CIPS L5M3 Managing Contractual Risk Exam Practice Test

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Total 120 questions
Question 1

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?



Answer : C

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.


Question 2

Which of the following statements about penalty clauses is not true?



Answer : B

2 - penalty clauses are not illegal. However they may be judged excessive in a court of law and thrown out. Most contracts will instead opt for liquidated damages rather than a penalty clause. See p.90


Question 3

Which TWO conflict resolution methods provide certainty of resolution?



Answer : D

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.


Question 4

Buyer A and Supplier B have had a disagreement regarding a breach in the contract. They are looking to resolve the issue via arbitration. Which of the following is true about arbitration?



Answer : A

The outcome is binding and enforceable is the correct answer. However the ruling can be appealed. Arbitration is a flexible approach, and the outcome doesn't set legal precedent. The role of the arbitrator is to reach a decision, only in mediation is the role of the third party to facilitate dialogue rather than reach a decision. See p.80 for more information on arbitration.


Question 5

In which conflict resolution method is communication predominately written rather than spoken?



Answer : B

Adjudication is written. The other conflict resolution methods involve talking to the other person, or presenting arguments orally to a judge. See p.77 for more info.


Question 6

Mark is a consultant who works with building managers and advises them on how to make their buildings safer. What type of insurance should Mark have?



Answer : C

Mark needs professional indemnity insurance. Types of insurance is a known exam topic and the study guide does not cover this particularly well. Types of insurance is mentioned on p.25 but Pro-fessional Indemnity Insurance isn't really explained and this does come up in the exam. Professional Indemnity Insurance is needed when your job is to give advice to people (like as a Consultant). It's used for if the advice you give turns out to be bad. For example, if Mark told the building manager he should get ABC Fire Alarm installed, and actually this Fire Alarm doesn't meet the necessary Health and Safety standards, he could get sued by the building manager. He could then claim on his Professional Indemnity Insurance.


Question 7

What is the purpose of a liability clause in a contract?



Answer : A

The purpose of liability clauses is 'to limit commercial and financial exposure'- this is a direct quote from p.2. Liability is the amount that a company owes to another party- this is why contracts will focus on limiting their liability as much as possible.


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Total 120 questions