L4M5 CIPS Commercial Negotiation Free Practice Exam Questions (2025 Updated)

Trust is the expectation that the other party will behave in a predictable and mutually acceptable way. In inter-firm relationships, the presence and absence of trust can affect the level of cost in a relationship. The existence of trust is taught to lower the transaction cost in a relationship. Dr. Mari Sako identified taxonomy of 3 types of trust in commercial relationship, which is very useful from the perspective of procurement.

Contractual trust: Trust based on the contract with TOP. This is potentially the weakest source of trust if there is nothing else to base the trust on, but it is the quickest to establish.

Competence trust: Trust based on TOP's professional qualifications or proven or certified technical capability or experience.

Goodwill trust: Trust based on knowing TOP has your interest at heart and will not behave opportunistically. This is potentially the strongest type of trust, but it takes the longest time to build.

Otherwise, trust also has legal meaning. A trust is a legal document that can be created during a person's lifetime and survive the person's death. A trust can also be created by a will and formed after death. Charitable trusts are trusts which benefit a particular charity or the public in general.

According to Thomas-Kilmann conflict model instrument, there are 5 conflict management styles:

Accommodating is an unassertive and cooperative approach to resolving the conflict. Accommodating means conceding to the other party with little debate or fight, not challenging or strongly putting forward your own point of view and generally giving and yielding to the other party's point of view. Accommodating is best used when:

1. When others can resolve the conflict more effectively

2. When the issue is much more important to the other person than to yourself - to satisfy the needs of others and to show you are reasonable

3. To build up social credit for later issues which are important to you

4. When continued competition would only damage your cause

5. When preserving harmony and avoiding disruption are especially important

6. To aid in the managerial development of subordinates by allowing them to experiment and learn from their own mistakes

LO 1, AC 1.1

In microeconomics, equilibrium price is determined when the quantity demanded is equal to the quantity supplied at equilibrium price in a market, there will be no shortages and no surpluses. If we combine our supply and demand curves on one graph, the point at which they converge determines the equilibrium price. If the price is set above this price and you read across the graph you will see the supply excess demand and there will be a surplus. In order to reduce this surplus, the price will need to fall. The scenario is illustrated in the graph below:

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Involving an appropriate cross-functional team is beneficial for effective commercial negotiation because it brings together diverse perspectives and expertise relevant to the negotiation context. According to CIPS, a cross-functional team ensures that all aspects, such as technical, financial, and operational inputs, are considered, leading to more balanced and informed decision-making. This approach also helps in addressing complex negotiation elements effectively.

Supplier conditioning is the process of influencing a supplier or suppliers to behave in a certain way, or to accept certain circumstances. Within a negotiation, the buyer needs to make sure that the supplier has a number of messages in mind, about the outcomes that the buyer needs to achieve and about the shared sense of purpose that buying organisation has in achieving these outcomes.

Supplier appraisal is a process of evaluating a supplier's ability to carry out a contract in term of quality, delivery, price and other contributing factors.

Supplier positioning is the process of classifying spend with a supplier in terms of the profit potential and supply risk and assists in prioritising categories of spend and developing the right strategy.

Supplier selection is the process of selecting a supplier to acquire the necessary materials to support the outputs of organisations. Selection of the best and/or the most suitable suppliers is based on assessing supplier capabilities (Shih et al., 2004).

Raw materials expenditure (3) and delivery costs for materials (4) are variable costs as they fluctuate with production levels. Variable costs vary directly with the volume of production, unlike fixed costs such as rent or insurance, in line with CIPS’s classifications of cost types in procurement.

To answer this question, you should know The seller's perspective as in 'How to Negotiate Professionally':

In the scenario, the buyer's spend is low, while they seem unattractive to seller (as they tend to pay late). So the buyer is classified as Nuisance in seller's perspective.

Supplier bargaining power is stronger when there arefew suppliers,low volume requirementsfrom buyers, and when suppliers possessunique capabilities or technology(like specialized machinery). These conditions reduce buyer leverage and increase supplier influence.

Coercive power comes from the belief that a person can punish other for non-compliance, and can be considered as the flip side of reward power. Coercive power rests in the individual's ability to change other people's behaviour through threat, intimidation, use of guilt, ability to embarrass or shame, or withdrawal of benefits,...

Hypothetical questionsare used to explore scenarios or options without making a commitment. For example, asking "What if we were to increase the order volume?" encourages creative thinking and testing potential agreements without binding either party. This technique is valuable in theproposing and bargaining stagesof negotiation to explore trade-offs and build mutual solutions.

Variable costsare expenses that change in proportion to business activity or production volume.Raw materialsanddelivery costsdirectly increase as more products are produced. In contrast,rentandinsuranceare fixed costs that remain constant regardless of output levels.

“Variable costs are directly linked to production output. Raw materials and logistics (e.g., delivery) scale with order volume, impacting supplier pricing and buyer negotiations.”

(L4M5 Commercial Negotiation, 2nd edition, Section 2.1 - Direct and Variable Cost Classifications)

Principled negotiation is based on four fundamentals: people, interest, options and criteria:

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1st Principle: separate the people from the problem: Negotiator should depersonalise the situation and accepting that the subject matter of the negotiation. This can be difficult for untrained negotiators, but this is a key skill to develop

2nd principle: focus on interests, not positions: It is important in principled negotiations not to focus on their parties' positions (what are expressed during negotiations), but on the interests (underlying needs) behind them

3rd principle: invent options for mutual gains: this principle aims to help the parties find a solution that both would benefit from. The more options - or tradeables - that can be brought to the table the better.

4th principle: insist on using objective criteria: is about making sure that the negotiation stays focused on outcomes based on objective criteria and that it is productive.

LO 1, AC 1.2

Jayden's use ofeye contact to demonstrate understandingis a core element ofactive and effective listening. This technique includes not only listening to spoken words but also using non-verbal cues (e.g., nodding, eye contact) to confirm comprehension and engagement. Effective listening is essential to ensure that both parties feel heard and respected, which can de-escalate tension and improve outcomes.

“Effective listening involves verbal and non-verbal behaviours that show attentiveness. Maintaining eye contact, nodding, and reflecting key points show engagement and help in building rapport and trust.”

(L4M5 Commercial Negotiation, 2nd edition, Section 3.3 - Communication Techniques in Negotiation)

A useful and simple shorthand for preferred negotiation styles is summarised by four simple descriptor: 'warm', 'tough', 'logical' and 'dealer', which can be applied to describe individuals' dominant preferred style in most circumstances.

Warm - a people person

Tough - a hard-nosed negotiator

Logic - a numbers person

Dealer - a trader who loves bargaining

Strengths, weaknesses of logical style are described below:

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A junior team member can effectively contribute as a note taker (1) and observer (3), allowing them to support the meeting without taking on roles that require more experience, like chairing or serving as an expert. This aligns with CIPS’s recommendations for assigning junior roles in negotiations.

To achieve a win-win (integrative) negotiation, Sally should accept the 5% discount on the aftercare package (B), as it meets her objective for a total discount while respecting the supplier'slimitations. This approach demonstrates flexibility and is in line with CIPS principles on integrative negotiations, where both parties achieve value in different forms.