Contract Negotiation & Management Flashcards

During contract negotiations, a supplier insists on including a 'most favored customer' clause. What does this clause typically guarantee the buyer?

Answer: The buyer will receive pricing no worse than the supplier's best price offered to any other customer

A most favored customer (MFC) clause guarantees the buyer will receive pricing at least as good as the best price the supplier offers to any other customer.

Which contract type shifts the MOST financial risk to the supplier?

Answer: Firm fixed-price (FFP)

Under a firm fixed-price contract, the supplier bears all cost risk because the price is set regardless of actual costs incurred.

A buyer discovers mid-contract that a supplier has subcontracted 40% of the work without prior approval, violating contract terms. The BEST immediate action is to:

Answer: Issue a cure notice requiring the supplier to remedy the breach within a specified period

A cure notice formally notifies the supplier of the breach and gives them an opportunity to correct it before escalating to termination.

In contract law, what does the term 'consideration' refer to?

Answer: Something of value exchanged between parties that makes a contract legally binding

Consideration is a fundamental element of contract law — it is the exchange of something of value (money, goods, services, or a promise) that makes the agreement legally enforceable.

A liquidated damages clause in a contract serves primarily to:

Answer: Pre-establish the compensation amount for specific contract breaches

Liquidated damages clauses pre-establish a specific dollar amount owed for certain breaches, avoiding disputes over actual damages when they are difficult to calculate.

Which negotiation strategy involves making a very high (or low) initial offer far from the target position to anchor the other party's expectations?

Answer: Extreme anchor

The extreme anchor tactic involves opening with a position well beyond your target to psychologically anchor the other party and shift the negotiation range in your favor.

When a contract contains both an indemnification clause and a limitation of liability clause, which generally controls if they conflict?

Answer: Courts typically enforce the limitation of liability clause to cap the indemnification obligation

Courts generally interpret limitations of liability as capping indemnification obligations unless the contract explicitly carves out indemnification from the limitation.