CIPS L4M3 Commercial Contracting Exam Practice Test

There are three key components of a performance management framework:

- Key performance indicators (KPIs) - What you are measuring

- Targets - the performance level to be achieved

- Consequences - what happens if the measures are not achieved and/or if they are exceeded

A fixed pricing arrangement offers the buyer cost certainty by locking in a set price for the duration of the contract, regardless of market volatility. This is crucial in environments requiring tight budget control, such as healthcare procurement. Although suppliers may factor in risk premiums, it is ideal when predictability is the priority.

Price adjustment formulae are typically tied to objective, external indices such as fuel prices, labour rates, or commodity costs. Rising fuel costs directly affect logistics and production expenses and are a legitimate reason to activate such clauses.

Information Assurance (IA)

Information Assurance (IA) is the practice of managing information-related risks and the steps involved to protect information systems such as computer and network systems. The IA transformation is a partnership that stretches across the Department of Defense (DoD), Office of National Intelligence, Committee on National Security Systems, National Institute of Science and Technology (NIST), and the Office of Management and Budget.

The US Government's definition of information assurance is:

“measures that protect and defend information and information systems by ensuring their availability, integrity, authentication, confidentiality, and non-repudiation. These measures include providing for restoration of information systems by incorporating protection, detection, and reaction capabilities.”

Information Assurance (IA) is essentially protecting information systems, and is often associatedwith the following five pillars:

- Integrity

- Availability

- Authentication

- Confidentiality

- Nonrepudiation

The following pillars can be applied in a variety of ways, depending on the sensitivity of the information, or information systems within your organization. Currently, these five pillars are used at the heart of the US Governments ability to conduct safe and secure operations in a global environment.

1. Integrity

Integrity involves assurance that all information systems are protected and not tampered with. IA aims to maintain integrity through means such as anti-virus software on all computer system, andensuring all staff with access to know how to appropriately use their systems to minimize malware, or viruses entering information systems.

2. Availability

Availability simply means those who need access to information, are allowed to access it. Information should be available to only those who are aware of the risks associated with information systems.

3. Authentication

Authentication involves ensuring those who have access to information, are who they say they are. Ways of improving authentication involve methods such as two-factor authentication, strong passwords, bio-metrics and other devices. Authentication may also be used to not only identify users, but also other devices.

4. Confidentiality

IA involves the confidentiality of information, meaning only those with authorization may view certain data. This step is closely mirrored by the six data processing principles of the General Data Protection Regulation (GDPR), where by personal data must be processed in a secure manner "using appropriate technical and organizational measures" ("integrity and confidentiality").

5. Nonrepudiation

The final pillar simply means someone with access to your organizations information system cannot deny having completed an action within the system, as there should be methods in place to prove that they did make said action.

The five essential elements of a valid contract are: offer, acceptance, consideration (something of value exchanged), capacity (legal ability to contract), and correct form (in writing if required). These ensure that contracts are legally enforceable and binding.

Without further explanation, a schedule may be deemed to form an integral part of the obligations of either or both parties. Obviously, the scope or binding nature of such schedule depends on the way it is referred to in the obligatory language of the main agreement. Accordingly, merely attaching the general terms and conditions of sale without explaining to which part of the sale they apply or which provisions apply does not subject a sale pursuant to the body text of the agreement to those general terms and conditions.

Subcontracting is the practice of assigning, or outsourcing, part of the obligations and tasks under a contract to another party known as a subcontractor.

KPIs that involve actual counts or quantifiable incidents are considered quantitative and use numerical data. "Late deliveries" and "accidents or near misses" are measured in numbers, making them suitable for numerical performance tracking. The other options relate more to qualitative analysis or subjective feedback.

Specifications are normally attached as schedules and form part of the contract; they define deliverables and performance standards.

Therefore, once signed, they become legally binding — errors or ambiguity can create disputes.

Hank’s pre-contractual assurances may amount to misrepresentation. Remedies for misrepresentation could be rescission of contract or damages. Rescission will be impossible in the following instance:

- Where the innocent party has affirmed the contract; that is, acted in a way confirming that they wish it to continue

- Where the claim has not been brought within a reasonable time (this is a point of general law)

- Where restitution (returning to the pre-contractual position) is impossible (e.g. because the goods have been consumed or have deteriorated)

- Where there has been intervention of innocent third-party (e.g., if the goods have been sold on)

In this case, the subject of contract is designing, building and managing the new CRM system which is impossible to be restituted. Therefore, the contract cannot be rescinded.

KPIs should measure critical areas of supplier performance. Cost management, quality conformance, and timely delivery are all essential, quantifiable metrics used to track efficiency and contract compliance. Employee attendance and negotiation style are not standard KPIs.

Capacity to contract relates to legal and mental ability:

Severe mental disorder (1) can mean no true understanding of the contract → lack of capacity.

A corporation acting ultra vires (4) (beyond its legal powers) is considered to lack capacity in that transaction.

Failing to concentrate (2) is carelessness, not incapacity. Being 19 years old (3) is over the usual age of majority (18), so there is capacity.

Correct combination: 1 and 4 only.

Incentive mechanisms that reward suppliers for delivering improvements (such as cost reductions, quality enhancements, or innovation) create mutual benefit:

The buyer gets better value or reduced costs.

The supplier receives rewards such as bonuses, gain-share, or stronger relationships.

This is the definition of a win-win outcome (D).

Performance management framework often consists of KPIs, targets and consequences that arise from achieved scores. To ensure that the framework has binding effect on contracting parties, it should be developed, appended to the main contract document and agreed by both parties. So the answer should be "Yes, because the framework should have legal standing as a part of contract".

In order to form a contract to come into being, there are five conditions:

- Offer

- Acceptance

- Consideration

- Intention to be legally bound

- Capacity to contract

BS 7373-1:2001 Product specifications. Guide to preparation gives guidance on layout, preparation and management. The subject has been treated in a generic way and guidance can be used in the preparation of all types.

BS 5864:2019 is the standard for installation and maintenance of gas-fired ducted air heaters of rated heat input not exceeding 70 kW net (2nd and 3rd family gases). Specification

BS 5975:2019 is the standard for code of practice for temporary works procedures and the permissible stress design of falsework.

BS EN 60601-1-11:2015 is the standard for medical electrical equipment. General requirements for basic safety and essential performance. Collateral Standard: Requirements for medical electrical equipment and medical electrical systems used in the home healthcare environment.

When parties do not negotiate face-to-face, a key QUESTION NO: becomes when things like acceptances, rejections and revocations take effect. The general rule is that acceptances are effective on dispatch (when they are mailed). Everything else becomes effective when the offeror actually receives them. This idea is codified by the “mailbox rule” which states that acceptance is effective on dispatch, even before the offeror has received it. (The one minor exception to this rule involves option contracts for which acceptances are not effective until they are received by the offeror.)

Article 2 of CISG states that:

This Convention does not apply to sales:

(a) of goods bought for personal, family or household use, unless the seller, at any time before or at the conclusion of the contract, neither knew nor ought to have known that the goods were bought for any such use;

(b) by auction;

(c) on execution or otherwise by authority of law;

(d) of stocks, shares, investment securities, negotiable instruments or money;

(e) of ships, vessels, hovercraft or aircraft;

(f) of electricity.

LO 1, AC 1.2

Input specifications detail exactly how a supplier must provide the service or make the product. While this ensures compliance, it limits the supplier's ability to innovate or offer alternative, potentially more efficient solutions. Performance specifications, in contrast, focus on outputs and encourage innovation.

A service-level agreement (SLA) is a commitment between a service provider and a client. Particular aspects of the service – quality, availability, responsibilities – are agreed between the service provider and the service user. The most common component of an SLA is that the services should be provided to the customer as agreed upon in the contract.

A customer service charter is a document that outlines how an organization promises to work with its customers along with providing insights into how an organization operates.

A service guarantee is a marketing tool service firms have increasingly been using to reduce consumer risk perceptions, signal quality, differentiate a service offering, and to institutionalize and professionalize their internal management of customer complaint and service recovery.

One-off purchases are ideal for unique, non-recurring needs such as equipment for a special project. These purchases are typically not repeated, do not require long-term supplier relationships, and are handled separately from strategic or ongoing procurement activities.

The most usual forms of insurance cover are as below:

- Employer's liability: Employers' liability insurance, sometimes known as employment practices liability insurance (EPLI), protects employers from financial loss if a worker has a job-related injury or illness not covered by workers' compensation. Employers' liability insurance can be packaged with workers' compensation insurance to further protect companies against the costs associated with workplace injuries, illnesses, and deaths. Employers' liability insurance is also called “part 2” of a workers’ compensation policy.

- Public/product liability: Public liability insurance covers you against any claims made against your business – for example if you were held legally liable for personal injury, or for damage done to property. The insurance will also cover you for any legal costs associated with defending claims against your business.

- Professional indemnity insurance (PII): Professional indemnity or liability insurance offers such coverage to professional advice or service providing individuals and companies ensuring protection against any legal costs and damages awarded as a result of claims relating to negligence. Whereas more general forms of liability insurance focus on direct forms of harm such as sustaining injuries, professional indemnity insurance provides a far more detailed and comprehensive form of coverage. The cover protects a firm or individual's liability relating to any financial loss caused by errors or omissions in the service provided as well as any alleged failure to perform on behalf of a client.

- Goods in transit coverage: Goods in transit insurance, sometimes referred to as GIT, covers goods against loss or damage while being moved from one place to another. These goods can be being carried by individuals in their own vehicle, self employed drivers or contractors or by third party carriers. The insurance can cover both domestic and international trips, with specific add-ons available for insurance within Europe.

Consideration refers to the exchange of something of value between the contracting parties and is a fundamental requirement for a valid contract. It can be in the form of goods, services, money, or a promise. Without consideration, there is no enforceable contract even if other elements like offer and acceptance are present.

Express terms are the terms of the agreement which are expressly agreed between the parties. Ideally, they will be written down in a contract between the parties but where the contract is agreed verbally, they will be the terms discussed and agreed between the parties.

Implied terms are terms implied into the contract by the courts. They are not expressly set out in the contract but are taken to be as effective as if they were and as if they had been included from dayone of the contract. The express terms and any implied terms together create the legally binding obligations on the parties.

Express terms are explicit and will normally override implied terms unless the implied term is created by statute and the law states that it cannot be overridden.

- A call off or a term contract is one which exists for a fixed period of time, rather than for a specific purpose

- A formal framework agreement does have some legal standing but it is not a contract, primarily because there is no consideration involved, but it is an overarching (or umbrella) agreementunder which contracts can be created (this holds true in English law but may not be right in other jurisdiction)

- A framework arrangement is a rather loose set-up, without any legal standing. It usually occurs when an organisation has decided for itself to limit the number of suppliers it is willing to work with and, through a purely internal process, sets up an approved list of such suppliers.

- A performance management framework including KPIs and targets, the assessment scheme and incentives, disincentives, bonuses and penalties. It is a schedule to a contract and only legally binding if it is referred from contract clauses.

Exporting enterprises must sometimes incur additional costs as they adapt their production to the changing legal requirements of the recipient country. Such requirements can thus create technical barriers to trade. Discrepancies between product rules adopted by different countries can involve numerous aspects: weight, size, packaging, ingredients, mandatory labeling, shelf-life conditions, testing and certification procedures etc.

One way to overcome these barriers is to adopt international standards. Overseas companies may be more familiar with international standards without looking at specific regulations of importing countries.

An insurance policy transfers a specific set of risks such as the fire and flood risk for a particular asset.

The legal liability does not transfer to the insurance company (known as insurer).

- Strict liability, sometimes called absolute liability, is the legal responsibility for damages, or injury, even if the person found strictly liable was not at fault or negligent. Strict liability has been applied to certain activities in tort, such as holding an employer absolutely liable for the torts of her employees, but today it is most commonly associated with defectively manufactured products. In addition, for reasons of public policy, certain activities may be conducted only if the person conducting them is willing to insure others against the harm that results from the risks the activities create.

- Current liabilities are a company's short-term financial obligations that are due within one year or within a normal operating cycle.

- Non-current liabilities, also called long-term liabilities or long-term debts, are long-term financial obligations listed on a company’s balance sheet

- Contingent liability is a potential liability that may occur, depending on the outcome of an uncertain future event.

An incentive contract is a sub-segment of a fixed-price or cost-reimbursement contract when there are specific cost or time commitments that are desired for a project. The standard incentive contract will allow for a fixed price to be paid for work to be completed by a specific deadline and at a specific cost.

There are two major types of incentive contracts: Cost-plus-incentive fee and Fixed-price incentive (firm target) contracts. Both types have the same formula for calculating final fee and final price.

The target fee is the amount that will be paid if the actual costs (which can be proven) match thetarget costs

The actual fee will be adjusted in proportion to the difference between the target cost and the actual cost. The usual calculation is:

Target fee + ((target cost - actual cost) x Supplier share) = final fee

The final price then becomes:

Actual cost + final fee = final price

An SLA outlines the expected performance levels and includes KPIs and consequences for non-performance (often in the form of penalties or service credits). Force majeure and jurisdiction clauses are typically part of the main contract terms, not the SLA, which is more operational in nature.

Standard terms and conditions are set of terms that is prepared by an organisation. These terms can become the governing terms in low-value, low-risk transactions (or Routine items accordingto Kraljic's portfolio model). They can be a reference when negotiating for more important contract.

An invitation to treat is an action inviting other parties to make an offer to form a contract. These actions may sometimes appear to be offers themselves, and the difference can sometimes be difficult to determine. The distinction is important because accepting an offer creates a binding contract while "accepting" an invitation to treat is actually making an offer.

One simple test to distinguish an offer and an invitation to treat is to ask what this statement will become when it is accepted. Now we apply this test to four options:

- Tender bid: Tender bid is submitted by a supplier to an invitation to tender from the buyer. It states the specific quantity, price and other elements. If buyer accepts the bid, there will be a contractbetween them. Therefore, a tender bid is an offer.

- Purchase order: Purchase order which is sent by a buyer will state the items, the quantity, the price and terms and conditions. If supplier accepts the purchase order, there will also be a contract between two parties. It is also an offer.

- Price list: Price list is prepared by a supplier. The price list often states the items and unit price. If a buyer accepts it, the contract has not yet been formed since the contract scope has not yet been decided. It is an invitation to treat.

- Invoice: Invoice is often sent after a contract is formed. It is in fact a request for payment, neither offer nor invitation to treat.

Liquidated damages (LDs) are pre-agreed sums payable for specific breaches (commonly late delivery), intended as a genuine pre-estimate of loss.

Clause 1: £1,000 per server per day for late delivery → clear pre-agreed daily amount = LD.

Clause 3: £40,000 per day up to 50% of contract price → again, defined LD structure.

Clause 2: “Amount to be agreed” is uncertain and not a valid LD amount.

Clause 4: A full refund after five years for performance degradation is more like a warranty / guarantee, not a liquidated damages clause.

Thus, LD examples are 1 and 3 only → option C.

Price escalation clauses allow suppliers to raise prices during the contract term, potentially undermining budget control. Exclusion clauses limit or remove the supplier's liability, which could leave the buyer unprotected in case of breach or defects. These clauses present clear risks and require careful review or negotiation.

The key features, advantages and disadvantages of standard terms are summarised below:

- Form: Concise, generic and designed to be attached to purchase or sales orders

- Non-negotiable

- Ineffective terms: may be replaced by implied terms or national legal code rules, or subject to court 'balance of interest' judgement.

- Advantages: Basic contractual protection for most common circumstances; Avoid having to create new contract for repeat business.

- User friendly

- Usage: Low value, low risk, repetitive transactions

- Coverage: Definitions, relationship to other contracts, formation of the contract, order of precedence, price, invoicing and payment, specification, legal compliance, warrantee and liability, ownership and risk, intellectual property, data management and ethics.

- Disadvantages: Does not allow for specific circumstances; Risk for creating battle of the forms; Can create contractual uncertainty if used with purchase orders under call-off contracts.

FIDIC is the International Federation of Consulting Engineers (or Fédération Internationale des Ingénieurs Conseils in French). FIDIC has produced many publications, including the model form contracts, best practice guidances, research on sustainability, integrity and risk management. FIDIC model form contracts have been developed by this organisation since 1999, now they consist of several different books which are marked by colours. Thus, FIDIC model contracts also have the nickname "Rainbow suite of contracts". Basically, the "Rainbow Suite" include the following books:

* Yellow book: Plant and Design-Build Contract (2 editions: 1999 and 2017)

* Silver book: EPC/Turnkey Contract (2 editions: 1999 and 2017)

* Red book: Construction Contracts (2 editions: 1999 and 2017)

* Emerald book: Conditions of Contract for Underground Works (1st Ed 2019)

* Blue-Green book: Dredgers Contract (2 editions: 2006 and 2016)

* Gold book: Design, Build and Operate Contract Guide

* Pink book: Construction Contract Multilateral Development Bank Harmonised Ed (2 editions: 2005 and 2010)

This type of model contract is commonly used around the world because its author, International Federation of Consulting Engineers, collaborates closely with development banks such as World Bank, Africa Development Bank, Asia Development Bank, etc. Every construction project that is financed by these institutions must adopt the FIDIC contracts.

The Joint Contracts Tribunal, also known as the JCT, produces standard forms of contract for construction, guidance notes and other standard documentation for use in the constructionindustry in the United Kingdom. From its establishment in 1931, JCT has expanded the number of contributing organisations.

ITC (International Trade Centre) produces contracts specifically designed for small companies doing international business, covering the sale of goods, distribution, services and joint ventures. Many small companies are now engaged in international trade, but don’t have access to the necessary contract forms to protect themselves. ITC and leading legal experts developed eight generic contract templates that incorporate internationally recognized standards and laws for most small business situations.

CIPS has several model forms of contract designed specifically for IT buying and servicing.

The best practice for managing a potential conflict of interest is:

To ensure transparency,

To treat all capable suppliers fairly,

To avoid preferential treatment.

Therefore, Esther should include SCS among several capable suppliers in a structured market engagement process (D). This avoids favouritism, provides a broad market view, and maintains ethical standards.

Options like “off the record” or only declaring to SCS miss the key requirement: fair and open treatment of multiple suppliers.

There are 3 types of KPI measure:

- Binary KPIs

- Quantitative KPIs (or numerical)

- Qualitative KPIs

User satisfaction is subjective, therefore, using qualitative assessment is the best answer.

According to USLegal Inc, fitness for purpose refers to the standard that must be met by a seller in the course of a business. Generally, when a buyer makes known to a seller the particular purpose for which the goods are bought, there is an implied condition that the goods are reasonably fit for that purpose (customer's requirements, needs, or desires). Specification is the ground for deciding whether goods received are fit for purpose.

We already know that there are two types of specifications: conformance and performance specifications. With conformance specification, the buyer lists out technical requirements to which the goods must conform. Lacking of any requirement may be enough for the goods to be unfit. On the other hand, if performance specification is in use, the goods must be fit for specific outputs that buyer has listed in the specification.

Providing the 'fit for purpose' goods is one of the fundamental obligations of seller in sale contract. Unfulfilling this obligation would lead to legal consequences. If the goods are unfit for purpose, seller may have to:

- replace the non-conforming goods

- pay the damages to the buyer

Liquidated damages, also referred to as "liquidated and ascertained damages" (LADs) are damages whose amount the parties designate during the formation of a contract[2] for the injured party to collect as compensation upon a specific breach (e.g. late performance). In supply contracts and work contracts, the liquidated damages clause often take form as known damages to be paid per day delayed. Number 1 and 2 are examples of this clause.

"On-time in full" (OTIF) is a key performance indicator used widely in logistics and supply chain management to assess how reliably suppliers meet delivery schedules. It reflects both delivery timing and completeness of orders, making it highly relevant to Solus Trading’s project.

A price adjustment clause, also known as a price variation or indexation clause, provides a structured method for managing potential changes in price over the contract's duration. This clause ensures that any price increase must be based on predefined and agreed-upon criteria, such as inflation rates or cost indices. This prevents arbitrary or unexpected price increases from the supplier.

Industry model contracts are pre-written templates that include widely accepted terms. They save time and legal costs during contract development and are generally written to be neutral or fair toboth parties. They do not remove the need for buyers to understand the terms and are not necessarily highly flexible.

Supplier performance management and monitoring is a fundamental part of contract management. It starts with setting KPIs, targets and consequences or actions that arise from KPI scores. The measures, objectives and targets used in the monitoring of the supplier’s performance must reflect those that were agreed when the contract was let. That is why it is important to specify a commitment to continuous improvement at the outset. It would be unfair to the supplier to suddenly introduce a range of measures after the contract had begun - however if such an introduction mid-term through the contract is unavoidable then it should be negotiated and agreed in a professional manner and not merely imposed on the supplier.

In conclusion, the details of how KPIs will be monitored and the actions or consequences resulting from scores achieved must be documented and agreed between the parties. This details may be embedded in the specification or the main body of the contract or it may be set out in a SLA.

If the deliveries often delay, buyer should use KPI to measure how many missed deliveries there are and the percentage of total missed deliveries on total number of deliveries for period. OTIF (one-time in-full) delivery might help.

Consignment stock availability means that the supplier holds adequate range/number of units of stock to offer a reliable service

Delay damages are the consequences caused by delay of deliveries

Technical support is the acceptable quality of technical information/support provided by supplier for goods supplied.

LO 2, AC 2.2

The battle of the forms occurs when:

Both buyer and supplier exchange documents (RFQ, PO, acknowledgements) containing their own standard terms and conditions,

Each party is trying to ensure their own terms govern the contract.

It is literally a battle to secure their own terms and conditions (A).

Liquidated damages are an amount of money, agreed upon by the parties at the time of the contract signing, that establishes the damages that can be recovered in the event a party breaches the contract. The amount is supposed to reflect the best estimate of actual damages when theparties sign the contract. These usually apply to a specific type of breach, and in construction, it is frequently the failure to complete work on time.

Liquidated damages clauses are usually written as some sort of formula, for example:

Total Contract Price – [(X amount of $ per day) x (number of days late)]

Including a liquidated damages clause can provide many benefits, the most important of which ispredictability. When setting a predetermined amount of damages, it allows both parties a chance to negotiate and settle on a number they both feel is fair and reasonable.

From the owner’s perspective, this acts like a cheap form of insurance against your contractors. In the event of a breach, the owner can immediately calculate the damages without going through the trouble of proving actual damages. Proving actual damages can be a complicated, lengthy, and costly process.

From a contractor perspective, this allows them to analyze the level of risk involved, and schedule appropriately. It also allows them the opportunity to limit the damage claims of the owner.

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.

Developing and using generic specifications is as import in the sustainable procurement process as it is in the traditional procurement process. During this stage, human/labour rights and environmental performance criteria should be translated into specifications that meet specific requirements of the specified outcome, desired by the procurement action.

The specification stage is key to all types of contract. Building in environmental and social considerations at this early stage, provides a clear indication to suppliers that sustainability is important to the UN organization. Consider available alternatives which are less environmentally and socially damaging. Consider all the phases of a product’s life cycle (e.g. production, transportation, maintenance, disposal, etc) when determining its cost and environmental impact. Assess the overall environmental and social integrity of suppliers by looking at their policies and practices.

Specifications which are output-based rather than input-based can increase supplier innovation, reduce waste and minimise harmful social and environmental impacts.

A simple definition of consideration is as follows – an exchange between the parties which results in a benefit to one party, and a detriment to the other. The case of Currie v Misa (1874) LR 10 Ex 153 provides an apt description of this:

“A valuable consideration, in the sense of the law, may consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss, or responsibility, given, suffered, or undertaken by the other.”

A practical example of this can be found by examining a simple contract. Party A offers £500 to Party B, who in exchange will fit his car with a new engine. Party A receives the benefit of his car being fixed, whilst Party B incurs the detriment of having to take time, effort, and perhaps expenses to fix the car.

Service credits are financial compensations provided to the buyer when the supplier fails to meet the agreed-upon service levels outlined in the SLA. They serve as a remedy for underperformance. Service guarantees are commitments to meet certain standards, service standards define the expected level of service, and service schedules outline the timing of service delivery, but none directly compensate the buyer for service failures.

Normally in a price adjustment agreement, the supplier is allowed to change price based on an indexation, which is published by a third party (for example, government or exchange market). The selected indices often associate with input materials of supplier. For instance, the plastics manufacturer may adjust their price based on crude oil price as oil is major input of producing plastics. Other suppliers may select different set of indices, such as Producer Perception Index.

In this question, only 'Rise in fuel price' could be a justification for supplier to increase price because:

- It may affect the input material price

- The index is checked and published by an independent third party.

This urgent needs occasionally occur due to a sudden change in circumstances. The process for selecting a replacement supplier must still be controlled. If there is a reason for normal processes to be waived, this must be fully documented and approved at a high level.

When the SLA is a schedule or an appendix to the contract, it should clearly state the following:

1. KPIs: how they are to be measured, who measures them and how often

2. How the measurements convert into scores

3. Any other service level standards, which may be of lesser importance than the KPIs

4. Minimum acceptable standards or scores in each case

5. Range of scores both above and below the minimum acceptable

6. Any mitigating factors which might apply in the event of poor performance

7. Any time period permitted in which to remedy a situation or poor performance.

In this question, "2. Minimum qualification of supplier staffs" and "4. On time service delivery" are the KPIs, while "1. How often the service is measured" is the frequency in which the KPIs are measured.

The remedies available in the event of poor performance should be set out in the body of the contract, along with those for any other contractual breach. These clauses should be cross-referenced in the SLA.

Risk-minimising clauses typically include:

Confidentiality clauses (1) to protect business data.

Variation and price adjustment clauses (4) to allow flexibility for scope or cost changes.Service duration and holidays are administrative and not risk-control terms.

Consideration only appears in common law countries. Below are some examples of what is and what is not consideration:

- Past consideration is something that has already been done or given. This cannot act as consideration

- Implied consideration: if the detail of a promise to pay is expressed after the provision of goods or services, but there is an implication that such promise would be forthcoming, this may (depending on the facts) be valid consideration.

- A promise given to a third party: this is not normally consideration, and is based on a concept known as privity of contract. Anyone who is not a party to the contract, even if they are beneficiary of it, cannot sue if the terms of the contract are breached.

- A promise to perform over and above an existing obligation: This is always consideration

A non-disclosure agreement is used to protect confidential information shared during discussions or collaborations. It ensures that sensitive data is not disclosed to unauthorized parties and maintains trust between contractual parties during tendering or negotiation.

United Nations Convention on Contracts for the International Sale of Goods (Vienna Convention or CISG)

Vienna Convention was prepared by by the United Nations Commission on ¬International Trade Law (UNCITRAL) and adopted by a diplomatic conference on 11 April 1980. The Convention was welcomed by several countries from different geographic areas, with different legal and political systems. As of 20 August 2020, the Convention has93 Contracting States. The Convention has proved the effectiveness of an uniform text on international trade law.

What CISG covers, and what it does not

In the 6 first articles of the Convention, the authors set up the boundaries of its application.

First is about where it applies. According to UNCITRAL, the Convention applies to contracts of sale of goods between parties whose places of business are in different States and either both of those States are Contracting States or the rules of private international law lead to the law of a Contracting State. A few States have availed themselves of the authorisation in article 95 to declare that they would apply the Convention only in the former and not in the latter of these two situations. As the Convention becomes more widely adopted, the practical significance of such a declaration will diminish. Finally, the Convention may also apply as the law applicable to the contract if so chosen by the parties. In that case, the operation of the Convention will be subject to any limits on contractual stipulations set by the otherwise applicable law.

Second, the Convention has a list of goods that are not subject to its application in Article 2. Article 3 clarifies the differences between manufacturing contracts and sale contract.

Third, Article 4 and 5 clearly states what CISG does not covers, including grounds for contract invalidity and liabilities to death or injury of person caused by the the goods

Finally, the Convention respects the contractual freedom of the trading parties. Trading parties may select this convention as governing law or select other instrument, such as UPICC or domestic laws.

A confidentiality and data use clause is designed to govern how information, especially sensitive or personal data, is handled. It sets boundaries on disclosure, data sharing, and use, which is essential under data protection laws such as GDPR, especially when information is passed to third parties.

The Unfair Contract Terms Act 1977 (c 50) is an Act of Parliament of the United Kingdom which regulates contracts by restricting the operation and legality of some contract terms. It extends to nearly all forms of contract and one of its most important functions is limiting the applicability of disclaimers of liability. The terms extend to both actual contract terms and notices that are seen to constitute a contractual obligation.

Under this regulation, if a clause within the standard terms in use is considered as 'unfair', the clause will be ineffective (or the other party will be entitled to avoid the clause). At court, the clause that is deemed to be unfair will undergo a 'reasonableness' test or an 'unfairness' test.

Under a hire purchase arrangement:

The finance company (Car Finance Services Ltd) buys the vehicle from the dealer and retains legal title.

The customer (John) only obtains title after all instalments are fully paid.

At the time of the accident, John had only paid three months in advance and therefore did not yet have title. The dealer has already sold the car to the finance company, and the transporter is just a carrier.

So Car Finance Services Ltd (C) held title in the vehicle.

Ultra vires is a Latin phrase, meaning "beyond the powers." Describes actions taken by government bodies or corporations that exceed the scope of power given to them by laws or corporate charters. When referring to the acts of government bodies (e.g., legislatures), a constitution is most often the measuring stick of the proper scope of power.

There are two main types of specification: performance specification and conformance specification (sometimes called prescriptive or technical specifications).

A conformance specification establishes the characteristics a commodity must possess, including details of how the commodity will be manufactured; engineering plans, drawings, or blueprints may be included. The design specification states in prescriptive terms what the potential offeror must provide to the buyer.

Conformance specifications have following features:

- Focus on inputs

- Give specific method, processes and materials

- May identify specific manufacturers or components

- The 'how' as well as the 'what'

- Ties supplier to set details

A framework agreement is an agreement with one or more suppliers/providers which sets out terms and conditions under which individual contracts (call-offs) can be made throughout the term of the agreement.

A framework agreement itself is not a contract, but the call-offs made from it are.

Framework arrangements create a streamlined and flexible process for procuring goods, works or services

Where a framework for the same goods, works or services is awarded to several suppliers, there are three possible options for awarding call-off contracts: direct award (or direct call-off), mini-competition or a combination of both.

Option 1 – Apply the terms of the framework agreement (direct award).

Where your requirements match the terms and/or specification of the framework agreement (in the event of any query, you should clarify the situation with the organisation that established the framework), a particular call-off should be awarded without re-opening competition. The call-off should be awarded to the provider who is identified as the most economically advantageous tender based on the award criteria used at the time that the framework was established (i.e. the supplier ranked no. 1). Randomly selecting a supplier off a framework is not permitted.

Option 2 – Hold a mini-competition between capable suppliers.

If your requirements do not match the terms and/or the specification of the framework, you should conduct a mini-competition exercise. Whilst it is not permitted to substantially change the basic terms or specification of the framework, in running a mini-competition it is possible to supplement or refine the basic terms of the framework prior to making a call-off. Examples of such terms are:

- The particular goods/services/works required;

- Particular delivery timescales;

- Particular invoicing arrangements and payment profiles;

- Associated services such as installation, maintenance and training;

- Quantity;

- Functional specification.

Under no circumstances should brand names or brand-specific descriptions of goods be used e.g. BIC Biro Pen, Hewlett-Packard Printer, Dell computer. Descriptions should give reference to the characteristics and outputs of the product or service. Where no other description is possible, any reference should be qualified by adding the words ‘or equivalent’.

When a mini-competition exercise is held, all suppliers appointed to the framework that are capableof meeting the requirement must be invited to submit a tender. (This might just relate to suppliers within a particular ‘lot’). You must not limit the mini-competition exercise to selected providers. A time limit for submitting the tender must be set and advised to competing suppliers. This time limit must be reasonable, taking account of the complexity of the requirement.

The call-off must be awarded on the basis of the framework award criteria and new criteria cannot be added, although, where permitted, the weightings may be varied to take account of a particular requirement. However, in adjusting the weightings, care must be taken to ensure that any such changes do not have an adverse effect on competition.

Option 3 - Combination of direct award and mini-competition

To use a combination approach, the procurement documents must state that this route may be used. The procurement documents will also specify which terms may be subject to the re-opening of competition.

Product Liability Insurance is a form of general liability insurance meant to protect a business from financial and legal consequences as a result of bodily injury or property damage due to the use of the business’s sold goods or products. Situations that are typically covered by Product Liability Insurance may include:

- A customer harms herself because of the faulty packaging on one of your products

- A drapery set that a customer purchased from your business was highly flammable and caught on fire, eventually damaging her entire kitchen

- A customer with a severe allergy finds trace amounts of tree nuts in your homemade gourmet muffins

- A homemade house cleaner that you sell damaged one of your customer’s entire hardwood floor

- A customer becomes sick with food poisoning after eating old shellfish at your restaurant, goes to the hospital, and incurs medical costs caused by your contaminated food products

- A customer’s pet becomes ill from ingesting some lining in a pet toy product that you sell

In the scenario above, the supermarket is purchasing and reselling house cleaner, which can be covered by product liability insurance.

Public liability insurance is a type of business insurance that covers the cost of claims made by the public that happen in connection with the business activities.

Professional indemnity (PI) insurance is a commercial policy designed to protect business owners, freelancers and the self-employed if clients claim a service is inadequate.

In a fixed price contract:

The price is agreed and stays fixed, regardless of changes in actual costs (unless a separate adjustment clause exists).

Key risks:

If costs rise significantly (materials, labour, etc.), the supplier’s profit is squeezed or wiped out and the supplier may default or fail to perform → (A) is a recognised risk.

If costs fall, the supplier’s actual cost base drops but the selling price is fixed, allowing the supplier to make excess or windfall profits → (D) is another recognised risk.

The other options:

(B) Under a pure fixed price arrangement, the supplier is normally not entitled to claim for unforeseen additional costs unless expressly provided for.

(C) An inflation-linked price is not truly “fixed”; that’s a variable/indexed price mechanism.

(E) A supplier may attempt legal action in some circumstances but “will sue if he makes a loss” is not a standard, defined procurement risk in fixed price contracts.

Hire purchase is an arrangement for buying expensive consumer goods, where the buyer makes an initial down payment and pays the balance plus interest in installments. The ownership of the merchandise is not officially transferred to the buyer until all the payments have been made.

Danielle has purchased the car from Aaron, which means its title has been transferred to her. The accident happens before the last instalment is paid. Therefore, the ownership of the car still belongs to Danielle

Request for quotations is often used when the only variable is price and the purchase value is under a financial threshold. This process is less formal than ITT. RFQ should be used in the following circumstances:

- Low-value, low-risk purchases

- When the specifications are sufficiently defined or the product/service is standardised

- Where the suppliers are pre-qualified

- Where there is a framework agreement which specifies the contract terms and conditions.

Construction procurement is particularly complex and risky. Forming a contract in construction may take lots of time and energy of both client and contractor. Therefore, standardisation inconstruction contract would help the buying organisation to save their precious resources. Furthermore, the wording of these model form contracts is accurate as it has been agreed among the professionals within an industry.

One of the advantage of using model forms of contract is the balanced of risk and reward allocation between the contractor, consultant engineer and the client.

Procurement staff in the Hospital is forcing suppliers into fixed price contract. If the costs generally rise, supplier may operate at a loss. This situation can disrupt the relationship, that is the reason why some suppliers refusing to deal with BDH and a few going out of business mid-way.

Alternative methods could be variable pricing arrangement. This method would reimburse the fluctuation of market price. It will also benefit buyer if the market price drops. This type of arrangement should be applied to long-term contracts (i.e. 18 months or more).