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CIPS Level 4 Diploma study materials
CIPS Level 4 Diploma study resources

CIPS Level 4 Diploma practice questions

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Question 1Procurement and supply management

In procurement and supply, which document formally communicates an organisation's requirement to potential suppliers and invites them to submit an offer?

  1. The payment remittance advice
  2. The invitation to tender Correct answer.
  3. The internal requisition
  4. The goods received note

Explanation

An invitation to tender is the formal solicitation document that sets out the buyer's requirement, submission rules and evaluation criteria, and invites suppliers to respond with an offer. It is the outward-facing document that starts a competitive process.

Question 2Procurement and supply management

A procurement team needs a supplier to design and build a bespoke automated packing line, and no ready-made solution exists. Which sourcing approach is most appropriate?

  1. A reverse auction among distributors
  2. A request for quotation against a catalogue item
  3. A competitive tender based on a detailed specification Correct answer.
  4. A framework call-off from an existing stationery contract

Explanation

Where the requirement is complex and bespoke, the buyer must define the need and test the market through a structured competitive tender so that suppliers can propose designs and prices. Catalogue quotations, auctions and unrelated framework call-offs all assume a defined, comparable product.

Question 3Procurement and supply management

Which statement best describes the purpose of a specification in procurement?

  1. It records the price agreed with the successful supplier
  2. It converts the business need into measurable requirements that suppliers can price and be held to Correct answer.
  3. It lists the bidders who were excluded from the process
  4. It authorises the buyer to release payment

Explanation

A specification translates the internal need into clear, measurable requirements covering performance, quality and any standards, so suppliers can offer comparable solutions and the contract can be enforced. Price, bidder lists and payment authorisation are handled by other documents.

Question 4Procurement and supply management

What is the main procurement benefit of aggregating demand across several business units into a single contract?

  1. It removes the need to evaluate supplier capability
  2. It guarantees that only one supplier will ever be used
  3. It eliminates the need for contract terms and conditions
  4. It increases volume leverage and reduces the total cost of purchasing Correct answer.

Explanation

Consolidating requirements gives the buyer greater volume leverage, lowers transaction and administration costs, and supports standardisation. It does not replace supplier evaluation, competition or contractual terms.

Question 5Procurement and supply management

Which factor is a legitimate reason for a buyer to use single sourcing?

  1. The supplier holds patented technology essential to the requirement Correct answer.
  2. The buyer wishes to avoid writing a specification
  3. The buyer wants to reduce the number of invoices processed
  4. The buyer has not had time to prepare a tender

Explanation

Single sourcing is justified where only one supplier can meet the need, for example because of patented technology, exclusive rights or extreme technical specialism. Administrative convenience or poor planning are not valid justifications.

Question 6Procurement and supply management

In the Kraljic portfolio matrix, which category covers items with high supply risk and high profit impact?

  1. Strategic items Correct answer.
  2. Non-critical items
  3. Leverage items
  4. Bottleneck items

Explanation

Kraljic classifies purchases by profit impact and supply risk; strategic items score high on both and require close, long-term supplier relationships and joint planning. Leverage items are high impact but low risk, bottleneck items low impact but high risk, and non-critical items low on both.

Question 7Procurement and supply management

A buyer is evaluating offers for a service where quality and methodology matter more than price. Which evaluation approach is most suitable?

  1. A weighted scoring model that combines technical and commercial criteria Correct answer.
  2. Award to the lowest-priced compliant offer only
  3. Award by drawing lots among compliant bidders
  4. Award to the bidder that submitted first

Explanation

Where non-price factors are significant, a weighted scoring model allows technical quality, methodology and price to be assessed against published criteria and combined transparently. Price-only award or arbitrary methods ignore the quality dimension the buyer has identified.

Question 8Procurement and supply management

What does a service level agreement (SLA) primarily define in a procurement contract?

  1. The legal name and registration number of the supplier
  2. The price adjustment formula for raw materials
  3. The measurable performance standards the supplier must meet during the contract Correct answer.
  4. The dispute resolution venue

Explanation

An SLA sets out measurable service standards such as response times, availability and quality metrics, together with how performance is monitored and what happens when standards are missed. Legal identity, price formulas and dispute venues are handled elsewhere in the contract.

Question 9Procurement and supply management

A buyer needs to reduce supply risk for a critical component sourced from a single overseas supplier. Which action best addresses the risk directly?

  1. Reducing the safety stock held on site
  2. Qualifying a second source in a different region Correct answer.
  3. Extending the payment terms with the incumbent
  4. Moving to a just-in-time delivery schedule

Explanation

Qualifying an alternative supplier in a different region creates a genuine second source and diversifies geographic and supplier concentration risk. The other options either leave the single-source dependency unchanged or increase exposure.

Question 10Procurement and supply management

Which practice best supports ethical sourcing in a global supply chain?

  1. Auditing suppliers against a published code of conduct and requiring corrective action Correct answer.
  2. Relying on the supplier's own verbal assurances
  3. Selecting suppliers solely on the lowest quoted unit price
  4. Restricting due diligence to tier-one suppliers

Explanation

Ethical sourcing requires documented standards, independent verification and a corrective action process when breaches are found. Verbal assurances and price-only selection provide no assurance, and limiting scrutiny to tier one leaves deeper labour and environmental risks unmanaged.

Question 11Procurement and supply management

What is the principal purpose of a pre-qualification questionnaire in a competitive procurement?

  1. To screen suppliers for capability, capacity and compliance before detailed evaluation Correct answer.
  2. To replace the need for a specification
  3. To set the final contract price
  4. To record the delivery dates of past orders

Explanation

A pre-qualification questionnaire gathers evidence on financial standing, technical capability, certifications and compliance so that unsuitable suppliers are filtered out before the more costly tender evaluation. It does not set prices, record deliveries or substitute for a specification.

Question 12Procurement and supply management

A buyer uses a total cost of ownership approach when comparing two machines. Which cost should be included that a simple purchase price comparison would miss?

  1. The supplier's marketing budget
  2. The cost of the tender advertisement
  3. Energy consumption and maintenance over the asset's working life Correct answer.
  4. The buyer's office rental cost

Explanation

Total cost of ownership captures acquisition plus operating, maintenance, energy, downtime and disposal costs across the asset's life, which can reverse a decision based on purchase price alone. Costs unrelated to the asset's ownership should be excluded.

Question 13Procurement and supply management

Which statement correctly distinguishes a specification from a statement of work?

  1. A specification defines technical requirements, while a statement of work describes the activities and deliverables of a service Correct answer.
  2. A statement of work replaces the contract terms and conditions
  3. A specification is used only for services, while a statement of work is used only for goods
  4. A specification is issued after contract award, while a statement of work is issued before

Explanation

A specification focuses on what the item must be or do, whereas a statement of work sets out the scope of work, activities, deliverables and responsibilities for a service engagement. Both are pre-award documents and neither replaces the contract terms.

Question 14Procurement and supply management

In a tender evaluation, what is the purpose of a moderation meeting?

  1. To publish the award notice to unsuccessful bidders
  2. To amend the evaluation criteria after bids are opened
  3. To negotiate the final price with the preferred bidder
  4. To reconcile individual evaluators' scores and agree a consensus position Correct answer.

Explanation

Moderation brings evaluators together to discuss and reconcile divergent scores so that a fair, consistent consensus is reached against the published criteria. Negotiation, notification and changing criteria are separate activities and changing criteria after opening would be improper.

Question 15Procurement and supply management

Which contracting approach gives the buyer the greatest control over how work is performed?

  1. A framework agreement with call-off options
  2. A spot purchase against a catalogue
  3. A firm fixed-price contract
  4. A cost-reimbursable contract with close performance oversight Correct answer.

Explanation

Cost-reimbursable arrangements involve the buyer in monitoring costs and performance closely, giving greater visibility and control over how the work is carried out, though with more price uncertainty. Fixed-price, framework and catalogue purchases transfer more delivery responsibility to the supplier.

Question 16Procurement and supply management

A procurement professional is asked to justify a decision to award work to a local supplier at a higher price. Which argument is most consistent with sound procurement practice?

  1. The supplier is personally known to the buying manager
  2. The award reflects published socio-economic criteria and the evaluated whole-life value Correct answer.
  3. The higher price avoids the need for a written contract
  4. The supplier offered the fastest informal response

Explanation

A higher-priced local award can be justified where it is assessed against transparent, published criteria such as social value or local economic benefit and the overall evaluated value supports it. Personal familiarity, informal speed or avoiding a contract are not defensible grounds.

Question 17Procurement and supply management

What is the main function of an e-procurement system's catalogue module in day-to-day purchasing?

  1. To manage employee payroll deductions
  2. To draft the organisation's category strategy
  3. To let requisitioners order pre-agreed items at contracted prices Correct answer.
  4. To conduct supplier financial due diligence

Explanation

A catalogue module presents approved items and negotiated prices so that requisitioners can raise orders quickly and compliantly, channelling spend to contracted suppliers. Due diligence, strategy drafting and payroll are outside its scope.

Question 18Procurement and supply management

A buyer's organisation has a policy requiring competitive tendering above a threshold. A manager asks to waive competition because the incumbent 'knows the site'. Which response is most appropriate?

  1. Agree the waiver because the incumbent is familiar with the site
  2. Run a tender but exclude all other suppliers
  3. Cancel the requirement until the incumbent is ready to bid
  4. Require a documented business case for a justified exception under the policy Correct answer.

Explanation

Policy exceptions must be evidenced through a documented business case showing a legitimate justification, and approved through the proper governance route. Familiarity alone is a weak argument and informal waivers undermine fairness and value for money.

Question 19Procurement and supply management

Which outcome best demonstrates that a category strategy has been successfully implemented?

  1. The procurement team has attended a training course
  2. Spend is consolidated with selected suppliers and measured savings and service gains are realised Correct answer.
  3. A strategy document has been written and filed
  4. A supplier has been sent a copy of the strategy

Explanation

Implementation is evidenced by changed purchasing behaviour and realised outcomes, such as consolidated spend, contracted prices and measurable service or savings benefits. Producing documents, training or distribution alone does not demonstrate delivery.

Question 20Procurement and supply management

A public-sector buyer must treat bidders equally. Which action would breach this principle?

  1. Issuing the same clarification to all bidders at the same time
  2. Publishing the evaluation criteria in the tender documents
  3. Allowing all bidders the same deadline extension
  4. Providing one bidder with additional information that is withheld from others Correct answer.

Explanation

Equal treatment requires that all bidders receive the same information at the same time so that none gains an unfair advantage. Sharing information selectively breaches this principle, whereas common clarifications, published criteria and equal extensions support it.

Question 21Procurement and supply management

A supplier proposes a price reduction in exchange for a three-year volume commitment. Which risk should the buyer assess most carefully before agreeing?

  1. Whether the buyer's staff prefer the supplier's brand
  2. Whether the supplier's logo appears on the contract
  3. Whether forecast volumes will be achieved and what happens if they are not Correct answer.
  4. Whether the contract is printed or electronic

Explanation

Volume commitments transfer demand risk to the buyer, so the key question is whether forecasts are reliable and what liability arises if actual volumes fall short. Presentation, brand preference and document format are not material commercial risks.

Question 22Procurement and supply management

A buyer receives three compliant bids whose prices differ by less than two per cent but whose technical scores vary widely. What does this pattern most likely indicate?

  1. That the tender should be cancelled and re-run
  2. That the lowest price should automatically win
  3. That the technical criteria were poorly designed
  4. That non-price factors should carry decisive weight in the award decision Correct answer.

Explanation

When prices are tightly clustered, price competition yields little differentiation and technical quality becomes the discriminator of value. The pattern does not by itself show poor criteria design, justify automatic lowest-price award, or require cancellation.

Question 23Procurement and supply management

An organisation shifts from buying equipment outright to a usage-based service contract that includes maintenance and availability guarantees. What is the main procurement implication?

  1. The need for a specification disappears
  2. The contract can no longer include service levels
  3. Risk and performance responsibility shift toward the supplier and must be reflected in measurable contract terms Correct answer.
  4. The supplier's costs become fully transparent to the buyer

Explanation

Outcome-based service contracts transfer performance and availability risk to the supplier, so the buyer must define measurable outcomes, service levels and remedies carefully. A specification is still needed, cost transparency is not automatic, and service levels become more important, not less.

Question 24Procurement and supply management

A category manager finds that maverick spend is high despite an existing contract. Which intervention is most likely to address the root cause?

  1. Raising the approval threshold for off-contract purchases
  2. Making contracted items easy to order through a guided catalogue with spend visibility Correct answer.
  3. Increasing the number of approved suppliers
  4. Removing the contract and reverting to spot buying

Explanation

Maverick spend often stems from inconvenience and lack of visibility, so simplifying compliant ordering through a catalogue and reporting spend by business unit addresses the cause. Adding suppliers, abandoning the contract or loosening controls would worsen the problem.

Question 25Procurement and supply management

A buyer is comparing a bid with an unusually low price from a new entrant. Which analysis is most appropriate before award?

  1. Assess the bid for sustainability and abnormally low tender indicators, seeking cost breakdowns where justified Correct answer.
  2. Ask the incumbent to match the price informally
  3. Award immediately because the price offers the best value
  4. Reject the bid without explanation because the supplier is new

Explanation

Abnormally low bids can signal misunderstanding of the requirement, unsustainable pricing or non-compliance, so the buyer should examine sustainability and request cost breakdowns for clarification. Immediate award, unexplained rejection or informal price matching all undermine a fair, evidence-based process.

Question 26Procurement and supply management

Which document issued early in a procurement process sets out the buyer's needs, the evaluation criteria and the contractual terms that will apply to the resulting award?

  1. The purchase order
  2. The supplier's quotation
  3. The invitation to tender pack Correct answer.
  4. The goods received note

Explanation

The invitation to tender pack is the buyer's own document set. It communicates the requirement, states how bids will be assessed and includes or references the terms of contract, so bidders can price and structure offers on a common basis.

Question 27Procurement and supply management

A procurement team wants to reduce the number of suppliers it deals with for low-value, low-risk consumables while keeping competitive pressure. Which approach best fits this aim?

  1. Allow each department to buy locally from preferred shops
  2. Establish a single-source contract with the incumbent supplier
  3. Run a full open tender for every individual purchase
  4. Set up a framework or panel of pre-qualified suppliers with call-off arrangements Correct answer.

Explanation

A framework or panel gives the organisation a pre-competed set of suppliers from which it can call off, combining reduced administrative effort with the ability to compare and select among qualified providers. It suits low-risk, repeatable spend where full tendering each time would be disproportionate.

Question 28Procurement and supply management

Which pricing arrangement places the greatest share of cost-overrun risk on the buyer?

  1. Cost-plus percentage fee Correct answer.
  2. Fixed price with economic price adjustment
  3. Target cost with a shared saving mechanism
  4. Firm fixed price

Explanation

Under a cost-plus percentage fee the supplier is reimbursed for all allowable costs and then earns a mark-up, so any increase in cost automatically increases both the price and the supplier's fee. The supplier therefore has little incentive to control cost, and the buyer bears the overrun.

Question 29Procurement and supply management

A buyer is building a supplier relationship portfolio and wants to identify which suppliers should receive joint improvement projects and shared forward plans. Which classification supports that decision?

  1. Strategic suppliers whose spend and risk to the organisation are both high Correct answer.
  2. Suppliers of routine, low-value items bought on catalogue
  3. Suppliers that have submitted the lowest price in the last tender
  4. Suppliers whose contracts expire within the next quarter

Explanation

Relationship effort should follow the value and risk a supplier represents. Strategic suppliers, with high spend and high supply risk, justify collaborative planning and joint improvement because disruption or poor performance would materially harm the buying organisation.

Question 30Procurement and supply management

During contract negotiation a supplier asks the buyer to accept payment 90 days after invoice instead of the tendered 30 days. Which consequence should the buyer assess first?

  1. Whether the change requires a new pre-qualification questionnaire
  2. The impact on the buyer's working capital and on the supplier's price or viability Correct answer.
  3. The effect on the supplier's technical ability to deliver the specification
  4. The effect on the evaluation moderation process already completed

Explanation

Payment terms are a commercial term with two-way effects: extending them improves the buyer's cash position but may push the supplier to raise prices or, for a smaller supplier, threaten its ability to fund delivery. The buyer should therefore weigh the cash benefit against price and supply continuity risk.

Question 31Procurement and supply management

What is the primary purpose of a contract management plan once an award has been made?

  1. To define how performance, obligations, risks and reviews will be managed during the contract term Correct answer.
  2. To replace the contract with a simpler internal summary
  3. To record the evaluation scores that led to the award decision
  4. To list the suppliers who were unsuccessful in the competition

Explanation

A contract management plan translates the signed contract into an operational routine. It sets out who monitors which obligations, how performance is measured and reported, which risks are tracked and when formal reviews with the supplier will take place.

Question 32Procurement and supply management

A buyer is making a business case for early supplier involvement in a new product development project. Which benefit is most defensible?

  1. It transfers legal liability for the design entirely to the supplier
  2. It guarantees that the supplier will be awarded the production contract
  3. It allows the supplier's process knowledge to shape the design before costs and tooling are locked in Correct answer.
  4. It removes the need for the buyer to prepare any specification

Explanation

Early supplier involvement brings manufacturing and process expertise into design while change is still cheap. Design choices made early largely determine later cost and manufacturability, so supplier input at that stage can reduce total cost and avoid costly redesign.

Question 33Procurement and supply management

Which measure best indicates that a procurement function is contributing to an organisation's sustainability objectives rather than merely reporting on them?

  1. The average number of purchase orders raised per buyer each month
  2. The proportion of addressable spend covered by contracts containing verified sustainability criteria Correct answer.
  3. The number of suppliers registered on the e-procurement portal
  4. The percentage of invoices paid within the internal target

Explanation

A credible indicator links procurement action to outcomes by showing how much spend is governed by contracts that actually embed and verify sustainability requirements. This demonstrates influence over supplier behaviour rather than activity volume alone.

Question 34Procurement and supply management

A procurement professional discovers that a colleague has a close family connection to the owner of a supplier bidding for a contract. What is the most appropriate first action?

  1. Declare the conflict of interest through the organisation's established procedure and step back from the decision Correct answer.
  2. Keep silent to avoid damaging the colleague's reputation
  3. Continue the evaluation and disclose the connection only if the supplier wins
  4. Ask the supplier to withdraw so that the issue disappears

Explanation

Declaring a conflict of interest promptly through the formal channel allows the organisation to protect the integrity of the competition, for example by removing the conflicted person from the evaluation. Concealment, whatever the motive, undermines fairness and auditability.

Question 35Contracting and contract management

In procurement and contract management, which term describes the formal process by which a buyer invites suppliers to submit offers against a defined requirement?

  1. Novation
  2. Escrow
  3. Tendering Correct answer.
  4. Subrogation

Explanation

Tendering is the structured process of inviting suppliers to bid against a specified requirement, usually through documents such as an ITT or RFP. It creates the competitive field from which a contract is later awarded. The other terms describe legal or financial arrangements unrelated to inviting bids.

Question 36Contracting and contract management

Which document issued during a tender typically sets out the buyer's requirements, evaluation criteria and contractual terms so that all bidders respond on a common basis?

  1. The goods receipt note
  2. The remittance advice
  3. The invitation to tender pack Correct answer.
  4. The purchase order

Explanation

The invitation to tender pack contains the specification, the evaluation methodology and the draft contract terms, ensuring bids are comparable. Standardising this information supports fair and transparent evaluation. The other documents arise at later stages of ordering or payment.

Question 37Contracting and contract management

A specification that states the required performance or output, such as the maximum downtime of a machine, rather than describing how it must be built, is best described as which type?

  1. A proprietary specification
  2. A brand specification
  3. A conformance specification
  4. An output or performance specification Correct answer.

Explanation

An output or performance specification defines what the result must achieve, leaving the supplier to decide how to deliver it. This encourages innovation and avoids over-prescribing the supplier's methods. The other options describe specifications that fix design or identity.

Question 38Contracting and contract management

In contract management, what is the primary purpose of a key performance indicator (KPI) included in a services contract?

  1. To set the supplier's profit margin
  2. To provide an objective measure against which service performance can be monitored and managed Correct answer.
  3. To replace the need for any contract terms
  4. To record the supplier's invoicing history

Explanation

KPIs give both parties an agreed, measurable standard for judging whether obligations are being met. They underpin performance reviews and any service credit regime. They do not replace contractual terms or set commercial margins.

Question 39Contracting and contract management

Which contractual mechanism allows the buyer to recover a pre-agreed sum from the supplier for each day of late delivery?

  1. Force majeure
  2. Retention
  3. Liquidated damages Correct answer.
  4. Indemnity

Explanation

Liquidated damages are a genuine pre-estimate of loss agreed in advance and applied, for example, per day of delay. They give certainty to both parties and avoid the need to prove actual loss for each breach. The other mechanisms address security, loss-shifting or excused non-performance.

Question 40Contracting and contract management

Which form of contract pricing places the greatest proportion of cost risk on the buyer?

  1. Cost reimbursable Correct answer.
  2. Firm fixed price
  3. Fixed price with economic price adjustment
  4. Target cost with share of savings

Explanation

Under a cost reimbursable arrangement the buyer pays the supplier's allowable costs, so cost overruns fall on the buyer. Fixed price arrangements shift cost risk to the supplier. Target cost and price adjustment mechanisms share or limit that risk.

Question 41Contracting and contract management

What is the main purpose of a contract management plan?

  1. To record the supplier's company registration details
  2. To serve as the supplier's marketing brochure
  3. To replace the contract itself
  4. To set out how the contract will be administered, monitored and controlled throughout its life Correct answer.

Explanation

A contract management plan translates the contract into practical arrangements for administration, performance monitoring, risk and change control. It is an internal management tool that sits alongside, not instead of, the contract. The other options confuse it with legal or administrative records.

Question 42Contracting and contract management

In contract law, what does consideration refer to in the formation of a binding agreement?

  1. The value each party gives in exchange for the other's promise Correct answer.
  2. The written record of negotiations
  3. The capacity of the parties to contract
  4. The intention to create legal relations

Explanation

Consideration is the exchange of value, such as goods for payment, that makes a promise enforceable. It is distinct from the intention to be bound and from the parties' capacity. Without consideration, a promise is generally not binding as a contract.

Question 43Contracting and contract management

A buyer's evaluation model awards 60% of the score to price and 40% to quality. Supplier A scores 90 for quality and 50 for price; Supplier B scores 60 for quality and 90 for price. Using a simple weighted score, which supplier ranks higher and why?

  1. Supplier B, because its higher price score outweighs the quality gap Correct answer.
  2. Supplier A, because quality scores are always doubled
  3. The two suppliers tie on total score
  4. Supplier A, because quality carries more weight

Explanation

Supplier A scores (0.4 x 90) + (0.6 x 50) = 36 + 30 = 66. Supplier B scores (0.4 x 60) + (0.6 x 90) = 24 + 54 = 78, so B ranks higher despite lower quality. The weighting applied to price is large enough to offset the quality difference.

Question 44Contracting and contract management

A supplier delivers goods that are broadly as described but of noticeably lower durability than the specification requires. Which contractual concept is most directly engaged?

  1. Assignment of the contract
  2. Confidentiality
  3. Force majeure
  4. Satisfactory quality and fitness for purpose obligations Correct answer.

Explanation

Where goods fall short of the required durability, the implied or express obligations as to satisfactory quality and fitness for purpose are engaged. These give the buyer a basis for rejection, repair or damages. The other concepts concern excused performance, transfer of rights or information security.

Question 45Contracting and contract management

During performance, the buyer asks the supplier to add an additional reporting requirement not covered by the original contract. What is the correct contract management response?

  1. Instruct the change informally and confirm by email later
  2. Process the request through the formal change control procedure, assessing cost, time and contractual impact Correct answer.
  3. Ignore the request until the annual review
  4. Ask the supplier to absorb the cost as goodwill

Explanation

Changes should follow the contract's change control procedure so that scope, price, time and risk are assessed and formally agreed. Informal instructions create disputes about entitlement and may be unenforceable. Absorbing cost as goodwill undermines the commercial basis of the contract.

Question 46Contracting and contract management

A contract includes a clause requiring disputes to be referred to mediation before litigation. What is the usual effect of such a clause?

  1. It automatically makes any court judgment void
  2. It obliges the parties to attempt mediation before pursuing litigation, subject to the clause's wording Correct answer.
  3. It removes the parties' right to litigate entirely
  4. It transfers the dispute to the supplier's chosen arbitrator

Explanation

A tiered dispute clause typically requires an attempt at mediation before court proceedings, and courts generally expect parties to follow agreed steps. It does not normally extinguish the right to litigate, which survives if mediation fails. Arbitration applies only where the clause specifies it.

Question 47Contracting and contract management

A buyer wants security that the supplier will perform a large construction contract and therefore requires a bank to pay a sum on demand if the supplier defaults. Which instrument is this?

  1. A letter of intent
  2. A service level agreement
  3. A non-disclosure agreement
  4. A performance bond Correct answer.

Explanation

A performance bond is issued by a bank or insurer and provides a sum payable if the supplier fails to perform. It gives the buyer financial protection against default. The other documents serve different purposes such as pre-contract authorisation, confidentiality or service measurement.

Question 48Contracting and contract management

A supplier repeatedly misses agreed service levels, and the contract provides for service credits. What is the most appropriate contract management action?

  1. Waive the credits permanently to preserve the relationship
  2. Apply the service credit mechanism and investigate root causes through the performance review process Correct answer.
  3. Increase the contract price to compensate the supplier
  4. Terminate the contract immediately without any review

Explanation

Service credits are the contractual remedy for missed service levels, and they should be applied while the underlying causes are investigated through governance. This protects the buyer's position and drives improvement. Immediate termination or permanent waiver ignores the agreed mechanism.

Question 49Contracting and contract management

Which term describes the situation where a supplier agrees to accept less than the amount owed, and the buyer's promise to pay the reduced sum is enforceable only if the supplier obtains a practical benefit or the arrangement is supported by fresh consideration?

  1. Promissory estoppel
  2. Part-payment of a debt
  3. Set-off
  4. Accord and satisfaction Correct answer.

Explanation

Accord and satisfaction arises where the parties agree to discharge an obligation on new terms and that new agreement is supported, for example by fresh consideration or a practical benefit. Part-payment of a debt alone is generally not good consideration for releasing the balance. Set-off is a different mechanism for netting mutual debts.

Question 50Contracting and contract management

A contract states that time is of the essence for delivery. What is the consequence if the supplier delivers late?

  1. The buyer may treat the delay as a repudiatory breach and terminate Correct answer.
  2. The delivery date becomes a target rather than an obligation
  3. The supplier is automatically entitled to an extension of time
  4. The buyer must accept the late delivery and may only claim nominal damages

Explanation

Where time is of the essence, failure to meet the date is a breach going to the root of the contract, allowing the buyer to terminate and claim damages. Without such a term, delay may only sound in damages unless it is sufficiently serious. The clause therefore strengthens the buyer's remedy.