[May 08, 2026] L4M3 Sample with Accurate & Updated Questions
L4M3 Exam Info and Free Practice Test | Free4Torrent
CIPS L4M3 Certification Exam is a valuable qualification for procurement and contract management professionals who are looking to enhance their knowledge and skills in commercial contracting. It provides candidates with a comprehensive understanding of the subject matter and demonstrates their expertise in this area, which can help them to advance their careers and achieve their professional goals.
NEW QUESTION # 44
Which of the following is set down in statute as a liability that exists without any need to prove fault?
- A. Contingent liability
- B. Strict liability
- C. Current liability
- D. Non-current liability
Answer: B
Explanation:
- 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.
Reference:
LO 3, AC 3.2
NEW QUESTION # 45
Which of the following could be the last document in a 'battle of the forms'?
- A. Order acknowledgement
- B. Invitation to Tender (ITT)
- C. Quotation
- D. Purchase order
Answer: A
Explanation:
In a 'battle of the forms', both buyer and supplier exchange documents with conflicting terms. The general rule is that the terms of the last document exchanged before performance (e.g., delivery or payment) that is not objected to will govern the contract. An order acknowledgement from the supplier with its own terms, followed by acceptance (e.g., payment), usually constitutes the final word.
Reference:CIPS L4M3 Commercial Contracting Study Guide, Chapter 1, Section 1.2.3 - Battle of the forms and contractual precedence.
NEW QUESTION # 46
A purchase order can become a contract between supplier and purchaser if it is...?
- A. Accepted by the supplier
- B. Issued by the buyer
- C. Received by the supplier
- D. Edited by the supplier
Answer: A
Explanation:
A purchase order is a document sent from a buyer to a seller, with a request to order a product. The purchase order often has its number, description and quantity of the goods, unit prices and total price, name of issuer, time of delivery, standard terms and conditions, etc. It is effectively an offer to supplier. The purchase order will become a formal contract if supplier accepted it by written notice or by performance (such as deliver the goods to the buyer's premise).
Reference: CIPS study guide page 33
LO 1, AC 1.2
NEW QUESTION # 47
ABC Ltd is a UK based company. It plans to enter into a contract with XYZ Ltd which is based in Singapore.
Which of the following are the mandatory elements for the contract between ABC Ltd and XYZ Ltd to be legally binding? Select THREE that apply.
- A. An amount of money must be paid upfront
- B. The invitation to tender must be sent by the agreed deadline
- C. The two parties must have intention to be bound
- D. There must be an offer and an acceptance
- E. There must be an invitation to treat
- F. All parties must have capacity to contract
Answer: C,D
Explanation:
The formation of the contract is where the contractual journey begins; if no contract is formed, neither of the parties can be under any obligations. Therefore, it is very important to have an understanding of each part of a contract's formation.
In order for a legally binding agreement to be formed, there are four basic requirements to be met:
2.1 Offer
2.2 Acceptance
2.3 Certainty & Intention to Create Legal Relations
2.4 Consideration & Promissory Estoppel
Reference:
- CIPS study guide page 28-42
- Formation of the contract
LO 1, AC 1.2
NEW QUESTION # 48
Which of the following statements is FALSE on contracts for the leasing of assets?
- A. The ownership of leased asset is transferred to the lessee at the end of the period
- B. The party responsible for maintenance, insurance and taxes is subject to negotiation
- C. In lease agreement, the possession and right of use of an asset are transferred to the lessee
- D. The lessee may bear some risks of ownership, such as the liability to insure the asset
Answer: A
Explanation:
A lease is a contractual arrangement calling for the lessee (user) to pay the lessor (owner) for use of an asset.
Some characteristics of Leases are:
- The right to use the lessor's asset is granted in exchange for a fee called the lease payment.
- The lease payments are usually paid in installments.
- Leases may be long- or short-term.
- At its inception a lease agreement constitutes a mutually unperformed contract Though the ownership of the asset is not transferred to the lessee, some responsibilities and risks do. The lessor and lessee may negotiate on who is responsible on maintenance, insurance, etc.
Reference: CIPS study guide page 67-69
LO 1, AC 1.3
NEW QUESTION # 49
A large company supplies a lot of products. Their shipments are often delayed and customers are not satisfied. Which of the following KPIs is most likely to be applied to this situation?
- A. OTIF delivery
- B. Delay damages
- C. Consignment stock availability
- D. Technical support
Answer: A
Explanation:
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
NEW QUESTION # 50
The model form contract invented by Institute of Civil Engineers is...?
- A. IMechE/IET
- B. JCT
- C. FIDIC
- D. NEC
Answer: D
Explanation:
NEC - New Engineering Contracts is a family of contracts invented by Institute of Civil Engineers. The contracts are suitable for procuring a diverse range of works, services and supply, ranging from major framework projects through to minor works and the purchase of supplies and goods.
FIDIC is a French language acronym for Federation Internationale Des Ingenieurs-Conseils, which means the international federation of consulting engineers. It was started in 1913 by the trio of France, Belgium and Switzerland. The United Kingdom joined the Federation in 1949. FIDIC is headquartered in Switzerland and now boasts of membership from over 60 different countries. FIDIC published its first contract, titled The Form of contract for works of Civil Engineering construction, in 1957. As the title indicated, this first contract was aimed at the Civil Engineering sector and it soon became known for the colour of its cover, and thus, The Red Book. It has become the tradition that FIDIC contracts are known in popular parlance by the colour of their cover. This first contract by FIDIC was undertaken jointly with the International federation of Building and Public works. FIDIC's concerted effort at achieving broad consultation and acceptance of its contract forms has seen subsequent editions of its contracts being ratified by the International Federation of Asian and Western Pacific Contractors Association, Associated General Contractors of America and the Inter-American Federation of the Construction Industry, Multilateral Development Banks among others. Because of the broad support it enjoys, FIDIC contracts are the foremost contracts in international construction.
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 construction industry in the United Kingdom. From its establishment in 1931, JCT has expanded the number of contributing organisations.
IMechE/IET: Institution of Mechanical Engineers/Institution of Engineering and Technology - two separate institutes that issue jointly agreed model forms covering the design, supply and installation of electrical, electronic and mechanical plant including special conditions for the ancillary development of software.
Reference:
LO 3, AC 3.1
NEW QUESTION # 51
Maximum Score 1
The Bravo Engineering Company is negotiating a maintenance contract with Express Deliveries Ltd. This large logistics company uses modern robotic storage and picking warehouse machinery to identify, sort, and facilitate over 200,000 orders each day. The volatile nature of the business means that the parties should build maximum flexibility into the performance management aspects of the contract.
Which of the following would be most appropriate to set out the parties' obligations under the maintenance contract?
- A. A formal appendix to the maintenance contract
- B. A non-binding side-agreement to the maintenance contract
- C. A Service Level Agreement issued after the maintenance contract
- D. A clause that disclaims all accountability for the contract for the buyer
Answer: A
Explanation:
Performance obligations are best captured in a formal appendix (schedule) to the main contract, ensuring flexibility while remaining legally binding.
A non-binding or post-issued SLA would lack enforceability.
Reference: CIPS L4M3 Commercial Contracting - "Contract appendices and schedules."
NEW QUESTION # 52
Maximum Score 1
The nature of the "Battle of the forms" is when both buyer and supplier are attempting to ...
- A. Secure their own terms and conditions
- B. Create a collaborative relationship
- C. Form a joint contract
- D. Create a performance specification
Answer: A
Explanation:
The "battle of the forms" arises when each party seeks to have its own terms and conditions govern the contract.
Under common law, the terms last sent and accepted (expressly or by conduct) usually apply.
Reference: CIPS L4M3 Commercial Contracting - "Battle of the forms and contract acceptance."
NEW QUESTION # 53
Maximum Score 1
A construction company wishes to place the contract for the building of a new hotel to a principal contractor using a model form contract. Which of these is an advantage of using a 'model form contract'?
- A. Formulae or indices can be included to assess any additional supplier's claims for contract price adjustment
- B. Legal advice is still required if significant amendments or variations are to be made to the contract
- C. It avoids the requirement to create complex contracts each time but can be adapted to suit particular circumstances
- D. Incentive payment terms can be included to reward the supplier for attainment of cost savings
Answer: C
Explanation:
Model form contracts (e.g. NEC, JCT, FIDIC) save time and cost because the framework is pre-written and only needs adapting to specific projects.
Option A correctly identifies this benefit.
Reference: CIPS L4M3 Commercial Contracting - "Use of model form contracts and their advantages."
NEW QUESTION # 54
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. Buyer can harness falling market price
- C. Supplier always receives a fixed margin
- 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 # 55
A procurement manager is preparing a long-term contract with a major supplier. She decides to use the variable pricing arrangement using price indices. The payment terms describe the circumstances and mechanism where the price is allowed to change. In order to successfully manage this type of contract, the buying organisation should have...?
- A. Value for money
- B. Economy of scale
- C. Selection of base year
- D. Good market knowledge
Answer: D
Explanation:
There are several approaches to price adjustment for long-term contract. Describing circumstances and mechanism is one of them. Although this approach has some limitations, it is the best option. It relies on good market knowledge but provides the most equitable approach to satisfying the needs of the purchaser and the supplier.
Reference:
LO 3, AC 3.3
NEW QUESTION # 56
Infra Constructions receive a contract for construction of a building, and following terms were agreed upon.
"The entire cost of the project will be reimbursed to Infra Constructions (estimated cost of the project being $
25 million). The profits will be 20% of the entire cost of a project subject to a max of $ 5 million." This arrangement is an example of...?
- A. Cost-plus pricing arrangement
- B. Fixed-pricing arrangement
- C. Incentive pricing arrangement
- D. Gain-share/pain-share arrangment
Answer: A
Explanation:
In the contract term, the buyer agrees to pay the contractor the cost of doing project plus a profit. This is an example of cost-plus pricing arrangement.
On the other hand, "Fixed-pricing arrangement" often refers to lump-sum contract or supply/service contract with fixed price. "Incentive pricing arrangement" and "Gain-share/pain-share arrangement" have the same meaning. In this type of arrangement, both supplier and buyer agree on a target (it can be cost, or lead time, or quality, etc). Once the supplier reaches that target, it will be rewarded with a portion of the gain that the buyer gets, and will pay the price if it fails.
Reference: CIPS study guide page 176-178
LO 3, AC 3.3
NEW QUESTION # 57
A procurement professional is drafting payment terms for a commercial contract. He is considering about payment method if defective products are found. Which of the following should be embedded in payment terms to control this issue?
- A. Remedies for late payment
- B. Invoice preparation
- C. Retention clause
- D. Pay-less notice
Answer: C
Explanation:
Retention money is the payment for a service or product that is withheld pending the completion of some specified condition. For example, buyer may withhold the amount due until the supplier replace all defective goods.
Pay-less notice is the notice under a contract which states that the invoice will only be partially paid because of some issues such as supplier has to pay the damages.
Remedies for late payment are remedies that supplier may seek when a buyer pay it later than the stated payment terms. Normally, the buyer will be charged an interest rate.
Reference:
LO 3, AC 3.3
NEW QUESTION # 58
Which of the following statement is true about one-off contract?
- A. Ad-hoc purchase is not a type of one-off purchase
- B. One-off contracts only apply to low-value, low-risk purchase
- C. Suppliers have many opportunities to improve the quality during the performance of one-off contract
- D. One-off contracts can be used for services and works
Answer: D
Explanation:
One-off contract is the type of contract that relates to a single purchase. One-off contracts can be used for goods, services or works. One-off contract can be simple (such as buying a small number of office stationeries) or complex (such as a construction project or buying an aircraft).
A one-off contract lasts "until completion of the obligations of the parties". The performance is unlikely to be improved during contract performance since the duration is relatively shorter than framework agreement or call-off contract.
Ad-hoc purchase is an item bought for a single and non-recurring use or purpose. Ad-hoc purchase is a type of one-off contract.
Reference:
LO 1, AC 1.3
NEW QUESTION # 59
A buyer and a supplier plan to sign a contract with cost-plus arrangement. If the cost base is $350 and the markup component is 11% then the invoice price will be...
- A. 0
- B. 368.5
- C. 393.26
- D. 388.5
Answer: D
Explanation:
Markup is the percentage between the profit and costs. The cost is $350, markup is 11%. So final price is: 350 + 350x0.11 = 388.5 Reference:
LO 3, AC 3.3
NEW QUESTION # 60
Which of the following standards gives guidance on the layout and preparation of specifications?
- A. BS EN 60601-1-11:2015
- B. BS 7373-1:2001
- C. BS 5864:2019
- D. BS 5975:2019
Answer: B
Explanation:
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.
Reference:
- BSI website
- CIPS study guide page 90-92
LO 2, AC 2.1
NEW QUESTION # 61
XYZ Ltd is negotiating a long-term supply contract of important parts with a supplier. Dave, procurement manager teams up with Alla, legal manager to construct a service level agreement. Dave is concerned that poor performance of supplier may cause damages to the operations of the organisation. Which of the following can be used in conjunction with SLA to compensate the buying organisation in case of supplier's poor performance?
1. Warranties
2. Force majeure clauses
3. Penalty clauses
4. Service credits
- A. 1 and 2 only
- B. 4 and 2 only
- C. 3 and 4 only
- D. 1 and 3 only
Answer: C
Explanation:
Service level agreement often sets out the minimum quality standards of the services provided, remedies if that standards are not met, consequences if the targets are exceeded. Penalty clauses and service credits are remedies that are often used in conjunction with service level agreement to ensure the performance and to compensate the purchaser if targets are not met.
Reference: CIPS study guide page 110
LO 2, AC 2.2
NEW QUESTION # 62
XYZ Ltd and Engineer Corp signed a long-term supply contract in which both parties had agreed on performance targets. Recently, due to increased customer demands, XYZ Ltd realises that they should make changes to the contract with Engineer Corp with regards to performance management. These changes are approved and signed by both the buyer and seller. The changes to the contract are known as...?
- A. An amendment to the prime contract
- B. A separate counter-offer to the supplier
- C. A stand-alone subcontract to the prime contract
- D. An appendix to the prime contract
Answer: A
Explanation:
The changes are made to the prime contract. They are also signed and approved by both parties. These changes are known as amendment (variation) to the contract. A contract amendment allows the parties to make a mutually agreed-upon change to an existing contract. An amendment can add to an existing contract, delete from it, or change parts of it. The original contract remains in place, only with some terms altered by way of the amendment.
Reference:
- Modify an Existing Contract with a Contract Amendment
- CIPS study guide page 26-28
LO 1, AC 1.1
NEW QUESTION # 63
If service level agreement is used as a schedule that makes up the contract, it will be most likely to be a part of...?
- A. Pricing arrangement
- B. Exclusion of liabilities
- C. Performance management framework
- D. Specifications
Answer: C
Explanation:
If a service level agreement is used as a schedule to a contract, it will generally have the following contents:
- Service definitions. If the service information is provided by the specification, SLA should only refer to the specification to avoid any inconsistencies.
- Details on how to measure KPIs, who will measure KPIs
- Minimum requirements or targets
- Remedies if the minimum requirements are not met
...
Since SLA often lists out the KPI targets, consequences for not meeting the KPI targets and remedies to situation of poor performance, it is a part of performance management.
Reference:
LO 2, AC 2.2
NEW QUESTION # 64
To check whether supplier actually complies with the labour standards set out in the contract, the purchaser should have...?
- A. Right to rescind the contract
- B. Right of audit
- C. Right to penalise the supplier
- D. Right to terminate the contract
Answer: B
Explanation:
Many firms have compliance policies for suppliers in place. To ensure that the supplier actually comply with the standards set out, the purchaser can employ the right to audit. The buyer usually obtains the right to examine records of a vendor to determine if a fraud or a violation of company policy has occurred through the following methods:
- Right-to-audit agreement The agreement can be printed on the back of a purchase order, contract, or other procurement form.
- A simple request If the right-to-audit agreement wasn't included on the procurement form, and the buyer suspects irregularities, he may have to beg the vendor to allow an audit to be performed. If the buyer is a major customer of the vendor, the buyer may be able to wield a big enough stick to obtain permission to look at the records.
- Right-to-audit Pitfalls
Reference:
- CIPS study guide page 160
- Reserving the Right to Audit the Suspicious Vendor: Right-to-audit clauses in vendor contracts help control fraud and abuse by affording discovery devices in examinations.
LO 3, AC 3.2
NEW QUESTION # 65
When a supplier signs an insurance policy with an insurance company, which of the following is transferred to insurance company?
- A. Risk
- B. Contractual obligation
- C. Right
- D. Legal responsibility
Answer: A
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 # 66
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CIPS L4M3 (CIPS Commercial Contracting) Certification Exam is designed to test individuals on their knowledge and understanding of the commercial contracting process. L4M3 exam is suitable for procurement professionals who have experience in managing commercial contracts and are looking to further enhance their skills and knowledge in this area. The CIPS L4M3 exam covers a range of topics, including the legal framework and regulatory requirements of commercial contracting, contract performance management, dispute resolution, and contract termination.
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