Practice Test for L5M3 Certification Real 2023 Mock Exam
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CIPS L5M3 Certification Exam is a rigorous program that requires candidates to demonstrate a deep understanding of the principles and best practices involved in managing contractual risks. Successful candidates will gain a valuable credential that will enhance their professional credibility and help them stand out in a competitive job market. With the increasing importance of risk management in procurement, the CIPS L5M3 Certification Exam is an excellent investment for procurement professionals who want to advance their careers and make a positive impact on their organizations.
Successful completion of the CIPS L5M3 Exam demonstrates that a procurement professional has the knowledge and skills required to manage contractual risk effectively. This qualification is highly regarded by employers and can enhance career opportunities in procurement and supply chain management.
NEW QUESTION # 17
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
- A. restitution damages are not limited to pre-agreed levels stated in the contract
- B. restitution damages are based on how much was gained by the breaching party as a re-sult of the breach
- C. restitution damages intend to return the innocent party to the position they were in be-fore the contract
- D. restitution damages considers the position of the breaching party before the contract
Answer: B,C
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.
NEW QUESTION # 18
What is the purpose of a limitation on liability clause?
- A. it allows a party to claim on insurance if something goes wrong
- B. it provides an accurate pre-estimate of potential loss
- C. it caps a company's exposure to risk
- D. it passes the responsibility to the other party
Answer: C
Explanation:
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
NEW QUESTION # 19
What is the purpose of conflict resolution?
- A. to agree on a way forward
- B. to create a binding solution to an issue
- C. to punish the party who breaks the contract
- D. to ensure all parties are happy with the outcome
Answer: A
Explanation:
The purpose is 'to agree a way forward'. This is a direct quote from p.61. The other answers are incorrect- conflict resolution isn't always binding and sometimes not all parties are happy with the outcome. It certainly isn't about punishing about anyone (this is a common red herring option given in the exam)
NEW QUESTION # 20
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?
- A. Yes- this is a breach of a condition
- B. no- the specification is not a contract document
- C. Yes- this is a fundamental breach
- D. no - there has been a breach in a warranty
Answer: D
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.
NEW QUESTION # 21
Which of the following statements about penalty clauses is not true?
- A. they provide damages in excess of the true cost of a breach
- B. they are used to deter the parties from breaching the contract
- C. they can harm the working relationship
- D. they are illegal
Answer: D
Explanation:
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
NEW QUESTION # 22
Which of the following processes is the most adversarial?
- A. mediation
- B. litigation
- C. negotiation
- D. adjudication
Answer: B
Explanation:
Litigation is the most adversarial. It's usually the last resort and shouldn't be used if you want to preserve the working relationship. P. 145
NEW QUESTION # 23
Which of the following is usually the default method for resolving disputes?
- A. negotiation
- B. mediation
- C. conciliation
- D. litigation
Answer: A
Explanation:
Negotiation is usually the default method for resolving disputes. This is a direct quote from p.63
NEW QUESTION # 24
A warranty is a minor term of a contract. Is this TRUE?
- A. no- a warranty is a type of innominate term
- B. yes- it does not affect the prime benefit
- C. yes- it affects the prime benefit of the contract
- D. no- a warranty is a fundamental term in a contract
Answer: B
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
NEW QUESTION # 25
Which of these statements about mediation is true? Select TWO
- A. mediation involves a third party who makes a judgement on the issue
- B. mediation is expensive
- C. mediation is flexible
- D. mediation produces legal precedents
- E. mediation can be used as a stalling tactic
Answer: C,E
Explanation:
The correct answers are 1 and 3. The other options are false; Mediation does not produce legal precedents- only litigation can do this. Mediation is a cheap dispute resolution option (much cheaper than arbitration or litigation) and the third party has no authority on the matter- they are there as a facilitator of dialogue, not to make a judgement. For more information on mediation see p.74
NEW QUESTION # 26
A buyer and supplier have a contract and the supplier has committed a major breach. However, as they are the sole supplier to the buyer, the buyer has decided not to terminate the contract and instead to work with the supplier to remedy the situation. What is this called?
- A. affirmation of the contract
- B. conflict resolution
- C. awarding damages
- D. assigning liability
Answer: A
Explanation:
This is affirmation of the contract. When a breach occurs the injured party has two options; termi-nate the contract or affirm the contract. In this example they have affirmed the contract- they have chosen to continue working with the offending party. See p.60.
NEW QUESTION # 27
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?
- A. unliquidated damages
- B. penalty clause
- C. service credit
- D. liquidated damages
Answer: B
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.
NEW QUESTION # 28
What is the first stage in conflict resolution?
- A. identify the nature and source of the conflict
- B. decide on the type of conflict resolution approach
- C. assess the impact of the breach
- D. look at remedies available
Answer: A
Explanation:
The first stage is 'identify the nature and source of the conflict'. Stage 2 is assess the impact of the breach, stage 3 is look at remedies available and stage 4 is agree on a way forward and type of conflict resolution. These stages are explained on p.62 of the study guide.
NEW QUESTION # 29
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?
- A. Negotiations between the buyer and supplier have failed and dispute resolution will need to take place
- B. a situation has occurred which means that the contract can no longer be performed
- C. the supplier has committed a major breach and is unable to fulfil the contract
- D. The buyer no longer requires the supplier but is tied into the contract
Answer: B
Explanation:
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
NEW QUESTION # 30
Which of the following must a legally binding contract contain? Select THREE
- A. Intention
- B. Liability
- C. Consideration
- D. Indemnity
- E. Capacity
Answer: A,C,E
Explanation:
Intention, Consideration and Capacity are the correct answers. A contract must contain 5 elements to be legally binding. As well as these three, the other two factors are offer and acceptance. P.2 of the study guide.
NEW QUESTION # 31
Service Credits are a form of what?
- A. liquidated damages
- B. KPI
- C. indemnity
- D. Consideration
Answer: A
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.
NEW QUESTION # 32
What is the purpose of a liability clause in a contract?
- A. to give an approximate pre-determined value of loss
- B. to ensure adherence to legal standards
- C. to punish the supplier for poor performance
- D. to limit commercial and financial exposure
Answer: D
Explanation:
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.
NEW QUESTION # 33
When there has been a major breach in a contract, the contract will be terminated. Is this statement true?
- A. no- the contract can continue if the offending party proves that further breaches won't occur
- B. yes- the contract must be terminated as there is no means by which the contract could continue after a major breach
- C. no- the contract can be affirmed by the injured party
- D. yes- the contract will be terminated and damages sought
Answer: C
Explanation:
"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
NEW QUESTION # 34
Which of the following will you put into box 7?
- A. Warranty
- B. Condition
- C. Innominate Term
Answer: B
Explanation:
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.
NEW QUESTION # 35
John has signed a document with Larry that says that he will give Larry his car. Both John and Larry are over the age of 18 and are of sound mind. Larry accepts this offer and signs the document. Is this a contract?
- A. no- there is no consideration
- B. no- this document is an invitation to treat
- C. yes- both parties consent and have capacity to do so
- D. yes- it has been signed
Answer: A
Explanation:
No - There is no consideration. For a document to be considered a contract there must be consideration. This means something of value must be exchanged. In this example John gives Larry something but Larry doesn't give John anything. Therefore there is no consideration and this is not a contract. See p.12
NEW QUESTION # 36
Which of the following is a consensual form of dispute resolution?
- A. mediation
- B. negotiation
- C. litigation
- D. adjudication
Answer: A
Explanation:
Mediation is consensual- consensual is when a third party is introduced to help reach an agreement. This is in contrast to adjudicative dispute resolution in which the third party acts as a judge and decision maker. Negotiation doesn't involve a third party so is neither. See p. 137.
NEW QUESTION # 37
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CIPS L5M3 exam is a critical component of the L5 qualification, as it tests the candidate's ability to manage contractual risk effectively. Candidates must have a thorough understanding of the principles of contract management and risk management, as well as the ability to apply them to real-life procurement situations. Passing the CIPS L5M3 exam demonstrates that the candidate possesses the necessary knowledge and skills to manage contractual risk effectively, which is essential for any procurement professional working in today's complex business environment.
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