CPSM CPSM Contract Management & Negotiation 5

Question 1

Which contract type places the GREATEST cost risk on the contractor/supplier?

Accepted Answer

Firm-fixed-price (FFP)

Answer

Under a firm-fixed-price contract, the supplier bears all cost risk because the price does not adjust regardless of actual costs incurred.

Question 2

A buyer is negotiating with a sole-source supplier. Which strategy BEST improves the buyer's negotiating position?

Accepted Answer

Threatening to develop an alternate source or bring production in-house

Answer

Credibly threatening to develop competition or insource production shifts the balance of power by reducing the supplier's monopoly leverage.

Question 3

Under the parol evidence rule, extrinsic evidence of prior oral agreements is generally INADMISSIBLE to:

Accepted Answer

Contradict or vary the terms of a fully integrated written contract

Answer

The parol evidence rule bars use of prior oral or written negotiations to contradict or supplement an integrated written agreement, though exceptions exist for ambiguity, fraud, and conditions.

Question 4

A contract's indemnification clause states the supplier will hold the buyer harmless for 'any and all claims.' What risk should the buyer be aware of?

Accepted Answer

The clause may not protect the buyer against its own negligence in some jurisdictions

Answer

Many jurisdictions require explicit language to extend indemnification to the indemnitee's own negligence; vague 'any and all' clauses may not achieve this.

Question 5

When negotiating payment terms, a buyer negotiates Net 60 instead of the supplier's standard Net 30. What is the PRIMARY financial benefit to the buyer?

Accepted Answer

Improved Days Payable Outstanding (DPO), conserving working capital longer

Answer

Extended payment terms increase Days Payable Outstanding, allowing the buyer to retain cash longer and improve working capital and cash flow.

(CPSM) Certified Professional in Supply Management Practice Test

(CPSM) Certified Professional in Supply Management Practice Test

CPSM CPSM Contract Management & Negotiation 5