. A contract between a buyer and main supplier
• B. A contract between an end customer and a company which has full responsibility for its performance
• C. A contract between a public sector organisation and the taxpayer
• D. A contract between a supplier and a subcontractor

Answer: B

Explanation:
"A contract between an end customer and a company which has full responsibility for its perfor-mance" is the correct answer. This is the definition of Prime Contract given on p. 47

NEW QUESTION # 62
Tyrone Enterprises has just come out of a meeting with one of its suppliers Bob. The meeting has not gone well and the contract has become frustrated. What does this mean?

• A. The buyer no longer requires the supplier but is tied into the contract
• B. Negotiations between the buyer and supplier have failed and dispute resolution will need to take place
• C. a situation has occurred which means that the contract can no longer be performed
• D. the supplier has committed a major breach and is unable to fulfil the contract

Answer: C

Explanation:
Frustrated is when "a situation has occurred which means that the contract can no longer be per-formed". The situation is one which is outside of the control of either party and its no one's fault that this has happened. A common example of this is when contracts were unable to be performed due to Covid-19 and the national lockdown. The government mandated everyone 'stay at home' and therefore some business contracts were unable to be fulfilled, and were therefore 'frustrated' (for example the delivery of popcorn to cinemas- the cinemas were told by the government to close so the popcorn couldn't be delivered. This wasn't anyone's fault). See p. 47 for more information on Contract Frustration

NEW QUESTION # 63
Alan has an ongoing contract with a supplier for the provision of gardening tools to his horti-culture business. He has been working with the supplier for over 20 years and has recently discovered that the supplier committed a breach in a warranty 3 years ago. Can Alan claim damages?

• A. yes- Alan can claim damages and rescind the contract
• B. yes- the breach has occurred and a contract is in place
• C. no- Alan could only claim if the breach was of a condition, not a warranty
• D. no- Alan cannot claim because the breach was so long ago

Answer: B

Explanation:
"Yes- A Breach has occurred and a contract is in place" - this is the correct answer. Claims against warranties can be made up to six years from the date the contract is breached. Option 2 isn't correct as a breach in warranty does not allow you to rescind the contract. Options 3 and 4 are incorrect because Alan CAN claim damages. There's a useful table about warranties and conditions on p. 127

NEW QUESTION # 64
Service Credits are a form of what?

• A. liquidated damages
• B. Consideration
• C. KPI
• D. indemnity

Answer: A

Explanation:
Service Credits are a form of Liquidated Damages - it's a financial remedy, common in the IT in-dustry, which is available to a buyer when the service level falls below an expected level. See p. 31 for more details.

NEW QUESTION # 65
Harry is negotiating a contract for a new IT system for his business. He is investing heavily in the system and wants the system to be able to provide the services he requires for the next 10 years. However he is aware that technology is changing quickly and would like to include a clause in the contract to ensure that the system he is purchasing is useable for the next 10 years. What should Harry include in the contract?

• A. change control
• B. service credits
• C. benchmarking
• D. limitation of liability

Answer: C

Explanation:
Benchmarking should be included- this is common in long-term contracts where variables can af-fect the market over time. By including benchmarking, harry gets assurance that the product he purchases will meet the market expectations over the next 10 years. The other answers are incorrect; 1- there is no mention of liability in the question so this is incorrect. 2- service credits would be used if he is concerned the product would be offline/ not perform (it's a form of damages) but this isn't the case in this scenario. He's not worried about underperformance, he's worried about obsolescence. 4- change control is for when there are multiple versions of a contract due to amendments being made.

NEW QUESTION # 66
Which of the following will you put into box 8?

• A. adjudication
• B. litigation
• C. mediation
• D. arbitration

Answer: D

Explanation:
The correct answers are as follows:

This is arbitration as it involves a panel.

NEW QUESTION # 67
Which of the following statements are TRUE about negotiation? Select THREE

• A. the process is flexible
• B. the process is voluntary
• C. the outcome of the negotiation is public
• D. it is a quick and cost effective method to resolve disputes
• E. the process can involve a neutral third party

Answer: A,B,D

Explanation:
The correct answers are 1, 4 and 5. Negotiation does NOT involve a third party and the outcome is private / confidential. See p.63 for more information on negotiation

NEW QUESTION # 68
Which of the following will you put into box 5?

• A. liquidated damages
• B. payment terms
• C. liability
• D. Contract variation

Answer: B

Explanation:
The correct answers are as follows:

This is payment terms - the discussion is about amending the payment terms from 60 days to 30 days.

NEW QUESTION # 69
Conciliation differs from mediation in which of the following ways?

• A. the outcome of mediation is not binding and the outcome of conciliation is binding
• B. mediation is voluntary and conciliation is mandatory
• C. mediation is cheaper than conciliation
• D. the mediator has no decision making power but a conciliator can provide recommen-dations

Answer: D

Explanation:
The true statement is 'the mediator has no decision making power but a conciliator can provide recommendations'. The other statements are false; both processes are voluntary, cheap and non-binding.

NEW QUESTION # 70
Which TWO conflict resolution methods provide certainty of resolution?

• A. adjudication and litigation
• B. adjudication and mediation
• C. mediation and litigation
• D. arbitration and conciliation

Answer: A

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.

NEW QUESTION # 71
A failure to perform a provision of a contract which does not affect the end performance of the contract is known as what?

• A. minor breach
• B. major breach
• C. small breach
• D. warranty breach

Answer: A

Explanation:
This is a minor breach. This is the definition as given in the study guide on p. 48

NEW QUESTION # 72
What is the first stage in conflict resolution?

• A. assess the impact of the breach
• B. identify the nature and source of the conflict
• C. look at remedies available
• D. decide on the type of conflict resolution approach

Answer: B

Explanation:
The first stage is 'identify the nature and source of the conflict'. Stage 2 is assess the impact of the breach, stage 3 is look at remedies available and stage 4 is agree on a way forward and type of conflict resolution. These stages are explained on p.62 of the study guide.

NEW QUESTION # 73
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