L4M3 Commercial Contracting - Practice Questions

Question 1

A procurement professional is preparing a sale & purchase contract of a machinery. Which of the following clauses should be added to the contract? Select TWO that apply

Select all that apply, then click Submit answer.

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Supplier selection mechanism
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Insurance requirements
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Period of hire
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Ratio decidendi
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Guarantees

Reference / correct answer:

Insurance requirements

Guarantees

The complexity of the contract will reflect the complexity of the purchase. For simple, low-value purchases, standard terms and conditions may be all that is required, but do not assume that just because the purchase is one-off, the contract will be simple. It may still need to cover the following areas:

- Warranties and guarantees if the one-off purchase has a considerable life-span and is business-critical (e.g., a back-up generator for the office which houses the national computer servers).

- Insurance requirements: including professional indemnity, public/products liability, employer's liability, and cover for any specific risks such as pollution or working at height.

- Specification requirements on quality, timing and delivery

- Minimum quality standards on the business operation (e.g., a catering provider might only be providing sandwiches for a team meeting lunch, but you still need to know its hygiene practices).

- Built-in change process for any goods or services that are beyond very simple (e.g., works contracts always have variations procedures because of the unpredictable nature of such projects).

- Ability to extend the scope of the contract should be minimal or none, and restrained to the single requirement.

- Ability to extend the duration of the contract should be limited to the ability to accommodate unexpected time overruns (which itself should be subject to a damages/penalty provision where they are attributable to the supplier, and an extension to overheads costs where they are attributable to the purchaser).

- Data security protocols need to be considered if personal data is being shared.

Reference: CIPS study guide page 57

LO 1, AC 1.3

Question 2

Which of the following are most likely to be liabilities of suppliers under a guarantee clause? Select A. TWO that apply

B. Repair

C. Decommissioning

D. Upgrading

E. Replacement

F. Installation

Answer: B, E

Explanation:

A guarantee is an agreement given by a trader to a consumer, without any extra charge, to repair, replace or refund goods that do not meet the specifications set out in the guarantee. A guarantee is usually issued by the manufacturer of goods or by a trader that provides goods as part of a service - replacement windows, for instance. Generally, a guarantee provider undertakes to carry out free repairs, for a set period of time, for problems that can be attributed to manufacturing defects.

Reference:

- Guarantees and warranties

- CIPS study guide page 157-159

LO 3, AC 3.2

Select all that apply, then click Submit answer.

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Repair
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Decommissioning
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Upgrading
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Replacement
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Installation

Question 3

Which of the following are NOT covered by CISG? Select TWO that apply:

Select all that apply, then click Submit answer.

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Transfer of risks
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Contract validity
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Remedies for breach of contracts
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Liability of the seller for death or personal injury
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Liability to pay damages

Reference / correct answer:

Contract validity

Liability of the seller for death or personal injury

United Nations Convention on Contracts for the International Sale of Goods (Vienna Convention or CISG)

Vienna Convention was prepared by by the United Nations Commission on ¬International Trade Law (UNCITRAL) and adopted by a diplomatic conference on 11 April 1980. The Convention was welcomed by several countries from different geographic areas, with different legal and political systems. As of 20 August 2020, the Convention has93 Contracting States. The Convention has proved the effectiveness of an uniform text on international trade law.

What CISG covers, and what it does not

In the 6 first articles of the Convention, the authors set up the boundaries of its application.

First is about where it applies. According to UNCITRAL, the Convention applies to contracts of sale of goods between parties whose places of business are in different States and either both of those States are Contracting States or the rules of private international law lead to the law of a Contracting State. A few States have availed themselves of the authorisation in article 95 to declare that they would apply the Convention only in the former and not in the latter of these two situations. As the Convention becomes more widely adopted, the practical significance of such a declaration will diminish. Finally, the Convention may also apply as the law applicable to the contract if so chosen by the parties. In that case, the operation of the Convention will be subject to any limits on contractual stipulations set by the otherwise applicable law.

Second, the Convention has a list of goods that are not subject to its application in Article 2. Article 3 clarifies the differences between manufacturing contracts and sale contract.

Third, Article 4 and 5 clearly states what CISG does not covers, including grounds for contract invalidity and liabilities to death or injury of person caused by the the goods

Finally, the Convention respects the contractual freedom of the trading parties. Trading parties may select this convention as governing law or select other instrument, such as UPICC or domestic laws.

Reference:

- Governing law in International Contracts - Would you choose CISG or UPICC (Part 1)

- CIPS study guide page 49-52

LO 1, AC 1.2

L4M3 – Commercial Contracting