Master CIPS L4M3 Exam with Reliable Practice Questions
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Which of the following statements is FALSE on contracts for the leasing of assets?
Correct : C
A lease is a contractual arrangement calling for the lessee (user) to pay the lessor (owner) for use of an asset. Some characteristics of Leases are:
- The right to use the lessor's asset is granted in exchange for a fee called the lease payment.
- The lease payments are usually paid in installments.
- Leases may be long- or short-term.
- At its inception a lease agreement constitutes a mutually unperformed contract
Though the ownership of the asset is not transferred to the lessee, some responsibilities and risks do. The lessor and lessee may negotiate on who is responsible on maintenance, insurance, etc.
LO 1, AC 1.3
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You are to do the KPIs and targets for international supplier and the following was done
1. Delivery in an hour
2. Return orders in an hour
Is that a good thing or not?
Correct : C
KPIs and the targets for supplier should be SMART:
- Specific: What exactly do you want to achieve?
- Measurable: How will you identify that you have achieved your goal?
- Achievable: Is your goal really attainable?
- Relevant: Is it relevant to you or, in other words, does it align with where you want to be?
- Time-bound (or timely): When will you deliver your goal, and what are the key milestones?
The two KPIs (Delivery in one hour, Return orders in one hour) are not realistic and achievable for international suppliers. Therefore, you should not put such high targets for supplier.
- What Are SMART KPIs? (Spoiler: They Don't Really Exist!)
- CIPS study guide page 107-108
LO 2, AC 2.2
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A manufacturing company signed a contract with a raw material supplier. The contract includes a clause on liquidated damages in case of late delivery. Purchaser was obliged to pay after 30 days from delivery. Eventually raw material was delivered 1 week later than initial plan due to supplier's slow production process. There is no defect in the delivered batch. Which of the following can be claimed by the manufacturing company?
Correct : B
In certain circumstances, where two parties have monetary debts against each other, the right to set-off may arise. A right of set-off allows a (''Party 1'') to take into account the amount owed to it by the second party (''Party 2'') against any amount owed by Party 1 to Party 2, each party must be a debtor and a creditor.
Common law provides the key features that must be present for set-off to arise are;
1. mutuality of debts (each party must be the sole beneficial owner of the debt it is owed and the sole person liable for the debt it owes)
2. the claims each party has must be for non-payment of money
The common law provisions of set-off can be greatly enhanced by the inclusion of a contractual right to set-off (this is discussed further below) so that set-off is applicable in a greater range of situations. If you envisage set-off being a useful right it is not advisable to rely on the implied ability to use it (via common law or equitable set-off). Common law and equitable set-off are subject to various conditions and limitation however, a contractual right of set-off can be drafted to ensure parties are able to agree exactly how and when set-off should be applied.
In the above scenario, the supplier owes the manufacturer the payment for damages, while the manufacturer owes the supplier the payment for goods. This is mutuality of debts, which leads to right of set off.
- Set-off on the right foot: a practical guide to set-off
- CIPS study guide page 158-159
LO 3, AC 3.2
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Which of the following would be useful tools to incentivise supplier innovation over the duration of the contract?
1. Gainshare arrangement
2. Liquidated damages
3. Service credits
4. Fixed bonus payments
Correct : C
Gainshare is an incentive for cost control
Liquidated damage is common type of disincentive for late completion
Service credit is a remedy for not achieving targets set out in an SLA
Fixed bonus payment is an incentive for early completion
LO 3, AC 3.3
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Which of the following is always an advantage of using fixed price arrangement in a contract for buying organisation?
Correct : A
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
LO 3, AC 3.3
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