CCM Contract Management and Negotiation 3 — Questions and Answers
Question 1: A contract contains both an arbitration clause and a choice-of-law clause specifying New York law. Which clause determines how disputes are resolved?
- The choice-of-law clause supersedes the arbitration clause
- The arbitration clause governs the dispute resolution process while New York law governs substantive issues (Correct answer)
- Both clauses are unenforceable when in conflict
- The last clause in the contract controls
Correct answer: The arbitration clause governs the dispute resolution process while New York law governs substantive issues
These clauses serve different functions: the arbitration clause dictates the forum and process for resolving disputes, while the choice-of-law clause determines which jurisdiction's substantive law applies to those disputes.
Question 2: When a contract price is subject to economic price adjustment (EPA), the adjustment is typically tied to:
- The contractor's actual labor costs only
- A published index such as the Consumer Price Index or Producer Price Index (Correct answer)
- The contracting officer's discretionary assessment
- Fixed percentage escalation agreed at signing
Correct answer: A published index such as the Consumer Price Index or Producer Price Index
EPA clauses use objective published indices like the CPI or PPI to adjust contract prices, removing the need to audit actual cost changes.
Question 3: Which of the following best describes 'contract privity'?
- The confidential nature of contract terms
- The legal relationship between parties who have formed a direct contract (Correct answer)
- The priority order of contract documents
- The privacy rights of subcontractors
Correct answer: The legal relationship between parties who have formed a direct contract
Contract privity is the direct legal relationship between contracting parties, which traditionally meant only those parties could sue or be sued under the contract.
Question 4: A subcontractor 'flow-down' clause is used to:
- Transfer intellectual property rights upstream to the prime contractor
- Pass relevant prime contract obligations down to subcontractors (Correct answer)
- Allow the owner to pay subcontractors directly when the prime defaults
- Accelerate payment terms through the supply chain
Correct answer: Pass relevant prime contract obligations down to subcontractors
Flow-down clauses incorporate specific prime contract terms (such as FAR clauses in government contracting) into subcontracts to ensure compliance throughout the supply chain.
Question 5: In negotiation theory, your BATNA is best used as:
- An opening offer to anchor the negotiation
- A reservation price communicated early to pressure the counterpart
- A benchmark to evaluate proposed agreements and decide whether to walk away (Correct answer)
- A final offer made only when talks break down
Correct answer: A benchmark to evaluate proposed agreements and decide whether to walk away
Your Best Alternative to a Negotiated Agreement defines the point at which you should prefer no deal, giving you a standard against which all proposed terms can be measured.
Question 6: A 'novation' agreement in contract management refers to:
- Canceling a contract with mutual consent and no liability
- Substituting a new party for an original party with all parties' consent (Correct answer)
- Amending the scope of work without changing the price
- Accelerating contract performance by adding resources
Correct answer: Substituting a new party for an original party with all parties' consent
Novation replaces an original contracting party with a new one, extinguishing the original party's obligations, and requires the consent of all three parties involved.
Question 7: Under FAR Part 15, the 'competitive range' determination in a negotiated federal procurement is used to:
- Set a price ceiling for final negotiations
- Identify offerors whose proposals have a reasonable chance of being selected (Correct answer)
- Rank all responsive proposals by technical score
- Establish the minimum subcontracting percentage
Correct answer: Identify offerors whose proposals have a reasonable chance of being selected
The competitive range narrows the field to those offerors whose proposals are technically acceptable and price-competitive enough to warrant further negotiations or discussions.
CCM Contract Management and Negotiation 3
A contract contains both an arbitration clause and a choice-of-law clause specifying New York law.
Which clause determines how disputes are resolved?