L4M3 CIPS Commercial Contracting Free Practice Exam Questions (2025 Updated)

KPIs should measure critical areas of supplier performance. Cost management, quality conformance, and timely delivery are all essential, quantifiable metrics used to track efficiency and contract compliance. Employee attendance and negotiation style are not standard KPIs.

A service-level agreement (SLA) defines the level of service you expect from a vendor, laying out the metrics by which service is measured, as well as remedies or penalties should agreed-on service levels not be achieved.

According to CIPS L4M3 study guide, SLA should cover the following:

- KPIs

- How the measurements convert into scores

- Any other service level standards

- Minimum acceptable standards or scores in each case

- Range of scores both above and below the minimum acceptable

- Any mitigating factors which might apply in the event of poor performance

- Any time period permitted in which to remedy a situation of poor performance

- Remedies available

- Dispute settlement

- How to deal with inconsistencies or conflicts between KPIs and any other documents.

In IT service (such as in the scenario), the SLA often covers:

- Uptime

- Call metrics

- Customer satisfaction

- Turn around time

- Quality

- Mean time to recovery

- Mean time between failure

- Backlog

- Business results

You can read the details of above indicators here.

The key substantive elements to be included in a specification are:

- Characteristics of the product or service

- Time scale for delivery

- Response times for defects

- KPIs relating to performance and reliability

- Lifespan and durability expectations

- Documentary requirement for training/user manual and/or management information

- Any specific requirements regarding implementation

KPIs that involve actual counts or quantifiable incidents are considered quantitative and use numerical data. "Late deliveries" and "accidents or near misses" are measured in numbers, making them suitable for numerical performance tracking. The other options relate more to qualitative analysis or subjective feedback.

Express terms are the terms of the agreement which are expressly agreed between the parties. Ideally, they will be written down in a contract between the parties but where the contract is agreed verbally, they will be the terms discussed and agreed between the parties.

Implied terms are terms implied into the contract by the courts. They are not expressly set out in the contract but are taken to be as effective as if they were and as if they had been included from day one of the contract. The express terms and any implied terms together create the legally binding obligations on the parties.

The types of express terms to be found in a contract are many and varied and will depend on the type of contract. Any term written into the contract is an express term and may refer to price, time scales, warranties and indemnities, limitations on liability, conditions precedent and so on.

An implied term is a term which the courts imply into a contract because it has not been expressly included by the parties. This may be because the parties did not consider it, did not think that any problem would arise in relation to it or simply omitted to include it.

The courts are very reluctant to imply terms into contracts and will only do so in the following circumstances:

1. terms implied under statute

2. terms implied under common law

3. terms implied because of custom or usage

4. terms implied due to previous dealings

5. terms implied ‘in fact’ or to reflect the parties’ intentions

Standards are incorporated into specifications by simply cross-refering to the relevant standard by its number and date of publication. It is important to include the date of publication. All standardsare reviewed from time to time and their content changes. The absence of the publication date will lead to disrupts over which version of the standard actually applies to the contract.

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.

Request for quotations is often used when the only variable is price and the purchase value is under a financial threshold. This process is less formal than ITT. RFQ should be used in the following circumstances:

- Low-value, low-risk purchases

- When the specifications are sufficiently defined or the product/service is standardised

- Where the suppliers are pre-qualified

- Where there is a framework agreement which specifies the contract terms and conditions.

Without further explanation, a schedule may be deemed to form an integral part of the obligations of either or both parties. Obviously, the scope or binding nature of such schedule depends on the way it is referred to in the obligatory language of the main agreement. Accordingly, merely attaching the general terms and conditions of sale without explaining to which part of the sale they apply or which provisions apply does not subject a sale pursuant to the body text of the agreement to those general terms and conditions.

Subcontracting is the practice of assigning, or outsourcing, part of the obligations and tasks under a contract to another party known as a subcontractor.

If a party is induced to enter a contract based on a misrepresentation, the contract becomes voidable at the option of the misled party. This means the misled party can either rescind (cancel) the contract or affirm it and seek damages. The nature of the misrepresentation (fraudulent, negligent, or innocent) affects the availability of damages.

Early market engagement is encouraged in procurement best practices. It helps procurement teams understand new technologies, identify capable suppliers, and inform the development of effective specifications and contract terms. However, it must be non-binding and conducted fairly to ensure no supplier gains an unfair advantage.

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.

According to USLegal Inc, fitness for purpose refers to the standard that must be met by a seller in the course of a business. Generally, when a buyer makes known to a seller the particular purpose for which the goods are bought, there is an implied condition that the goods are reasonably fit for that purpose (customer's requirements, needs, or desires). Specification is the ground for deciding whether goods received are fit for purpose.

We already know that there are two types of specifications: conformance and performance specifications. With conformance specification, the buyer lists out technical requirements to which the goods must conform. Lacking of any requirement may be enough for the goods to be unfit. On the other hand, if performance specification is in use, the goods must be fit for specific outputs that buyer has listed in the specification.

Providing the 'fit for purpose' goods is one of the fundamental obligations of seller in sale contract. Unfulfilling this obligation would lead to legal consequences. If the goods are unfit for purpose, seller may have to:

- replace the non-conforming goods

- pay the damages to the buyer

Industry model contracts are pre-written templates that include widely accepted terms. They save time and legal costs during contract development and are generally written to be neutral or fair toboth parties. They do not remove the need for buyers to understand the terms and are not necessarily highly flexible.

A verbal contract is generally enforceable in law, provided that it contains all the necessary elements of a valid contract: offer, acceptance, consideration, intention to create legal relations, and capacity. However, certain types of contracts (e.g., for land) may require written form under the Statute of Frauds. Evidence and clarity are the challenges, not enforceability.

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

Advantages and Disadvantages of using model form contracts.

Model form contracts save a lot of time and money. They are written by industry experts and the buyers and suppliers both understand what is included in the contract.

They are mainly used in Construction and term maintenance contacts. Typical ones are JCT and NEC.

Without the use of model form contracts the buyer and supplier will take a long time to write the terms, negotiate and finalise the contract.

This is time and money wasted.

However, model form contracts require buyers and suppliers to have training so you understand them.

Finally, if you are a buyer in a powerful position you cannot exploit that with a model form contract as these are written for mutual benefit.

Model forms of contract are published by some industry or professional organisations such as FIDIC, ITC, CIPS,... These forms are often carefully prepared by legal professionals, with correct legal terminology. The standard clauses within these forms are based on fair and balanced risk/reward allocation between the contracting parties. The model contract forms also include standard clauses to be selected or deleted on an as required basis.

Despite being standardised to be used in any jurisdiction, legal advice may be required if the users decide to make variations to the forms.

The correct answer should be "Model contract form's standard clauses often contain correct legal terminology without recourse to third party experts."

One of the advantages of using the RFQ method to procure pricing is that the company making the solicitation does not need to prepare any documentation, as requests are sent out privately. With less paperwork to prepare, turnaround times for quotes are reduced. Administration cost is also lower in compare with other procurement method like ITT or RFP. RFQ is usually used in low value purchase, where buyer knows the detailed specification and the price is the only variable that need to consider.

To use RFQ effectively, the buyer should attach the detailed specification and standard terms & conditions. The RFQ should only be sent to verified suppliers.