CIPS L5M3 Exam Practice Test Instant Access

Question 1

Which of the following will you put into box 8?

Aadjudication

Barbitration

Cmediation

Dlitigation

Answer : B

The correct answers are as follows:

This is arbitration as it involves a panel.

Question 2

Which of the following will you put into box 8?

ACondition

BWarranty

CInnominate Term

Answer : C

The correct answers are as follows:

This is a condition. Again the food being organic would be fundamental to the contract as the health of the llamas depend on it.

This is arbitration as it involves a panel.

This is an innominate term as it won't be mentioned in the contract. It won't be until a breach occurs when it is decided whether the issue of subcontracting is a condition or a warranty, and which one it will be, will likely depend on the situation. For example if they subcontract out to a non-organic llama food provider, that would probably be a Condition. If they get help fulfilling an order and the subcontractor is also organic, that's probably a warranty.

Question 3

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?

ANegotiations between the buyer and supplier have failed and dispute resolution will need to take place

Bthe supplier has committed a major breach and is unable to fulfil the contract

Ca situation has occurred which means that the contract can no longer be performed

DThe buyer no longer requires the supplier but is tied into the contract

Answer : C

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

Question 4

What is a Prime Contract?

AA contract between a buyer and main supplier

BA contract between an end customer and a company which has full responsibility for its performance

CA contract between a supplier and a subcontractor

DA contract between a public sector organisation and the taxpayer

Answer : B

'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

Question 5

When there has been a major breach in a contract, the contract will be terminated. Is this statement true?

Ayes- the contract will be terminated and damages sought

Byes- the contract must be terminated as there is no means by which the contract could continue after a major breach

Cno- the contract can be affirmed by the injured party

Dno- the contract can continue if the offending party proves that further breaches won't occur

Answer : C

'no- the contract can be affirmed by the injured party' is the correct answer. When there is a breach in a condition, one of two things can happen; the contract is terminated, or the contract is affirmed. The injured party has the choice of whether or not they want to continue working with the other party and this is called 'affirmirmation of the contract'. The contract doesn't HAVE to be terminated in the case of a major breach so options 1 and 2 are incorrect. Option 4 is also incorrect- the contract can continue even if the offending party says they'll commit further breaches - it's completely up to the injured party whether they want to continue working with them or not. See p. 46 for further details

Question 6

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

Aexclusions should be narrowly defined and clearly state which types of liabilities are excluded

Bthe goal of the liability clause is to punish the contractor for poor performance

Cliability is a legal responsibility

Dliability can only be limited where there is valid insurance

Eliability cannot be excluded for injury resulting from negligence

Answer : A, C, E

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.

Question 7

What is the purpose of a limitation on liability clause?

Ait provides an accurate pre-estimate of potential loss

Bit caps a company's exposure to risk

Cit allows a party to claim on insurance if something goes wrong

Dit passes the responsibility to the other party

Answer : B

A limitation of liability caps a company's exposure to risk. In SOME cases this may mean that the responsibility passes to the other party- but not always. For this reason option 2 is correct and 4 isn't. Option 1 is the definition of liquidated damages and 3 is just a made-up answer. See p.20 for more information on Liability

CIPS L5M3 Managing Contractual Risk Exam Practice Test