commercial

contracting
1

L4M3
REVISION QUESTION
‘NO ONE OF US IS AS SMART AS ALL OF US’
An invitation to treat should not be treated as an offer. Is this
statement correct?

a. Yes, it does not have consideration and acceptance

b. No, it gives one of the parties an opportunity for
acceptance
c. No, it is an offer because its regarded as one of the essential
elements of contract
d. Yes, it only encourages one party to make an offer to the
other

2
Which of the following are correct examples of an invitation
to treat?

1. Asking one party to pay a certain amount for an enhanced

product
2. Displaying goods with price tags on a supermarket display
3. Asking for a price reduction on a product perceived as old
4. Advertising a newly manufactured product to stimulate
demand

a. 2 and 4 only
b. 1 and 3 only
c. 2 and 3 only
d. 3 and 4 only
3
Which of the following will terminate an offer?

1. Revocation
2. Acceptance
3. Intention
4. Consideration

a. 1 and 2 only
b. 3 and 4 only
c. 2 and 3 only
d. 1 and 3 only

4
Which of the following are the requirements of an
acceptance? Select THREE that apply.

a. An acceptance should always be made after a clarification

have been made by the offeree
b. Acceptance has to match an initial offer made
c. Acceptance must be communicated to the offeror
d. Acceptance must challenge the offer so that it is enhanced
e. Acceptance should not be open to further negotiations and
discussions
f. Acceptance requires one to have knowledge of legal
complexities

5
In relation to contract formation, completion of both offer
and acceptance constitutes which of the following?

a. Intention
b. Precedent
c. Capacity
d. Agreement

6
Which element of a legally enforceable contract constitutes a
form of mutual exchange by the contracting parties?

a. Capability
b. Agreement
c. Consideration
d. Mutual consent

7
Tee Mobiles (TM) is a mobile phone manufacturing
organisation based in Germany. They have their small
manufacturing branch named TZA Mobiles located in South
Africa. TZA Mobiles was set up to provide a service to a
number of African countries. SELL IT Technologies, a mobile
phone retailer has placed an order for 5000 mobile phones
from TZA Mobiles. Which of the following should SELL IT
Technologies request from Tee Mobiles for in case TZA
Mobiles fails to meet SELL IT Technologies’ requirement?

a. Indemnity
b. Warranty
c. Guarantee
d. Insurance

8
Super Clean Group (SCG) is a large facilities management organisation. One
of its procurement officers (PO) has a meeting with a cleaning company about
a potential future contract. The cleaning company has already submitted a
quote to the PO, based on a specification that was provided. The PO explained
that he had the authority to commit SCG to the contract and confirmed that
the price was acceptable for the services being offered. The PO and the
cleaning company agreed that the contract would commence in one month’s
time. In addition to the offer and acceptance which of the following from this
scenario makes this a legally binding contract?

1. Warranty
2. Precedence
3. Consideration
4. Capacity

a. 2 and 3 only
b. 1 and 2 only
c. 1 and 3 only
d. 3 and 4 only

9
For consideration to be valid, it must consist of which of the
following requirements. Select the TWO that apply.

a. Consideration must have some economic value

b. Exchange made must be equal between the contracting
parties
c. Consideration should be settled in court to ensure
enforceability
d. Consideration does not need to be adequate
e. Exchanges must only be based on past considerations

10
The concept of ‘battle of forms’ relates mostly to which of the
following?

a. Terms and conditions

b. The invitation to tender
c. The buyer’s specification
d. Key performance indicators

11
Where a company is bidding for a contract but it has a poor
credit rating, the procurement organisation could obtain
which of the following from the parent company to reduce the
risk?

a. Insurance
b. Resolution
c. Verbal promise
d. Guarantee

12
Perfect Constructions Limited has been contracted by a
procurement organisation to complete a construction of some
apartments to be used for accommodation. Before the
contract was signed, PCL was required by the procurement
organization to provide a written promise to take
responsibility for any faults or costs that might be incurred if
any unsatisfactory performance is identified? Which of the
following was used by the procurement organisation to
reduce the risk of poor performance from PLC?

a. Assurance
b. Indemnity
c. Warranty
d. Revocation

13
An indemnity clause is suitable to be used under which of the
following circumstances? Select the TWO that apply.

a. Prices of goods and materials are expected to increase

unreasonably
b. Damages are not sufficient to cover the loss suffered
c. A loss is likely to be incurred by dealing with a particular
supplier
d. Illegal materials are provided by the supplier which the
buyer may incur legal costs
e. Supplier does not have the capacity to fulfil the contract,
and is put on trial testing

14
A large manufacturing company has begun a project to
increase the size of its premises. The procurement team has
estimated that if the main supplier fails to complete the
project on schedule it will incur costs and loses of $20,000
per day for every day there is a delay. Which of
the following clauses should the large manufacturer use in the
contract with the supplier?

a. Liquidated damages
b. Indemnity
c. Warranty
d. Public liability

15
Which of the following are examples of the losses that cannot
be indemnified in a contract between the buyer and supplier?

1. A loss caused by the negligence of the supplier during

contract performance
2. Loss caused by the deliberate act of the of the receiving
party
3. Loss caused by supplier incompetency when carrying out
contract obligations
4. A loss caused by the receiving party’s own crimes
a. 1 and 2 only
b. 3 and 4 only
c. 2 and 4 only
d. 2 and 3 only

16
In a contract between two parties, consideration must have
which of the following to meet its sufficiency requirements?

1. Consideration must be provided by one party of the

contract to another
2. Consideration need to have a monetary value
3. Consideration or exchange needs to be equal
4. Consideration needs to be present or future not past

a. 1 and 2 only
b. 2 and 3 only
c. 3 and 4 only
d. 1 and 3 only

17
Which payment mechanism is perceived as more risky to the
buying organisation?

a. Advance payment
b. Letter of credit
c. Billing payment
d. Open account

18
A counter-offer is treated as a rejection of the initial offer. Is
this statement correct?

a. No, a counter-offer only seeks to improve the terms of the

offer originally mad
b. Yes, a counter -offer is seen as a new offer from the party
whom the original offer was made to
c. Yes, a counter-offer is not an element of a binding contract
and makes the offer invalid
d. No, an offer can only be rejected through lapse and
acceptance

19
The use of third-party subcontractor is allowed in a contract
between the parties. Is this statement correct?

a. Yes, a subcontractor executes all highly-specialised tasks in

a contract
b. Yes, unless terms and conditions state otherwise
c. No, subcontracting increases the overall cost of
undertaking the project
d. No, a contract should be between two parties only, third
parties are not allowed

20
BAMT Limited has been contracted in the building of a high school which
needs to have a capacity of 10 000 students completed. The project has
tight completion schedules which BAMT Limited has to comply with. As
the project continues, BAMT Limited realise that there is a need to
subcontract due to the need of some special and technical skills arising
which they do not have the capacity to fulfil. BAMT Limited immediately
decides to find a subcontractor to carry out these special activities? Is
this the right approach?

a. Yes, because it will ensure that project is completed within the stated
timeframes
b. No, because BAMT has to acquire and hire personnel with those skills
to the use of subcontracting
c. No, because a subcontractor cannot be appointed without a written
consent of the buyer
d. Yes, because it will help BAMT Limited acquire the special skills from
the appointed subcontractor

21
Which of the following are ways in which a contract between
two parties can be terminated? Select the THREE that apply.

a. Agreement
b. Legality
c. Bargaining
d. Performance
e. Force
f. Breach

22
Which of the following factors must the courts consider
before awarding damages to the innocent party in case of a
breach of contract?

1. Size of the breach

2. Impact of the breach
3. Precedence
4. How easy it is to remedy

a. 2 and 4 only
b. 1 and 3 only
c. 2 and 3 only
d. 3 and 4 only

23
When assessing the amount of damages to be awarded to an
injured party, it is always important for the courts to consider
the amount of work already performed by the defaulting
party. Is this statement correct?

a. No, contract should be treated as a whole and damages

should be awarded when obligations are not performed
b. Yes, this will give the courts time to negotiate with the
defaulting party on the sums payable to the injured party
c. Yes, this avoids the situation where the innocent party may
benefit the contract at a discount
d. No, damages is the only available solution to ensure
compliance to contractual obligations

24
Which of the following options does the innocent party have
in the event of a major breach of contract?

1. Terminate the contract

2. Switch suppliers
3. Affirm the contract
4. Negotiate remedies

a. 1 and 4 only
b. 2 and 3 only
c. 3 and 4 only
d. 1 and 3 only

25
Which of the following is the main disadvantage of using
liquidated damages as a method for compensation of breach?

a. The breaching party may end up not paying the agreed

amount
b. The matter has to be taken to the court to agree on the
amount to be paid by the breaching party therefore wasting
time
c. The agreed payable sum may not be proportionate to the
damage caused by the breach
d. Liquidated damages are not enforceable and therefore not
effective

26
Which of the following are characteristics of liquidated
damages within a contract?

1. State the financial implications for the supplier

2. Explain the process for dispute management
3. Apply excessive penalties for all breaches
4. Set out the circumstances when they apply

a. 1 and 2 only
b. 2 and 4 only
c. 2 and 3 only
d. 1 and 4 only

27
The general principle relating to penalty clause is that they
must be which of the following to be legally enforceable by the
courts?

1. An adequate punishment for the suppliers failure

2. Enough to justify any legal action against the supplier
3. Proportionate in relation to the interest of the innocent
party
4. Reasonable in the context of the losses incurred

a. 1 and 3 only
b. 3 and 4 only
c. 2 and 3 only
d. 1 and 4 only
28
Express terms apply in all contracts through the buyer’s and
suppliers statutory rights. Is this statement TRUE?

a. No, express terms are specifically agreed between the

parties
b. Yes, all terms must be expressly stated in the contract to be
legally binding
c. No, if it is a verbal agreement no terms will apply at all
d. Yes, in most contracts statutory rights are expressly stated

29
Is it always necessary to include a force majeure clause into a
contract of services with a supplier?

a. No, because force majeure clause can only be used in a

contract of goods
b. No, because a force majeure clause limits the liability of the
supplier in the event of breach
c. Yes, because a force majeure will suspend the parties
obligation in case of unforeseeable and uncontrollable events
d. Yes, because a force majeure states the money that have to
be paid by the defaulting party

30
A buyer is seeking to include a clear performance procedures
clause within the contract to act as a lever to encourage the
supplier to focus on achieving the stated performance
measures. Should they consider using a clause applying
service credits?

a. Yes, they are a form of unliquidated damages that will

punish poor performing suppliers
b. No, They relate to bonus payments to suppliers and can be
expensive to implement
c. Yes, these encourage suppliers to achieve stated measure
d. No, service credits are generally viewed as penalties by the
courts and cannot be enforced

31
Which of the following are contractual financial remedies
relating to either non-or under-performance of a supplier?

1. Liquidated damages
2. Payment terms
3. Service credits
4. Termination clauses

a. 1 and 3 only
b. 2 and 4 only
c. 1 and 4 only
d. 2 and 3 only

32
Which of the following explain the characteristics of
unliquidated damages in a contract?
1. The sum payable by the breaching party is unspecified and
unknown
2. The sum payable is agreed and known before the contract
commences
3. Take into account losses not foreseeable which may be
caused by the breach
4. Provide a high level of certainty as the sum payable in the
event of breach is specified

a. 1 and 3 only
b. 2 and 3 only
c. 3 and 4 only
d. 2 and 4 only
33
Specific performance is always a legal right for the buyer in
the event of supplier breach of contract. Is this correct?

a. No, it only applies to contracts for the provision of services

b. No, it is only available at the discretion of the court
c. Yes, but only when it is expressly agreed between buyer and
supplier
d. Yes, for any breach the supplier can be forced to deliver the
contract

34
Liquidated damages are used within a contract to exclude
liability for specific events which are outside the control of the
contracting parties. Is this correct?

a. No, they represent a genuine pre-estimate of the costs

relating to a contractual breach
b. Yes, they ensure that the burden of non-delivery is shared
between all the contracting parties
c. No, they reinforce to the contracting parties what the key
obligations are under the contract
d. Yes, they limit responsibility for contract failure due to
extreme and uncontrollable events

35
Which of the following are the legitimate reasons why a
contract could legally come to an end before its original
agreed term? Select TWO that apply.

a. The need to apply agreed service levels

b. Significant breach of conditions by one party
c. An unexpected change in interest rates
d. Activating an agreed termination clause
e. Changes in the supplier’s micro environment

36
An advert in a newsagent's window read: 'Hoover 2012. £50
one. Tel: 0208 888 2124'. Karl rang the number and, having
enquired about the Hoover said, 'I'll give you £25 for it.' Karl's
statement is

a. A request for information

b. An invitation to treat
c. An offer
d. An acceptance

37
Where a company is looking for potential suppliers to do
business with, which of the following will the business issue
to suppliers?

a. Acceptance
b. Consideration
c. Contract
d. Invitation to treat

38
Which ONE of the following does NOT discharge a contract?

a. Precise performance of all the contractual obligations.

b. A subsequent event causing the contract to be impossible
to perform.
c. Breach of contractual term which is classified as a warranty
d. The agreement of the parties, contained in a deed, to the
effect that the contract should be discharged.

39
In the event of a breach of contract, what is the purpose of
damages?

1. To punish the contract breaker.

2. To compensate the innocent party.
3. To put the innocent party in the same position as if the
contract had been carried out correctly.

a. i only.
b. ii and iii only.
c. iii only.
d. i, ii and iii.

40
When trying to protect against unforeseeable financial loss, a
company is most likely going to use which of the following?

a. Insurances
b. Liabilities
c. Exclusion clauses
d. Indemnity

41
In situations where there are many documents written by
different stakeholders in long-term projects, where it is likely
that individual stakeholders and points of contact, such as the
project manager, may change, which of the following would
be most appropriate to use to limit exposure to risk?

a. Battle of the forms

b. Hierarchy of stakeholder clause
c. Order of precedence clause
d. List of documents

42
An agreement between the buyer’s bank and the seller’s bank
to transfer funds due under a contract upon presentation of
valid documents, providing a guarantee that the payment will
be made if valid documentation is presented. Which of the
following does the above statement best describe?

a. Letter of credit
b. Documentary credit
c. Documentary collection
d. Exporting

43
Where a company is negotiating a contract but it is worried
about a potential ‘act of God’ impacting its ability to perform
its obligations, it could construct which of the following to
allow it to terminate its obligations?

a. Force majeure clause

b. Contract variation clause
c. Limitation of liability
d. Variation of price clause

44
Where a company is keen to agree to contract terms but is
worried that due to the size of the contract, it will be put in
severe hardships if a claim for damages is awarded against
them. Which of the following would be most appropriate to
use?

a. Force majeure clause

b. Contract variation clause
c. Limitation of liability
d. Variation of price clause

45
Where financial compensation is not adequate to cover
consequential losses as a result of a breach, which of the
following would be most likely used?

a. Injunction
b. Action for the price
c. Damages
d. Specific performance

46
Which of the following are typical examples of a tender
specification? Select TWO that apply

a. Requisition
b. Conformance
c. Performance
d. Purchase order
e. Selection questionnaire

47
Use of international standards in specification is useful when

a. The purchasing organisation does not know the quantity of

goods it requires
b. The goods needs to meet international quality levels to be
sold onward
c. The goods will only be sold in the domestic market of the
purchasing company
d. the purchasing company is using e-auction to conduct the
sourcing process.

48
Standards are documents that stipulate minimum levels of
performance and quality of goods and services. However,
standards have some disadvantages of which one is that

a. standards encourage variety proliferation, confusion and

uncertainty among producers, suppliers and users
b. standards increase the processing time and cost as each
user prefers his/her own standard
c. Standards focus on technical parameters and they disregard
all environmental requirements
d. Standards tend to be static and they fail to reflect the latest
technology or performance practices

49
The buyer for WTZ Company is considering using
conformance specification for the new requirement from the
technical department. To be effective in this approach, the
buyer needs to be fully aware of the features of conformance
such as

a. A greater share of the conformance specification risk is

borne by the suppliers if it turns out to be unfit for the
purpose
b. The buyer must ensure that the conformance specification
is flawless and sufficiently clear for the suppliers to act on
c. Conformance specifications will encourage suppliers to
develop innovative solutions for the customer
d. the buyer does not need technical expertise in developing a
functional conformance specification

50
John is the head of procurement at a Care home. He
decides to use a performance specification for the purchase of
a new intelligent patient record IT system. Is this a correct
approach?

a. Yes. as it helps to drive innovation

b. Yes, as it tells the supplier the exact requirement
c. No, the approach is difficult to manage
d. No, it will take too long to acquire the IT system

51
A procurement department has asked for a pricing structure
that will allow the supplier to cover their costs plus £10000 to
cover the supplier's profit. What is this arrangement called?

a. Cost plus shared incentive

b. Cost plus a percentage fee
c. Cost plus an incentive
d. Cost plus a fixed fee

52
A company is considering buying a new computer system to
handle large amounts of personal data and expects the system
to perform in a particular way. Which of the following should
be included in the performance specification? Select two that
apply

a. Lists output
b. List of input
c. Technical drawings
d. Brand name
e. System operating conditions

53
A benefit of using performance specifications to communicate
requirement to potential suppliers is that

a. Supplier quotations and proposals are easy for a buyer to

compare as supplier innovation is discouraged
b. the risk of not meeting the specification sits with the
supplier and must be rectified at their time and cost
c. a performance specification saves time by limiting the
number of suppliers that can provide quotation
d. the use of brand names allows the specifying company to
precisely describe their requirements

54
Which of the following are criteria that the ISO 14000 series
covers

Life-cycle analysis
2. Continuous improvement
3. Financial information
4. Climate change

a. 1 and 4 only
b. 2 and 3 only
c. 3 and 4 only
c. 1 and 2 only

55
A company has installed a new piece of capital equipment but
needs to arrange a maintenance contract for three years. The
company wants to know as accurately as possible what this
price will be for the full contract. What would be an
appropriate type of pricing mechanism to use when asking
suppliers to quote prices?

a. Fixed price
b. Fixed price with adjustment for inflation
c. Cost plus fixed fee
d. Cost plus percentage fee

56
Is ISO 14 000 a series of environmental standards?

a. No, it’s a series of quality standards including continuous

improvement
b. Yes, it’s a series of environmental standards including life
cycle analysis
c. Yes, it’s a series of information security standards
including financial information
d. No, it’s a series of risk management by standards including
achieving objectives

57