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Real CIPS L4M3 Exam Questions [Updated 2026]
CIPS L4M3 (CIPS Commercial Contracting) Certification Exam is an essential certification for professionals who are looking to enhance their skills and knowledge in commercial contracting. CIPS Commercial Contracting certification covers a wide range of topics related to commercial contracting and is designed to test candidates' understanding of these topics and their ability to apply this knowledge in real-world scenarios. L4M3 exam is available globally and can be taken in person or online.
CIPS L4M3: CIPS Commercial Contracting is a professional qualification exam offered by the Chartered Institute of Procurement and Supply (CIPS). L4M3 exam is designed for procurement and supply chain professionals who are involved in commercial contracting activities. It is a level 4 exam and is considered to be an intermediate level exam in the CIPS qualification framework.
CIPS L4M3 certification exam is designed for individuals who are involved in commercial contracting, including procurement professionals, contract managers, project managers, and legal professionals. L4M3 exam is divided into three modules, each of which focuses on a specific aspect of commercial contracting. The first module covers the basics of contract formation, including the types of contracts, contract terms, and contract performance. The second module delves deeper into contract administration, including contract management techniques, performance monitoring, and dispute resolution. The final module focuses on contract termination, including contract close-out procedures and post-contract evaluation. Overall, the CIPS L4M3 certification exam is an excellent way for professionals to enhance their skills and knowledge in commercial contracting and advance their careers in this field.
NEW QUESTION # 44
Danielle buys a car from Aaron. Not long after, she receives an proposal from Brian, who is interested in buying the car but his budget is very constraint. Then, Brian decides to sign a hire purchase agreement with Danielle which lasts 4 years. Brian lives very far from Danielle, so he hires Charlie to deliver the car to his place. During the transport, Charlie has an accident and the car is written off. At the time of accident, who has the title of the car?
- A. Aaron
- B. Danielle
- C. Brian
- D. Charlie
Answer: B
Explanation:
Hire purchase is an arrangement for buying expensive consumer goods, where the buyer makes an initial down payment and pays the balance plus interest in installments. The ownership of the merchandise is not officially transferred to the buyer until all the payments have been made.
Danielle has purchased the car from Aaron, which means its title has been transferred to her. The accident happens before the last instalment is paid. Therefore, the ownership of the car still belongs to Danielle Reference:
LO 1, AC 1.3
NEW QUESTION # 45
Which of the following should be applied when measuring frequency of on-time deliveries during a contract period?
- A. Qualitative assessment
- B. Binary measure
- C. Numerical measure
- D. Subjective measure
Answer: C
Explanation:
Number of on-time deliveries can be quantified, then numerical measures can be applied.
Frequency of on-time deliveries is measured as on-time deliveries as a percentage of total no. of deliveries for period.
LO 2, AC 2.2
NEW QUESTION # 46
In a contract, express terms and implied terms may contradict on the same issues. Under which of the following circumstances, implied terms will override express terms?
- A. No circumstances. Express terms always take precedence over implied terms
- B. Implied terms are created by trade customs
- C. Implied terms are created by law which prevents them to be overridden
- D. Contracting parties are silent on a matter that was not included in express terms
Answer: C
Explanation:
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.
Express terms are explicit and will normally override implied terms unless the implied term is created by statute and the law states that it cannot be overridden.
Reference:
- Contracts: Express and Implied Terms
- CIPS study guide page 126-132
LO 3, AC 3.1
NEW QUESTION # 47
Danielle buys a car from Aaron. Not long after, she receives an proposal from Brian, who isinterested in buying the car but his budget is very constraint. Then, Brian decides to sign a hire purchase agreement with Danielle which lasts 4 years. Brian lives very far from Danielle, so hehires Charlie to deliver the car to his place. During the transport, Charlie has an accident and the car is written off. At the time of accident, who has the title of the car?
- A. Aaron
- B. Danielle
- C. Brian
- D. Charlie
Answer: B
Explanation:
Hire purchase is an arrangement for buying expensive consumer goods, where the buyer makes an initial down payment and pays the balance plus interest in installments. The ownership of the merchandise is not officially transferred to the buyer until all the payments have been made.
Danielle has purchased the car from Aaron, which means its title has been transferred to her. The accident happens before the last instalment is paid. Therefore, the ownership of the car still belongs to Danielle Reference: CIPS study guide page 70 LO 1, AC 1.3
NEW QUESTION # 48
Foodstuffs may arrive from an overseas supplier in a deteriorated state. Is this covered under the implied term of 'satisfactory quality'?
- A. Yes, the food is not of a reasonable standard
- B. Yes, as the title has not passed yet
- C. No, it is sale by description
- D. No, it is sale by sample
Answer: A
Explanation:
Under the Sale of Goods Act and other applicable legislation, goods must be of satisfactory quality, fit for purpose, and as described. Perishable goods arriving in a spoiled state would not meet the standard of satisfactory quality, even if sold by sample or description. This is an implied term that protects the buyer.
Reference:CIPS L4M3 Commercial Contracting Study Guide, Chapter 3, Section 3.1.1 - Implied terms and quality standards.
NEW QUESTION # 49
Which of the following would be steps in the preparation of an invitation to tender? Select TWO that apply.
- A. Re-writing a model form contract
- B. Advertising the requirement
- C. Learning International Standards
- D. Publishing your company's financial reports
- E. Creating a detailed specification
Answer: A,B,E
Explanation:
Creating a detailed specification and publicly advertising the requirement are key preparatory steps in issuing an ITT (Invitation to Tender). These ensure that suppliers understand the requirement and have the opportunity to respond, promoting transparency and competition.
Reference:CIPS L4M3 Commercial Contracting Study Guide, Chapter 2, Section 2.2.1 - ITT preparation and issuing.
NEW QUESTION # 50
CISG will be most likely to apply to which of the following transactions?
- A. Sale of a property
- B. Sale of iron ores
- C. Sale of electricity
- D. Sale of a ship
Answer: B
Explanation:
Article 2 of CISG states that:
This Convention does not apply to sales:
(a) of goods bought for personal, family or household use, unless the seller, at any time before or at the conclusion of the contract, neither knew nor ought to have known that the goods were bought for any such use; (b) by auction; (c) on execution or otherwise by authority of law; (d) of stocks, shares, investment securities, negotiable instruments or money; (e) of ships, vessels, hovercraft or aircraft; (f) of electricity.
LO 1, AC 1.2
NEW QUESTION # 51
Adornical Toys Ltd have recently declared their commitment to international labour standards. Karim is sourcing a supplier for a new range of wooden toys and is keen to ensure that the organisation's corporate objectives are met. Which of the following approaches could he include as part of his specification requirements to achieve this labour outcome?
- A. Certification to an ethical trading initiative
- B. Use ecologically certified raw materials
- C. Accreditation to waste reduction schemes
- D. Formally measure their carbon footprint
Answer: A
Explanation:
International labour standards concern working conditions, fair pay, and human rights. Requiring certification to an ethical trading initiative (A) directly addresses these labour issues (e.g. ETI, SA8000).
The other options address mainly environmental performance (carbon footprint, ecological materials, waste).
Reference: CIPS L4M3 Commercial Contracting - Labour standards and ethical trading requirements in specifications.
NEW QUESTION # 52
Parkers Medical Supplies is a distributor of first aid supplies to supermarkets nationwide. A new supplier has approached Parkers with an offer to supply a new and innovative product. Parkers have never dealt with this company before, so are looking to ensure that the new supplier has the necessary insurance cover as the new product could potentially cause personal injury. Which type of insurance should Parkers insist the new supplier takes out?
- A. Product liability
- B. Employers' liability
- C. Public liability
- D. Professional indemnity
Answer: A
Explanation:
In the context of commercial contracting, it's crucial for buyers to ensure that suppliers have appropriate insurance coverage to mitigate potential risks associated with the products or services provided. Product liability insurance specifically covers the supplier against claims of personal injury or property damage caused by products they have supplied. This type of insurance is essential when introducing new or innovative products to the market, as there may be unforeseen risks associated with their use.
According to the CIPS L4M3 Commercial Contracting Study Guide, product liability insurance is designed to protect against claims arising from injuries or damages caused by defective products. This insurance is particularly important when the buyer is introducing a new product from a supplier with whom they have no prior experience, as it provides a safety net against potential legal and financial repercussions.
Reference:CIPS L4M3 Commercial Contracting Study Guide, Chapter 3, Section 3.2.1 - Key terms in contracts for indemnities and liabilities, sub-contracting, insurances, guarantees, and liquidated damages.
NEW QUESTION # 53
Transformers & Rectifiers Ltd wanted to buy some specialist gaskets. They sent a request for quotation with specification to Needs Ltd. The supplier replied with a quotation in which had its own terms and conditions.
The buyer edited delivery terms on the quotation and sent the document back to Needs Ltd. Gaskets were delivered to Transformers' premise with an invoice from Needs Ltd. Which of the following is most likely to be the governing terms if the two companies must settle the dispute at court?
- A. Terms and conditions in the invoice
- B. Terms and conditions in the request for quotation
- C. Terms & conditions in the original quotation
- D. Edited terms and conditions
Answer: D
Explanation:
In the 'battle of the forms', generally who shot the last will win. This is not applied to this case. Initial RFQ is an invitation to treat, then the quotation forms an offer. Transformers & Rectifiers Ltd edits terms and conditions then sends back to supplier, this act terminates Needs's offer and makes a new offer. Delivery of goods can be deemed as acceptance from Needs Ltd. The contract is formed with its details in the edited terms and conditions.
Reference: CIPS study guide page 43-44
LO 1, AC 1.2
NEW QUESTION # 54
Which of the following should be used in a contract for window cleaning during the next three months?
- A. Standard schedule of rates
- B. Variable pricing arrangement
- C. Fixed pricing arrangement
- D. Cost-plus arrangement
Answer: C
Explanation:
A contract for window cleaning during the next three months is a short-term service contract in which changes of input costs (labour, tools,...) are very unlikely to happen.
Fixed pricing arrangement is useful for small to medium scope project, with short timelines, where what is delivered can be adequately specified and the likelihood of changes to the specification, scope and input costs is limited.
Reference: CIPS study guide page 172-176
LO 3, AC 3.3
NEW QUESTION # 55
A procurement professional is preparing a sale & purchase contract of a machinery. Which of the following clauses should be added to the contract? Select TWO that apply
- A. Ratio decidendi
- B. Guarantees
- C. Insurance requirements
- D. Supplier selection mechanism
- E. Period of hire
Answer: B,C
Explanation:
The complexity of the contract will reflect the complexity of the purchase. For simple, low-value purchases, standard terms and conditions may be all that is required, but do not assume that just because the purchase is one-off, the contract will be simple. It may still need to cover the following areas:
- Warranties and guarantees if the one-off purchase has a considerable life-span and is business-critical (e.g., a back-up generator for the office which houses the national computer servers).
- Insurance requirements: including professional indemnity, public/products liability, employer's liability, and cover for any specific risks such as pollution or working at height.
- Specification requirements on quality, timing and delivery
- Minimum quality standards on the business operation (e.g., a catering provider might only be providing sandwiches for a team meeting lunch, but you still need to know its hygiene practices).
- Built-in change process for any goods or services that are beyond very simple (e.g., works contracts always have variations procedures because of the unpredictable nature of such projects).
- Ability to extend the scope of the contract should be minimal or none, and restrained to the single requirement.
- Ability to extend the duration of the contract should be limited to the ability to accommodate unexpected time overruns (which itself should be subject to a damages/penalty provision where they are attributable to the supplier, and an extension to overheads costs where they are attributable to the purchaser).
- Data security protocols need to be considered if personal data is being shared.
Reference: CIPS study guide page 57
LO 1, AC 1.3
NEW QUESTION # 56
Bethy sees a coat on shop window with a $100 price tag. She comes and asks the shop owner to buy it. The owner states that the price has not been updated and the current price for the coat is $120. Bethy says the owner should honour the quoted price on window shop. Is Bethy correct?
- A. Yes, $120 for a coat is extremely unreasonable and the owner's later offer therefore void
- B. No, the owner is revoking his initial offer to sell at $100 and he is proposing new offer to Bethy
- C. No, the display on shop window is just an invitation to treat and the owner may change the price at his will
- D. Yes, the owner has made an offer by showing his product on the shop window and he must honour that offer
Answer: C
Explanation:
Based on two famous precedents, Fisher v. Bell (1961) and Pharmaceutical Society of Great Britain v. Boots Cash Chemists (1953), the display on shop window is considered as an invitation to treat. The shop owner can change the price when his customer asks to buy.
Reference: CIPS study guide page 29
LO 1, AC 1.2
NEW QUESTION # 57
A construction company is undertaking a housing development project. They need lots of bricks and other building materials, but the construction site doesn't have large area for storage of materials.Therefore, the company's suppliers must deliver the building materials with fixed quantity and at fixed time intervals. What type of contract is used between the construction company and its suppliers?
- A. Call off contract
- B. Spot transaction
- C. One off contract
- D. Framework agreement
Answer: A
Explanation:
In the scenario, the contract between the company and its suppliers is continuous rather than one-off. So it cannot be one-off contract or spot purchase. The quantity and time is well known and fixed, this type of contract is known as call-off contract or blanket order.
Reference: CIPS study guide page 63-64
LO 1, AC 1.3
NEW QUESTION # 58
Which of the following is an example of liquidated damages clause?
1. "In the event of a delay to the Offshore Installation Completion Date as per the Contract Schedule for which Contractor is solely responsible, Contractor shall pay to Company 0.25% per day of delay, subject to a maximum of 10% of the Initial Contract Price."
2. "If Seller breaches its obligation to deliver goods in accordance with the schedule provided for in this contract, Seller shall pay Buyer $x per day for each day of delay"
3. "The Contractor shall defend and hold the Buyer, its officers, officials, employees and volunteers harmless from any and all claims, injuries, damages, losses or suits including attorney fees, arising out of or in connection with the performance of this Agreement, except for injuries and damages caused by the sole negligence of the Buyer."
4. "The contract is subjected to delay remedies. The amount will be agreed by both parties during the delivery"
- A. 1 and 3 only
- B. 3 and 4 only
- C. 2 and 4 only
- D. 1 and 2 only
Answer: D
Explanation:
Liquidated damages, also referred to as "liquidated and ascertained damages" (LADs) are damages whose amount the parties designate during the formation of a contract[2] for the injured party to collect as compensation upon a specific breach (e.g. late performance). In supply contracts and work contracts, the liquidated damages clause often take form as known damages to be paid per day delayed. Number 1 and 2 are examples of this clause.
Reference:
- Liquidated damages
- CIPS study guide 158-159
LO 3, AC 3.2
NEW QUESTION # 59
If a false statement of material fact is made by one of the contracting parties, the misled party will have remedies for:
- A. Misrepresentation
- B. Recission
- C. Damages
- D. Indemnity
Answer: A
Explanation:
A false statement that induces a party to enter a contract constitutes misrepresentation. This provides the misled party with remedies that may include rescission (cancellation of the contract) and, depending on the type of misrepresentation (fraudulent, negligent), possibly damages as well.
Reference:CIPS L4M3 Commercial Contracting Study Guide, Chapter 1, Section 1.3.1 - Misrepresentation and legal remedies.
NEW QUESTION # 60
Which of the following is the model form of contract for construction which is recommended by World Bank?
- A. ITC
- B. FIDIC
- C. JCT
- D. CIPS
Answer: B
Explanation:
FIDIC is the International Federation of Consulting Engineers (or Federation Internationale des Ingenieurs Conseils in French). FIDIC has produced many publications, including the model form contracts, best practice guidances, research on sustainability, integrity and risk management. FIDIC model form contracts have been developed by this organisation since 1999, now they consist of several different books which are marked by colours. Thus, FIDIC model contracts also have the nickname "Rainbow suite of contracts". Basically, the "Rainbow Suite" include the following books:
* Yellow book: Plant and Design-Build Contract (2 editions: 1999 and 2017)
* Silver book: EPC/Turnkey Contract (2 editions: 1999 and 2017)
* Red book: Construction Contracts (2 editions: 1999 and 2017)
* Emerald book: Conditions of Contract for Underground Works (1st Ed 2019)
* Blue-Green book: Dredgers Contract (2 editions: 2006 and 2016)
* Gold book: Design, Build and Operate Contract Guide
* Pink book: Construction Contract Multilateral Development Bank Harmonised Ed (2 editions: 2005 and 2010) This type of model contract is commonly used around the world because its author, International Federation of Consulting Engineers, collaborates closely with development banks such as World Bank, Africa Development Bank, Asia Development Bank, etc. Every construction project that is financed by these institutions must adopt the FIDIC contracts.
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.
ITC (International Trade Centre) produces contracts specifically designed for small companies doing international business, covering the sale of goods, distribution, services and joint ventures. Many small companies are now engaged in international trade, but don't have access to the necessary contract forms to protect themselves. ITC and leading legal experts developed eight generic contract templates that incorporate internationally recognized standards and laws for most small business situations.
CIPS has several model forms of contract designed specifically for IT buying and servicing.
Reference:
LO 3, AC 3.1
NEW QUESTION # 61
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: CIPS study guide page 150
LO 3, AC 3.2
NEW QUESTION # 62
SFO procurement manager sent a request for quotation to Vogon International in which he determined the contract terms and specification. In SFO's standard terms and conditions, it is stated that 'Goods shall be delivered and Services performed by the applicable Delivery Date. Supplier must notify Buyer 3 days prior to the Delivery Date if Supplier is likely to be unable to meet a Delivery Date.' Vogon replied with a quotation without any amendment to SFO's terms & conditions. The SFO procurement manager found the prices were reasonable and submitted to senior management. Senior management team accepted that quotation and sent a notification to Vogon. On the Delivery Date, Vogon said they had no capacity to supply the product as the quotation due to a workers' strike. Did Vogon breach any agreement with SFO?
- A. No, because Vogon had no intention to be bound by the quotation, therefore, it didn't constitute a contract
- B. Yes, because the contract was formed since Vogon had sent the quotation as an acceptance to SFO's offer
- C. Yes, because the contract had been formed between SFO and Vogon with the quotation as an offer and the notification as an acceptance
- D. No, because the strike is a force majeur event, so Vogon did not breach any contract with SFO
Answer: C
Explanation:
SFO issued an RFQ with defined terms and condition and detailed specification. This RFQ can be considered as an invitation to treat. Vogon's quotation is an answer to the purchaser's RFQ and is an offer to SFO. The contract come to life at the time Vogon received the notification from SFO senior management.
The strike may be a force majeur event, depending on the contract particular clauses and jurisdiction. In common law countries, force majeur is applicable as an exclusion of liability only if the contract allows it. In many civil law countries, force majeur is an implied term. But in every jurisdiction, force majeur is only a reason for excluding liability for non-performance of a contract. In other words, the non-performance party is not liable for any breach if force majeur event occurs but the event does not exclude the breach.
LO 1, AC 1.2
NEW QUESTION # 63
You are to do the KPIs and targets for international supplier and the following was done
1. Delivery in an hour
2. Return orders in an hour
Is that a good thing or not?
- A. No, because the KPIs are not a realistic and justified
- B. Yes, the higher the targets are, the better the outcomes will be
- C. No, the local suppliers are always the best choice
- D. Yes, because these targets will propel the suppliers to continuous improvement
Answer: A
Explanation:
KPIs and the targets for supplier should be SMART:
- Specific: What exactly do you want to achieve?
- Measurable: How will you identify that you have achieved your goal?
- Achievable: Is your goal really attainable?
- Relevant: Is it relevant to you or, in other words, does it align with where you want to be?
- Time-bound (or timely): When will you deliver your goal, and what are the key milestones?
The two KPIs (Delivery in one hour, Return orders in one hour) are not realistic and achievable for international suppliers. Therefore, you should not put such high targets for supplier.
Reference:
- What Are SMART KPIs? (Spoiler: They Don't Really Exist!)
- CIPS study guide page 107-108
LO 2, AC 2.2
NEW QUESTION # 64
Maximum Score: 1
Buyer O has placed an order for the supply and installation of six new servers for a total amount of £600,000 from Supplier A. Which of the following could potentially be treated as examples of a liquidated damages clause within the contract for the supply of the servers?
* If the supplier delivers any of the servers late, £1,000 per server will be deducted from the order per day
* This contract is subject to delay remedies of £X - the amount to be agreed by both parties during delivery
* The sum for breach of the completion date for the order is £40,000 per day up to a maximum of 50% of the contract price
* If the performance of any of the servers degrades within five years, a full refund of £600,000 will be provided
- A. 1 and 2 only
- B. 1 and 3 only
- C. 3 and 4 only
- D. 2 and 4 only
Answer: B
Explanation:
Liquidated damages (LDs) are pre-agreed sums payable for specific breaches (commonly late delivery), intended as a genuine pre-estimate of loss.
* Clause 1: £1,000 per server per day for late delivery # clear pre-agreed daily amount = LD.
* Clause 3: £40,000 per day up to 50% of contract price # again, defined LD structure.
* Clause 2: "Amount to be agreed" is uncertain and not a valid LD amount.
* Clause 4: A full refund after five years for performance degradation is more like a warranty / guarantee, not a liquidated damages clause.
Thus, LD examples are 1 and 3 only # option C.
Reference: CIPS L4M3 Commercial Contracting - Liquidated damages vs. penalties and warranty obligations.
NEW QUESTION # 65
Which of the following would be useful tools to incentivise supplier innovation over the duration of the contract?
1. Gainshare arrangement
2. Liquidated damages
3. Service credits
4. Fixed bonus payments
- A. 1 and 3 only
- B. 1 and 4 only
- C. 3 and 4 only
- D. 2 and 4 only
Answer: B
Explanation:
Gainshare is an incentive for cost control
Liquidated damage is common type of disincentive for late completion
Service credit is a remedy for not achieving targets set out in an SLA
Fixed bonus payment is an incentive for early completion
Reference: CIPS study guide page 185-188
LO 3, AC 3.3
NEW QUESTION # 66
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