CIPS L3M3 Contract Administration Exam Practice Test

Explanation

The business case will justify the expenditure.

Of the other answers offered, the only one which needs explanation presumably is 'cost analysis'. This needs to be distinguished from 'price analysis'.

Explanation

This is true. Profit is what is left over after you've covered all your costs. In simple terms.

Explanation

Trading blocs eg EU, EFTA, ASEAN aim to free up trade within the bloc; the other answers of-fered will negatively affect free trade.

Explanation

Title. In order to be sure you own something, you have to make sure you have acquired 'good title'.

Explanation

Risk register.

A risk manual is more likely to explain risk(s), and say what should be done regarding risks.

Explanation

The answer is 'environmental'.

Explanation

Transfer.

Some of the risk has been transferred to the insurance company.

Explanation

Term contracts are set up for a period of time, or a 'term'.

The other answer options shown here are the subject of other QUESTION NO: s within this test.

Explanation

Even if you don't know what 'Epistemological' means, you should know it's the odd one out.

It relates to the philosophical study of knowledge.

Explanation

Not only are the flowers a relatively short-term acquisition of low value, there are unlikely to be many whole life cost elements / possibilities.

The other suggestions however, contain a minefield of long-term cost possibilities.

Explanation

This is about risk, and the answer is 'treat'.

Risk management strategies can be classified into 'the 4 T's', which you need to know for your ex-am.

Treating the risk is essentially seeking to minimise the likelihood or impact of the risk. An example might be to carefully monitor key suppliers' ongoing financial performance to minimise the likeli-hood of their going into liquidation during the course of a contract with us. Etc.

Explanation

Post-tender negotiation.

In my opinion, potentially a very rewarding activity where the rules permit.

Explanation

'Market skimming' is the correct answer.

An obvious example of this type of pricing behaviour is in the field of technology, where 'early adopters' will pay significantly more for a product, even although they know the price will drop subsequently. For commercially-used products, sometimes there is an urgent need for an organisa-tion to acquire - a topical example as I write (early 2022) is some new surveillance technology which is in the news and which some governments are desperate to have. In consumer markets, everyone's 'go-to' example is the next generation smartphone, especially Apple products.

Promotional pricing is a short-term price reduction (or 'two-4-one' type offer) to generate sales in the short-term, for example to clear stock, or because of a manufacturer financial support arrangement.

Price discrimination is where the seller sets different prices for different market segments. An ex-ample would be charging different rail fares in UK or mainland Europe based on customer age.

Contribution pricing is based on the notion that sales should cover costs, contributing to the busi-ness, without necessarily making a profit. For example, a large order may be accepted which will keep the workforce employed (retaining their skills as well as having a considerate / ethical outlook) to see the firm through a rough period.

Explanation

Rewarding poor performance is not to be encouraged.

The other three options shown are often capable of motivating suppliers.

Explanation

The 'firm and unequivocal offer' and 'the basis of a contract' indicate the reference to a formal and binding tender procedure. The answer is therefore 'invitation to tender'.

Explanation

When a company's goals, resources, plans are aligned we should hope for better performance. And when the employee's values are also aligned, it just gets better.

Explanation

The fact that the time period and the total quantity is known means it is a 'call-off' contract. The volumes of product are 'called off' from the contract as required by the buying organisation.

Make sure you understand the difference between a call-off contract and a framework arrangement.

Under a framework arrangement, there is no obligation on the part of the buyer to use the goods / services specified.

Explanation

Best alternative to a negotiated agreement; and a zone of potential agreement.

The other terms shown are just fictions.

Explanation

Milestone plan.

This is difficult, and if you opted for 'staged', that is understandable. 'Milestone' or 'gateway' are terms often used to describe a situation in which a particular point must be reached on a project, pri-or to release of funds. By this means, a close linkage can be made between outputs achieved and payments made. The idea of stages goes towards this, and 'progress payments' ie payment based on alleged progress or simply time, have been shown in many cases, to be ineffective in achieving value for money.

Explanation

Economic.

I think foreign exchange at least couldn't fit into any other STEEPLE factor, so that's a clincher and it has to be 'economic'.

Explanation

Offer and acceptance together make up 'agreement'.

Explanation

'Invitation to treat' is less than an offer ie it is not capable of being accepted in any contractual sense.

A common example given of an invitation to treat are goods on display in a shop window.

Explanation

Cost of production, and shareholder and managerial expectations of profit, are both internal factors in decision-making. Although shareholders may be outside the firm, management will condition shareholders' expectations. Customer perception of value and the extent of marketplace competition are significantly outwith the control of the company.

Explanation

Jurisdiction.

American movies seem to spend half the time with law enforcement people arguing about who has jurisdiction.

Jurisprudence means the theory or study of law; Jurassic is about an age.

de jure means practices which are legally recognised, as opposed to de facto which is about the reali-ty (Wikipedia).

Explanation

Liquidated damages clause.

The QUESTION NO: is pretty much a definition of a liquidated damages clause.

Explanation

All of those shown are barriers to trade.

Quotas place a numerical limit on what may be imported; embargoes ban certain goods (for exam-ple, no goods originating in Israel may be imported); duties discourage imports; subsidies of local industries undercut foreign competitors (have a search for stories on large airlines being subsidised in various countries, commonly for reasons of prestige); complex customs procedures make import-ing foreign goods difficult (great examples involving France); exchange controls limit the amount of a currency which can be converted into another currency, limiting payment possibilities for imports. Etc.

Of course, most countries using any of these mechanisms repeatedly eulogise on the benefits of free trade....

Explanation

What is the likelihood of an event occurring?

What will be the impact of that event occurring?

This is the basis of almost all modern risk management.

CIPS has good content at Advanced Diploma level on the subject of Risk Management, and I have prepared tests for the two subjects in this area. :)

Sadgrove's book on business risk, in my view, is excellent; and NN Taleb's work (eg 'Antifragile') on risk, although difficult is, in my opinion, fascinating.