CPSM CPSM Contract Management & Negotiation

Question 1

Which contract type places the greatest financial risk on the buyer?

Accepted Answer

Cost-plus-percentage-of-cost

Answer

Cost-plus-percentage-of-cost contracts incentivize the supplier to increase costs because their fee grows proportionally, placing maximum financial risk on the buyer.

Question 2

What is the primary purpose of a liquidated damages clause in a supply contract?

Accepted Answer

To pre-establish compensation for specific contract breaches such as late delivery

Answer

Liquidated damages clauses pre-establish a specific, agreed-upon amount payable upon a defined breach (e.g., late delivery), avoiding costly litigation to prove actual damages.

Question 3

In CPSM negotiations, BATNA stands for:

Accepted Answer

Best Alternative To a Negotiated Agreement

Answer

BATNA (Best Alternative To a Negotiated Agreement) is the most advantageous course of action a party can take if negotiations fail, and knowing it strengthens a negotiator's position.

Question 4

Which contract clause protects a buyer when a supplier's costs rise due to unforeseen external economic events?

Accepted Answer

Economic price adjustment clause

Answer

An economic price adjustment (EPA) clause allows contract prices to be adjusted based on defined indices (e.g., PPI), protecting both parties from unforeseeable cost fluctuations.

Question 5

A supply manager discovers that a key contract contains no intellectual property (IP) ownership clause. What is the most significant risk?

Accepted Answer

The supplier could retain ownership of IP developed under the contract

Answer

Without an explicit IP ownership clause, the supplier typically retains rights to any IP created during contract performance, potentially leaving the buyer without rights to use it.

(CPSM) Certified Professional in Supply Management Practice Test

(CPSM) Certified Professional in Supply Management Practice Test

CPSM CPSM Contract Management & Negotiation