Managing Contractual Risk CIPS L5M3 Free Demo Questions Below

Congratulations - you have completed this exam.

Your answers are shown below:
1. A breach of representation by party A in a contract would allow party B to do what?
 rescind the contract
 claim damages
 rescind the contract and claim damages correct
 nothing - this is not a fundamental breach
Question was not answered
Explanation:
A breach of representation is a major/ fundamental breach and allows the innocent party to rescind the
contract and claim damages. A Breach of Representation is when you provide false information about
who you are- this might have been a fundamental reason as to why the contract went ahead. If it turns
out not to be true, the other party has the right to cancel the contract and claim damages. See p.126
2. What is a Prime Contract?
 A contract between a buyer and main supplier
 A contract between an end customer and a company which has full responsibility for its
performance correct
 A contract between a supplier and a subcontractor
 A contract between a public sector organisation and the taxpayer
Question was not answered
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
3. 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?

 Public Liability
 Product Liability
 Professional Indemnity correct
 Property Insurance
Question was not answered
Explanation:
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.
4. Which of the following will you put into box 1?
 anticipatory breach correct
 fundamental breach
 payment terms
 specification
Question was not answered
Explanation:
The correct answers are as follows:

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This is an anticipatory breach as the breach hasn't happened yet- it's about what will happen to the
future summer order.
5. Jenny has received a written offer from a supplier. She emails them to clarify if they can do next day
delivery. The supplier does not reply. The next day Jenny makes the payment.

Has a contract been formed?

 yes- the supplier made an offer and Jenny accepted it by making a payment correct
 yes- a counter offer has been made
 no- the clarification constitutes a conditional acceptance
 no- a contract has not been signed
Question was not answered
Explanation:
Yes- the supplier made an offer and Jenny accepted it by making a payment is the correct answer. The
other three options are incorrect: 'yes- a counter offer has been made' = there is no counter-offer made
in this example - a clarification is not a counter-offer / 'no- the clarification constitutes a conditional
acceptance' = clarifications are not conditional acceptance / 'no- a contract has not been signed' = there
doesn't need to be a signed document- acceptance can be through performance. Issuing the payment
would be considered acceptance via performance. See p 2-12 for more information on conditional
acceptance, counter offers and acceptance of offers.
6. A contract term which is difficult to classify at the time of drafting a contract is known as?
 condition
 warranty
 consideration
 innominate correct
Question was not answered
Explanation:
Innominate - the conflict resolution process would determine if the clause is a condition or a war-ranty.
Before there's a breach there's no way to know, so it's classed as an Innominate Term. P. 43. Types of
contract terms comes up a lot in the exam. Learn these.
7. Service Credits are a form of what?
 liquidated damages correct
 indemnity
 KPI
 Consideration
Question was not answered
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.
8. Restitution Measures are an award which seeks to return the value of a benefit which has been
seen to be unfairly received.

Which of the following statements about Restitution Measures is TRUE? Select TWO
 restitution damages intend to return the innocent party to the position they were in be-fore the
contract correct
 restitution damages considers the position of the breaching party before the contract
  restitution damages are based on how much was gained by the breaching party as a re-sult of
the breach correct
 restitution damages are not limited to pre-agreed levels stated in the contract
Question was not answered
Explanation:
The correct answers are 1 and 3. These are taken from p. 124. Option 2 is incorrect - this is the definition
of reliance damages. Option 4 is also incorrect- restitution damages are limited to pre-agreed levels
stated in the contract.
9. A warranty is a minor term of a contract. Is this TRUE?
 yes- it does not affect the prime benefit correct
 yes- it affects the prime benefit of the contract
 no- a warranty is a fundamental term in a contract
 no- a warranty is a type of innominate term
Question was not answered
Explanation:
The correct answer is 1. The statement is True so the answer needs to start with 'yes'.
Therefore options 3 and 4 should be discounted. Option 2 is incorrect a warranty does NOT affect the
prime benefit of the contract. See p. 126 for more details on Contractual Warranties and Conditions
10. Parky Parks Ltd has a contract with Slides R Us for the provision of children's playground
equipment. The contract contains a clause for liquidated damages and puts the figure at £500k.

Which of the following statements is correct? Select TWO

 Liquidated damages needs to be a 100% accurate figure correct
 If damages exceed £500k Parky Parks can apply to the courts to get Slides R Us to pay above this
amount
 Damages under the amount of £500k are not required to be paid to Parky Parks
 liquidated damages is a genuine estimate of loss correct
 costs incurred above £500k will be covered by Parky Parks Ltd correct
Question was not answered
Explanation:
The true statements are: liquidated damages is a genuine estimate of loss (it doesn't need to be a 100%
accurate figure, so long as it's your best estimate) and costs incurred above £500k will be covered by
Parky Parks Ltd. That's one of the disadvantages of stating liquidated damages in a contract for a buyer-
if damages total more than this, you have to foot the bill for the rest. See p.30 for more info
11. Sarah is a baker and orders free-range eggs from a local supplier which she uses to make cakes.
There is a contract in place which included a specification that states that the eggs must be free-range.
One day the supplier delivers eggs which Sarah uses in the cakes.

Later she dis-covered that these were not free-range. Sarah believes that the supplier has broken the
con-tract. Is this true?
 Yes- this is a breach of a condition
 Yes- this is a fundamental breach
 no- the specification is not a contract document
 no - there has been a breach in a warranty correct
Question was not answered
Explanation:
"No- there has been a breach in warranty" is the correct answer. The key to answering this question lies
in the fact that the specification in this example is a warranty rather than a condition of the contract.
P.45 of the study guide explains that the Sale of Goods Act has implications on whether or not a
specification is a condition, warranty or innominate term and it's all about whether the product is in
'good condition' and can be used for its intended purpose. In this example the eggs were used for their
intended purpose and were in good condition (or Sarah wouldn't have put them in the cakes). Therefore
in this example, the eggs needing to be free-range is a warranty of the contract not a condition.
Therefore options A and B are both wrong. Answer C is also wrong because the question mentioned that
the specification was included in the contract. If you want to know more about the implication of the
Sale of Goods act on specifications see p.45.
12. R3D3 is a computer manufacturer who has had an issue with their supplier. They are seeking a
conflict resolution approach which is flexible but will provide a binding and enforceable outcome.
They would like the resolution to be confidential and directed by an independent third party that is
appointed for them.

Which of the following would be the best conflict resolution for them to select?
 mediation
 arbitration correct
 negotiation
 litigation
Question was not answered
Explanation:
Arbitration ticks all of the boxes required by R3D3. Mediation isn't correct because it's not binding.
Negotiation isn't correct because there's no 3rd party. Litigation isn't correct because it's not
confidential. See p. 80 for more on arbitration.
13. Which of the following will you put into box 3?
 Payment Term
 Time is of the Essence
 Subcontracting
 Specification correct
Question was not answered
Explanation:
The correct answers are as follows:

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Specifying the food needs to be organic is a 'specification'
14. Which of the following conflict resolution styles may involve a private caucus and a joint ses-sion?
 Mediation correct
 adjudication
 negotiation
 litigation
Question was not answered
Explanation:
This is Mediation. The private caucus is when each of the parties meets in private with the media-tor,
this is usually after a joint session between the three parties. See p.71 for more information on
mediation
15. An exchange of written documents between a buyer and supplier, each detailing their own Terms
and Conditions is known as the Battle of the Forms.

Who generally wins the Battle?

 The party who issued the first document
 The party who issued the last document correct
 The party with the greatest liability
  The party who commits a breach
Question was not answered
Explanation:
The Battle of The forms is won by the party who sends the last form. This is referred to in the study
guide as 'the last shot wins'
16. A failure to perform a provision of a contract which does not affect the end performance of the
contract is known as what?
 small breach
 minor breach correct
 major breach
 warranty breach
Question was not answered
Explanation:
This is a minor breach. This is the definition as given in the study guide on p. 48
17. Logan Gin Distillery is creating a contract for one of its new suppliers. It is a complicated item that
they are ordering and if things go wrong, it would have an extremely negative impact on production,
and therefore on revenue. However it is impossible to say what the cost of this would be if things
were to go wrong.

What type of clause should be included in the contract?

 liquidated damages
 unliquidated damages
 penalty clause correct
 service credit
Question was not answered
Explanation:
Unliquidated damages would be the best to include as there is no way of identifying a figure for
liquidated damages. This would be the safest thing for the buyer to do. P.108 - section on Unliqui-dated
Damages.
18. Derrek owns a factory and employs a Facilities Management Company called Balls FM to look after
certain aspects of the factory including cleaning and testing the machinery to ensure they are in good
working condition. One day he realises that one of the cleaners doesn't work for Balls FM, he works
for another company called Bells FM.

Which of the following statements regarding subcontracting is true?

  Subcontracting would be if Derrek delegated responsibility for managing the contract to a
member of his team
 Balls FM have committed a fundamental breach of the contract
 It is okay for Balls FM to subcontract out part of the contract to Bells FM if they are unable to
fulfil their obligations correct
 Subcontracting is never allowed in a contract unless specifically mentioned.
Question was not answered
Explanation:
"It is okay for Balls to subcontract" is the correct answer. This question is testing whether you know that
subcontracting can be a remedy in a contract. It is usually okay for a supplier to use a subcontractor if
they're unable to fulfil their responsibilities and the alternative would be to breach the contract. This is a
difficult question because you don't get a lot of context- it's based on a similar question in the exam- but
just remember subcontracting can be a solution if one party can't fulfil their obligations in a contract.
This is better than them breaching the contract. See p.89 for more information on subcontracting
19. A breach which is so severe that it goes to the root of the contract is known as what?
 fundamental breach correct
 condition breach
 major breach
 essence breach
Question was not answered
Explanation:
This is a Fundamental Breach. Fundamental Breach and Major Breach are very similar-they're both really
bad and can lead to damages and the termination of the contract. The difference is that a Fundamental
Breach is so bad that it goes to the root of the contract - a breach so bad that the contract is basically
worthless. For example if you make a contract with a supplier to have potatoes delivered but it turns out
they don't sell potatoes, only apples, and they keep sending you apples instead of potatoes. This would
be a fundamental breach because its something so fundamental to the contract that there's no point in
the contract existing if there's a breach like this. Condition Breach and Essence Breach are made up
words- they don't exist. P.44
20. Dianne has a loan agreement which contains a clause for default.

What does a clause for default imply?

 this allows the lender to demand overdue payments are made straight away
 this allows a lender to demand payment from a guarantor if the borrower is unable to pay
 this allows the lender to declare insolvency
 this allows the lender to demand full payment of the outstanding balance correct
Question was not answered
Explanation:
A Clause for Default 'allows the lender to demand full payment of the outstanding balance'. See p.102.
And always read the small print before you sign a loan agreement :)
21. Which of the following will you put into box 4?
 Payment Term
 Time is of the Essence correct
 Subcontracting
 Specification
Question was not answered
Explanation:
The correct answers are as follows:

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Getting help from another supplier to fulfil the order is subcontracting.
22. Which of the following will you put into box 1?
 compete
 avoid
 compromise correct
 collaborate
Question was not answered
Explanation:
The correct answers are as follows:
The answer is compromise as they're seeking a solution that will satisy everyone.
23. Which of the following will you put into box 7?
 Condition correct
 Warranty
 Innominate Term
Question was not answered
Explanation:
The correct answers are as follows:

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This is a condition. Again the food being organic would be fundamental to the contract as the health of
the llamas depend on it.
24. Franky B's is a popular restaurant chain which is seeking a resolution to a conflict it has with its
supplier of Fried Chicken. It is looking for a dispute resolution that does not involve the court but in
which an expert third party will make a binding decision.

Which is the most suitable dispute resolution method for Franky B's?
 litigation
 adjudication correct
 conciliation
 mediation
Question was not answered
Explanation:
This is Adjudication. The other answers are incorrect- litigation involves the court. Conciliation and
mediation do not provide binding decisions. P. 143
25. Which of the following conflict resolution styles involves a strict timeline and is commonly used
within the construction industry?
 conciliation
 adjudication correct
  arbitration
 litigation
Question was not answered
Explanation:
Adjudication has strict timescales (this is one of the advantages of using this conflict resolution method).
It has roots in the construction industry and has been widely used since the 1990s. See p.76 for more
information
26. Which of these is NOT a stage in negotiation?
 proposal
 agreement
 bargaining
 adjourning correct
Question was not answered
Explanation:
Adjourning is not a stage. The 6 stages of negotiation are; preparation, opening, discussion, pro-posal,
bargaining and agreement. P.64
27. Which of the following would be included in a contract to assign costs and responsibilities be-
tween buyer and seller when products are delivered?
 Indemnity
 Liquidated Damages
 Liability
 Incoterms correct
Question was not answered
Explanation:
Incoterms assign costs and responsibilities about when products are delivered. See p. 37 for a full list of
the different Incoterms. You don't need to know all Incoterms for the exam, but it's a good idea to know
what they are and why they'd be put into a contract
28. Which of the following are advantages to seeking a solution to conflict via litigation?
 the process provides certainty that an outcome will be reachedcorrect
 There is no confidentiality
 The decision can be made by someone who isn't an expert in their field.
 The process is quick and cost-effective
Question was not answered
Explanation:
The correct answer is 1 'the process provides certainty that an outcome will be reached'. Options 2 and
3 are true statements but they are not advantages of litigation, they are disadvantages. Option 4 is false
- litigation is a long and costly process. See p. 85 for more information on litigation
29. Which of the following would not be considered a contract? Select TWO
 A written agreement between two robbers to rob a bank which states that the money gained
would be split evenly between the two. correct
 a domestic agreement between two parents about who will pick the kids up from school correct
 a phone call between a supplier and buyer in which the buyer agrees to purchase 100 teddy
bears from the supplier for £100.
 a written document in which Paul agrees to clean Freda's house for £10
 an email chain between a buyer and supplier which includes a PO and Invoice
Question was not answered
Explanation:
The correct answers are; A written agreement between two robbers to rob a bank which states that the
money gained would be split evenly between the two AND a domestic agreement between two parents
about who will pick the kids up from school. There are 3 instances when a contract isn't considered a
contract and these are; illegal activity (like example A), a social or domestic arrange-ment (like example
B) and when something is an 'Invitation to Treat'. See p.2-3 Remember con-tracts don't have to be
written - they can be verbal (example C), the exchange doesn't have to be fair (example D) and it can be
implied by conduct (example E).
30. Penguin Ltd has a contract with Blue Company. Blue Company has just broken a warranty in the
contract.

What remedies does Penguin Ltd have available?

 they can sue and claim damages
 they can claim damages and terminate the contract
 they can terminate the contract but cannot claim damages
 they can claim damages but not terminate the contract correct
Question was not answered
Explanation:
They can claim damages but not terminate the contract. If Blue company has broken a Condition, they
would be able to terminate the contract, but this isn't the case for a breach of a Warranty. See p.43 for
more details
31. Which of the following will you put into box 6?
 Mediation
 Arbitration
 Litigation correct
 Negotiation
Question was not answered
Explanation:
The correct answers are as follows:

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Litigation is the only resolution method which goes 'through the courts'. Therefore this is the correct
answer
32. Kranky Kat Ltd has just been through an adjudication process with a supplier it worked with who
committed a breach in the contract. Kranky Kat is not happy with the outcome of the adjudication,
what can Kranky Kat do?
 move on to litigation
 appeal the decision correct
 nothing - the decision made by the adjudicator is binding
 nothing - the decision made by the adjudicator is legally enforceable
Question was not answered
Explanation:
If you're not happy with the decision of an adjudication you can appeal the decision. So option 2 is
correct. If the appeal is turned down then unfortunately there's not much more you can do as
adjudication is binding and legally enforceable. See p. 143 for more info on adjudication
33. Which TWO conflict resolution methods provide certainty of resolution?
 adjudication and mediation
 mediation and litigation
 arbitration and conciliation
  adjudication and litigation correct
Question was not answered
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.
34. Which of the following will you put into box 7?
 Mediation
 Arbitration correct
 Litigation
 Negotiation
Question was not answered
Explanation:
The correct answers are as follows:

Table
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Arbitration - this is a binding resolution made by a third party. This answer could be
litigation, but that option has been taken by box 6 and you can only use the answers once.
Mediation would not be a binding resolution and negotiation doesn't involve a third party.
35. Which of the following is not a form of ADR (Alternative Dispute Resolution)?
 mediation
 negotiation correct
 arbitration
 conciliation
Question was not answered
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
36. Sally is shopping and sees an advert in a travel agent's window that says that flights to Malta are
50% off. She enters the shop and begins to speak to a travel agent who informs her that the poster
she'd seen is out of date. Is the travel agent obliged to give Sally the discounted flight?
 yes- the offer was displayed and therefore must be honoured
 yes- the offer is valid until another offer or counter offer is provided
 no- the offer has been rescinded
 no - the advert is an invitation to treat correct
Question was not answered
Explanation:
Adverts are invitations to treat - not offers. Therefore the travel agent isn't bound to provide the
discounted flight. See p.3 for more information on offers and ITTs
37. Robert has a contract with Farmer Ted who provides his manufacturing firm with potatoes. There
is a contract in place, signed by both parties that Ted will deliver 2 tonnes of potatoes per week. Due
to changes in demand, Robert would like Ted to start providing 3 tonnes of potatoes every three
weeks.

What must be in place for this change to occur?

 a variation clause and a new liquidated damage fee
 a variation clause and a signed agreement by both parties correct
 a notification of change and adequate compensation
 a notification of change and indemnity
Question was not answered
Explanation:
A variation clause and signed agreement by both parties is required to make the change.
See p.16-17 for more information on contract variations. Note a 'notification of change' isn't valid unless
it's accepted by the other party- so it's a good idea for both parties to sign to say they agree to the
change.
38. Which of the following will you put into box 5?
 Condition correct
 Warranty
 Innominate Term
Question was not answered
Explanation:
The correct answers are as follows:

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This is a condition as it is fundamental to the contract.
39. What is the name given to a term in a contract where one party promises to compensate the other
party for a trigger event?
 liability
 warranty
 damages
 indemnity correct
Question was not answered
Explanation:
Indemnity- this is the definition given on p. 20
40. Which of the following will you put into box 6?
 liability
 payment terms
 liquidated damages correct
 Contract variation
Question was not answered
Explanation:
The correct answers are as follows: