APP APP Contract Management & Administration 2 — Questions and Answers
Question 1: Which element is NOT typically required for a contract to be legally enforceable in the US?
- Offer and acceptance
- Consideration
- A notarized signature (Correct answer)
- Mutual assent
Correct answer: A notarized signature
US contract law requires offer, acceptance, consideration, capacity, and legality — notarization is not a general requirement for commercial contracts.
Question 2: A buyer includes an 'audit rights' clause in a vendor contract primarily to:
- Allow the buyer to renegotiate price at any time
- Permit review of the supplier's cost records to verify charges on cost-reimbursable work (Correct answer)
- Require the supplier to use the buyer's accounting software
- Transfer intellectual property ownership
Correct answer: Permit review of the supplier's cost records to verify charges on cost-reimbursable work
Audit rights clauses allow buyers to inspect supplier cost records, ensuring that reimbursable charges are accurate, allowable, and properly documented.
Question 3: The Uniform Commercial Code (UCC) Article 2 primarily governs:
- Service contracts between businesses
- Sale of goods transactions (Correct answer)
- Real estate purchase agreements
- Employment contracts
Correct answer: Sale of goods transactions
UCC Article 2 provides the default legal framework for the sale of goods in the United States, covering formation, performance, and breach of goods contracts.
Question 4: When a contract is 'terminated for convenience' by the buyer, the seller is generally entitled to:
- No compensation since the buyer initiated termination
- Recovery of allowable costs incurred plus a reasonable profit on work performed (Correct answer)
- Full contract value as if the project were completed
- Only payment of invoices already submitted
Correct answer: Recovery of allowable costs incurred plus a reasonable profit on work performed
Termination for convenience entitles the seller to reimbursement of costs incurred and a fair profit for work done up to termination, but not the full contract value.
Question 5: What is 'privity of contract' and why does it matter in procurement?
- A confidentiality obligation between buyer and seller
- The legal principle that only contract parties have enforceable rights under that contract (Correct answer)
- A clause restricting the seller from hiring away the buyer's employees
- A requirement to keep contract terms private from subcontractors
Correct answer: The legal principle that only contract parties have enforceable rights under that contract
Privity of contract limits enforceable rights to the direct parties, meaning a buyer generally cannot enforce terms directly against a subcontractor with whom it has no contract.
Question 6: A 'most favored customer' (MFC) clause in a supply agreement requires the seller to:
- Give the buyer the first opportunity to purchase any surplus inventory
- Offer the buyer pricing and terms no worse than those given to any other customer (Correct answer)
- Notify the buyer before selling to a competitor
- Maintain the buyer's order as the highest priority
Correct answer: Offer the buyer pricing and terms no worse than those given to any other customer
An MFC clause guarantees that the buyer will always receive the best prices and terms the seller offers to any comparable customer.
APP APP Contract Management & Administration 2
Which element is NOT typically required for a contract to be legally enforceable in the US?