CPP Contract Negotiation & Management 2 — Questions and Answers
Question 1: During contract negotiations, a supplier insists on including a 'most favored customer' clause. What does this clause typically guarantee the buyer?
- The supplier will prioritize the buyer's orders over all others
- The buyer will receive pricing no worse than the supplier's best price offered to any other customer (Correct answer)
- The buyer can terminate the contract if the supplier sells to competitors
- The supplier must match any competitor's price within 30 days
Correct 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.
Question 2: Which contract type shifts the MOST financial risk to the supplier?
- Cost-plus-fixed-fee (CPFF)
- Time and materials (T&M)
- Firm fixed-price (FFP) (Correct answer)
- Cost-plus-incentive-fee (CPIF)
Correct 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.
Question 3: 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:
- Terminate the contract for default immediately
- Issue a cure notice requiring the supplier to remedy the breach within a specified period (Correct answer)
- Accept the situation since the work is already in progress
- Reduce payment by 40% to reflect the unauthorized subcontracting
Correct 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.
Question 4: In contract law, what does the term 'consideration' refer to?
- The careful review of contract terms before signing
- Something of value exchanged between parties that makes a contract legally binding (Correct answer)
- The time period allowed for contract performance
- The penalty clauses included in a contract
Correct 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.
Question 5: A liquidated damages clause in a contract serves primarily to:
- Punish the supplier for poor performance
- Pre-establish the compensation amount for specific contract breaches (Correct answer)
- Allow the buyer to terminate the contract at will
- Limit the supplier's liability to the contract value
Correct 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.
Question 6: Which negotiation strategy involves making a very high (or low) initial offer far from the target position to anchor the other party's expectations?
- Good cop/bad cop
- Nibbling
- Extreme anchor (Correct answer)
- Bracketing
Correct 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.
Question 7: When a contract contains both an indemnification clause and a limitation of liability clause, which generally controls if they conflict?
- The indemnification clause always supersedes limitation of liability
- Courts typically enforce the limitation of liability clause to cap the indemnification obligation (Correct answer)
- The clause that appears later in the document controls
- Neither clause is enforceable when they conflict
Correct 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.
CPP Contract Negotiation & Management 2
During contract negotiations, a supplier insists on including a 'most favored customer' clause.
What does this clause typically guarantee the buyer?