L4M3 PDF Dumps 2025 Exam Questions with Practice Test
Dumps for Free L4M3 Practice Exam Questions
CIPS L4M3 exam mainly focuses on equipping learners with knowledge and skills in the following areas: the contract formation process, contract types, performance management, dispute resolution, and contract termination. Additionally, the certification also covers the importance of standards, ethical behavior, and current legislation to ensure best practices in commercial contracting. This knowledge continues to be crucial for all levels of commercial contracting, further underlining the importance of this certification exam.
NEW QUESTION # 41
A tire manufacturer entered into a contract with a distributor. In the contract, the distributor is prohibited from selling the tire under the price list. The distributor must pay $5 for each tire sold in breach. The amount of $5 is known as...?
- A. Liquidated damages
- B. Penalty
- C. Quantum meruit
- D. Caveat Emptor
Answer: A
Explanation:
This scenario is in fact based on a famous case law: Dunlop Pneumatic Tyre Company v New Garage & Motor co [1915] AC 79. In this case law, the House of Lords identified the clause as liquidated damages, and therefore enforceable.
However, if this case had happened in 2015 or afterwards, there would be some legal issues:
- The price agreement is prohibited by Competition Act 1998
- If the agreement is allowed by Competition Act, as in the case Cavendish Square Holding BV (Appellant) v Talal El Makdessi (Respondent), the clause can also be identified as a penalty and it is still enforceable.
Reference:
LO 3, AC 3.2
NEW QUESTION # 42
Which of the following is always an advantage of using fixed price arrangement in a contract for buying organisation?
- A. Suitable for contracts that last 5 years or more
- B. Supplier always receives a fixed margin
- C. Buyer can harness falling market price
- D. Buyer can allocate budget with certainty
Answer: D
Explanation:
Advantages of using fixed pricing arrangement are as below:
- Budget/income certainty - prices are fixed up front and should not change
- The impact of changes to the supplier's cost base is not fed through to the purchaser. If costs diminish, the supplier will benefit from this, and if costs rise, the purchaser will benefit Reference:
LO 3, AC 3.3
NEW QUESTION # 43
A supermarket purchases a new batch of house cleaner from new supplier. The supermarket is concerned about possible damage that the house cleaner may cause to consumers' floor. What type of insurance must they cover?
- A. Fire and explosion insurance
- B. Professional indemnity insurance
- C. Public liability insurance
- D. Product liability insurance
Answer: D
Explanation:
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.
Reference: CIPS study guide page 150-153
LO 3, AC 3.2
NEW QUESTION # 44
A company is considering entering a new market. Which of the following are the external factors that influence the difference between cost and price of this company? Select THREE that apply
- A. Relative bargaining power of supplier and purchaser
- B. Threat of substitution
- C. Process efficiency
- D. Business strategy
- E. Competitiveness of the market
- F. Procurement policy
Answer: A,B,E
Explanation:
The difference between cost and price is profit. According to Michael E.
Porter, the profitability of an industry is shaped by five forces:
1. Competition in the industry
2. Potential of new entrants into the industry
3. Power of suppliers
4. Power of customers
5. Threat of substitute products
The Question: only mentions
external factor, then business strategy is not accepted.
Reference:
LO 3, AC 3.3
NEW QUESTION # 45
Under English law's general legal principles of contract formation, which of the following are likely to be offers? Select TWO that apply.
- A. Catalogue
- B. Advertisement
- C. Invitation to tender
- D. Purchase order
- E. Quotation
Answer: E
Explanation:
An offer is a full statement of what the offeror is willing to provide and the terms by which they are willing to provide it.
There are some statements that are not offers:
- Invitation to treat: this states that a person or organisation is willing to enter into discussions about the possibility of a deal, but does not confirm a willingness to be bound by any terms mentioned. Catalogues, goods on display and ITTs are invitation to treat.
Civil law countries may have different perspective on this matter. Article 2:201 (3) of The Principles of European Contract Law states: 'A proposal to supply goods or services at stated prices made by a professional supplier in a public advertisement or a catalogue, or by a display of goods, is presumed to be an offer to sell or supply at that price until the stock of goods, or the supplier's capacity to supply the service, is exhausted.' Learners are advised to look at their countries' legislation for more information on offer and acceptance.
- Declaration of intention: this is defined as an aim or a plan.
- A 'mere puff' (or boast): this is anything which is not intended to be taken literally or seriously, such as many advertisement.
- Provision of information: merely provides information, but provider does not confirm willingness to be bound.
Reference:
LO 1, AC 1.2
NEW QUESTION # 46
Southwark is negotiating a contract with Orchard to provide software and IT services. Orchard will manufacture and install the products which are contractually supplied by IBM. Southwark's procurement manager is worried that during the contract there would be some problems that they would not able to claim for damages from Orchard. Which of the following should be included in the head contract so that Southward can sue IBM, should the need arise?
- A. Insurance
- B. Indemnity
- C. Negligence
- D. Collateral warranty deed
Answer: D
Explanation:
A Collateral Warranty is a contract under which a consultant, a building contractor or a sub- contractor warrants to a third party that is has fulfilled its obligations under its professional appointment, building contract or sub-contract. The purpose of a Collateral Warranty is to give a third party, who is not a party to the original contract, rights to enforce that original contract.
In this case, IBM is the subcontractor, then purchaser can use collateral warranty deed to bind them.
Reference:
- Collateral Warranties - an Overview
- CIPS study guide page 39-40
LO 1, AC 1.2
NEW QUESTION # 47
Which of the following are the 'fundamental' labour standards laid down by the International Labour Organisation?
1. Elimination of child labour
2. Payment of a minimum wage
3. The right to collective bargaining
4. Abolition of forced labor
- A. 1, 2 and 3 only
- B. 1, 2 and 4 only
- C. 1, 3 and 4 only
- D. 2, 3 and 4 only
Answer: C
Explanation:
ILO Declaration on Fundamental Principles and Rights at Work was adopted in 1948. The Declaration commits Member States to respect and promote principles and rights in four categories, whether or not they have ratified the relevant Conventions.
These categories are: freedom of association and the effective recognition of the right to collective bargaining, the elimination of forced or compulsory labour, the abolition of child labour and the elimination of discrimination in respect of employment and occupation.
Reference:
- ILO Declaration on Fundamental Principles and Rights at Work
- CIPS study guide page 161-163
LO 3, AC 3.2
NEW QUESTION # 48
Which of the following is regulated by standard ISO 14001?
- A. Quality management systems
- B. Energy management
- C. Environmental management
- D. Information security management
Answer: C
Explanation:
ISO has about 22,000 international standards covering a vast range of aspects of product or service quality. Below are some of the most common ISO standards:
- ISO 9001: Quality management system
- ISO 27001: Information security management
- ISO 5001: Energy management
- ISO 14001: Environmental management
Reference:
- ISO 14001:2015 Environmental management systems - Requirements with guidance for use
- CIPS study guide page 86
LO 2, AC 2.1
NEW QUESTION # 49
Which of the following are express terms?
Sale by description
Fitness for purpose
Passing of risk
Passing of title
- A. 2 and 4 only
- B. 1 and 2 only
- C. 2 and 3 only
- D. 3 and 4 only
Answer: D
Explanation:
Express terms are those specifically stated and agreed upon in the contract. "Passing of risk" and "Passing of title" are typically included explicitly in contract terms, especially in contracts involving the sale of goods. In contrast, "Sale by description" and "Fitness for purpose" are usually implied terms under the Sale of Goods Act 1979, unless expressly stated.
Reference:
CIPS L4M3 Commercial Contracting Study Guide, Chapter 3, Section 3.1.1 - Express and implied terms in contracts.
NEW QUESTION # 50
An example of a qualitative performance measure could be one that relates to opinions about the service quality of the supplier. Is this correct?
- A. No, this will relate to how much prices have increased by
- B. No, this type of measure will relate to the number of incomplete deliveries
- C. Yes, this will relate to the actual number of complaints received
- D. Yes, this is often how satisfaction is measured
Answer: D
Explanation:
Qualitative performance measures capture subjective or non-numerical aspects of service, such as customer satisfaction, perceptions, and opinions. These are often gathered through surveys or interviews. While quantitative data is crucial, qualitative insights can reveal hidden issues and improve relationship management.
Reference:CIPS L4M3 Commercial Contracting Study Guide, Chapter 4, Section 4.3.2 - Qualitative and quantitative performance measures.
NEW QUESTION # 51
Which of the following should be used in a contract for window cleaning during the next three months?
- A. Cost-plus arrangement
- B. Variable pricing arrangement
- C. Fixed pricing arrangement
- D. Standard schedule of rates
Answer: C
Explanation:
A contract for window cleaning during the next three months is a short-term service contract in which changes of input costs (labour, tools,...) are very unlikely to happen.
Fixed pricing arrangement is useful for small to medium scope project, with short timelines, where what is delivered can be adequately specified and the likelihood of changes to the specification, scope and input costs is limited.
Reference: CIPS study guide page 172-176
LO 3, AC 3.3
NEW QUESTION # 52
Under a price adjustment agreement, which of the following would be supplier's justification for increasing unit price?
- A. Rise in customer's satisfaction
- B. Rise in economies of scale
- C. Rise in shares price
- D. Rise in fuel price
Answer: D
Explanation:
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.
Reference:
LO 3, AC 3.3
NEW QUESTION # 53
Electro Systems PLC is a public sector manufacturer of highly technical solutions for the telecommunications industry. The market in which it operates is fast-paced and ever-changing because of the latest inventions and developments. The products it procures are high-cost and can be subject to lengthy lead times. Michael Jones, the procurement director, believes that establishing framework agreements would be beneficial to the tendering process. How could this assist them?
- A. Improve supplier product quality
- B. Enable the use of e-tendering
- C. Improve supplier lead times
- D. Enable the use of mini-competitions
Answer: D
Explanation:
Framework agreements allow for pre-approved suppliers to be used over a contract period with simplified ordering processes. A key benefit is the use of mini-competitions among these suppliers to secure value and innovation without repeating the full tender process. This approach is highly effective in dynamic sectors like telecommunications.
Reference:CIPS L4M3 Commercial Contracting Study Guide, Chapter 4, Section 4.1.2 - Framework agreements and mini-competitions.
NEW QUESTION # 54
Which of the following should include in the service level agreement that is an appendix of a contract?
1. How often the service is measured
2. Minimum qualification of supplier staffs
3. Remedies to resolve dispute
4. On time service delivery
- A. 1, 2 and 4 only
- B. 1, 2 and 3 only
- C. 1, 3 and 4 only
- D. 2, 3 and 4 only
Answer: A
Explanation:
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.
Reference:
LO 2, AC 2.2
NEW QUESTION # 55
Which of the following clauses addresses fraud, bribery and corruption?
The Company has undertaken commercially reasonable efforts to eliminate Conflict Minerals from each Company Product and any products currently proposed to be manufactured by the Company or on its behalf in the future. "Conflict Minerals" means columbite-tantalite (coltan),cassiterite, gold, wolframite, or their derivatives, which originate in the Democratic Republic of the Congo or other country the exploitation and trade of which is determined by the United States to be financing conflict in the Democratic Republic of the Congo or other country.
- A. Each Party hereby undertakes that, at the date of the entering into force of the Contract, itself, its directors, officers or employees have not offered, promised, given, authorized, solicited or accepted any undue pecuniary or other advantage of any kind in any way connected with the Contract and that it has taken reasonable measures to prevent subcontractors, agents or any other third parties, subject to its control or determining influence, from doing so.
- B. Nothing in this Agreement shall prevent a Party from utilizing the services of any subcontractor as it deems appropriate to perform its obligations under this Agreement; provided, however, that each Party shall require its subcontractors to comply with all applicable terms and conditions of this
- C. Customer will be responsible for and shall ensure that while Service Provider employees, agents or contractors are on Customer's premises, all proper and legal health and safety precautions are in place and fully operational to protect such persons.
- D. Agreement in providing such services and each Party shall remain primarily liable to the other Party for the performance of such subcontractor.
Answer: A
Explanation:
This question is intended to let students know about how contractual clauses regarding ethical issues is constructed. The exam paper may not ask about this.
"Each Party hereby undertakes that, at the date of the entering into force of the Contract, itself, its directors, officers or employees have not offered, promised, given, authorized, solicited or accepted any undue pecuniary or other advantage of any kind in any way connected with the Contract and that it has taken reasonable measures to prevent subcontractors, agents or any other third parties, subject to its control or determining influence, from doing so.": This is a clause addressing fraud, bribery and corruption. It is created to prevent any undue act by contracting parties. You may find other anti-corruption clause samples in this document.
"Nothing in this Agreement shall prevent a Party from utilizing the services of any subcontractor as it deems appropriate to perform its obligations under this Agreement; provided, however, that each Party shall require its subcontractors to comply with all applicable terms and conditions of this Agreement in providing such services and each Party shall remain primarily liable to the other Party for the performance of such subcontractor.": This clause is used to control the subcontracting and subcontractors.
"Customer will be responsible for and shall ensure that while Service Provider employees, agents or contractors are on Customer's premises, all proper and legal health and safety precautions arein place and fully operational to protect such persons.": This clause is used to ensure health and safety standards.
"The Company has undertaken commercially reasonable efforts to eliminate Conflict Minerals from each Company Product and any products currently proposed to be manufactured by the Company or on its behalf in the future. "Conflict Minerals" means columbite-tantalite (coltan), cassiterite, gold, wolframite, or their derivatives, which originate in the Democratic Republic of the Congo or other country the exploitation and trade of which is determined by the United States to be financing conflict in the Democratic Republic of the Congo or other country.": This is a clause addressing conflict minerals.
Reference: CIPS study guide page 164-166
LO 3, AC 3.2
NEW QUESTION # 56
Which of the following is a disadvantage of using input specifications?
- A. There is less opportunity for innovation
- B. It requires a more proactive approach to monitoring
- C. There is no limit to the number of suppliers who can quote
- D. It is difficult to assess suitability of each quotation
Answer: A
Explanation:
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.
Reference:CIPS L4M3 Commercial Contracting Study Guide, Chapter 2, Section 2.1.3 - Types of specification including input and output-based.
NEW QUESTION # 57
Social and environmental criteria are often incorporated into which of the following type of specification?
- A. Technical specification
- B. Design specification
- C. Conformance specification
- D. Output specification
Answer: D
Explanation:
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.
Reference:
- Sustainable Procurement
- CIPS study guide page 95-99
LO 2, AC 2.1
NEW QUESTION # 58
When a supplier signs an insurance policy with an insurance company, which of the following is transferred to insurance company?
- A. Contractual obligation
- B. Right
- C. Legal responsibility
- D. Risk
Answer: D
Explanation:
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).
Reference:
LO 3, AC 3.2
NEW QUESTION # 59
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CIPS L4M3 exam is an excellent opportunity for procurement professionals to demonstrate their expertise in commercial contracting and advance their careers in this field. By passing L4M3 exam, candidates can gain recognition from employers and peers, as well as enhance their knowledge and skills in procurement and supply chain management.
CIPS L4M3, also known as Commercial Contracting, is an important certification exam for individuals who wish to enter the world of procurement and contracting. L4M3 exam aims to equip learners with key knowledge and skills needed for successful commercial contracting. In L4M3 exam, learners engage with various elements of contemporary commercial contracting practices and strategies that play an essential role in an organization's success.
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