Chapter 14 — Contract Management
b.
liability
c.
third-party rights
d.
confidentiality
e.
intellectual property
Easy
Analytic
62. The _____ clause in a contract provides guidelines regarding what type of reporting statistics and measures the
supplier must provide to the buyer on a regular basis, defined clearly.
a.
statistics
b.
notices
c.
most favored customer
d.
confidentiality
e.
third-party rights
Easy
Analytic
63. The _____ clause in a contract provides specific details on how the supplier’s performance will be measured and if
any compensation will be awarded by the supplier to the buyer if these certain defined levels of performance are not
maintained.
a.
b.
c.
d.
e.
Moderate
Analytic
64. The _____ clause in a contract establishes where bills, invoices, notices, and other documents should be sent, as well
as the key contact person at the buying and supplying companies to whom all questions and issues concerning the
relationship.
a.
severability
b.
notices
c.
governing law
d.
supply and delivery
e.
intellectual property
Chapter 14 — Contract Management
Moderate
Analytic
65. The _____ clause in a contract describes how an issue will be addressed if a portion of the agreement is void or
unenforceable, and which court of law will resolve the difference.
a.
force majeure
b.
severability
c.
notices
d.
intellectual property
e.
supply and delivery
Easy
Analytic
66. The _____ clause in a contract stipulates that any benefits attributed to a third party (other than the buyer or supplier)
identified in the contract must be enforced.
a.
governing law
b.
severability
c.
most favored customer
d.
assignment and contracting
e.
third-party rights
Easy
Analytic
67. The _____ clause of a contract identifies any free trade issues and benefits, and how to share the benefits.
a.
b.
c.
d.
e.
Easy
Analytic
68. The _____ clause of a contract stipulates the court of law where any disputes will be settled.
Chapter 14 — Contract Management
a.
third-party rights
b.
notices
c.
assignment and contracting
d.
governing law
e.
liability
Easy
Analytic
69. The most basic contractual pricing mechanism is called a/an _____ contract.
a.
fixed price with escalation
b.
cost plus incentive fee
c.
firm fixed price
d.
cost-sharing
e.
fixed price with redetermination
Easy
Analytic
70. In a firm fixed price contract, if market prices for a purchased good or service _____ the stated contract price, the
_____ bears the brunt of the financial loss.
a.
rise above….purchaser
b.
rise above….seller
c.
fall below….seller
d.
stay the same….seller
e.
None of the above.
Moderate
Analytic
71. In a firm fixed price contract, if market prices _____ the stated contract price because of outside factors such as
competition, changes in technology, or raw material prices, the _____ assumes the risk or financial loss.
a.
rise above….purchaser
b.
stay the same….seller
c.
stay the same….purchaser
d.
fall below….purchaser
e.
None of the above.
72. A _____ contract should be used in cases where the parties cannot accurately predict labor or materials costs and
quantities to be used prior to the execution of the purchase agreement.
a.
fixed-price with escalation
b.
firm fixed price
c.
cost sharing
d.
cost-based
e.
fixed-price with redetermination
Easy
Analytic
73. In the _____ contract, if the supplier can demonstrate actual cost savings through production efficiencies or
substitution of materials, the resulting savings from the initial price targets are shared between the supplier and the
purchaser at a predetermined rate.
a.
time and materials
b.
cost plus fixed fee
c.
fixed-price with incentives
d.
firm fixed price
e.
fixed-price with escalation
Moderate
Analytic
74. With pure ______ contracts, allowable costs are shared between the parties on a predetermined percentage basis.
a.
cost-sharing
b.
time and materials
c.
fixed-price with incentives
d.
cost plus incentive fee
e.
fixed-price with redetermination
Easy
Analytic
75. The _____ contract is generally used in plant and equipment maintenance agreements, where the supplier cannot
Moderate
Analytic
Chapter 14 — Contract Management
determine accurate costs prior to the repair service.
a.
fixed-price with redetermination
b.
firm fixed price
c.
cost-sharing
d.
time and materials
e.
cost plus fixed-fee
Easy
Bloom’s: Understanding
Analytic
76. In a _____ contract, the supplier receives reimbursement for all of its allowable costs up to a predetermined amount
plus a fixed fee, which typically represents a percentage of the targeted cost of the good or service being procured.
a.
cost plus fixed-fee
b.
fixed-price with redetermination
c.
time and materials
d.
fixed-price plus fixed-fee
e.
None of the above.
Moderate
Bloom’s: Understanding
Analytic
77. All of the following are important factors to consider when negotiating with a supplier over contract type except
_____.
a.
component market uncertainty
b.
degree of trust between buyer and seller
c.
process or technology uncertainty
d.
supplier’s ability to impact costs
e.
physical distance between the buyer and supplier facilities
Moderate
Bloom’s: Remembering
Analytic
78. _____ refers to the volatility of pricing conditions for major elements of the product, such as raw materials, purchased
components, and labor.
a.
Supplier’s ability to impact costs
b.
Component market uncertainty
c.
Process or technology uncertainty
d.
Total dollar value of the purchase
e.
None of the above.
Chapter 14 — Contract Management
Easy
Bloom’s: Remembering
Analytic
79. The _____ the term of the purchase agreement, the _____ firm fixed-price contracts will be acceptable to the supplier.
a.
shorter….less likely
b.
longer….more likely
c.
longer….less likely
d.
longer….same likelihood that
e.
There is no relationship between contract term and acceptability to the supplier.
Moderate
Bloom’s: Understanding
Analytic
80. A _____ is defined as a purchase that is made on a nonrecurring or limited basis with little or no attention of
developed an ongoing relationship with the supplier.
a.
purchasing alliance
b.
long-term contract
c.
short-term contract
d.
spot contract
e.
JIT contract
Easy
Bloom’s: Remembering
Analytic
81. A/An _____ is defined as a contract purchase that is routinely made over a relatively limited time horizon, typically
one year or less.
a.
short-term contract
b.
alliance
c.
spot contract
d.
long-term contract
e.
partnership
Easy
Bloom’s: Remembering
Analytic
82. A/An _____ is a purchase contract that is made on a continuing basis for a specified or indefinite period of time,
Chapter 14 — Contract Management
typically exceeding one year.
a.
one-time buy
b.
short-term contract
c.
spot contract
d.
long-term contract
e.
None of the above.
83. Which of the following is not one of the potential advantages of using long-term contracts?
a.
Assurance of supply.
b.
Volume leveraging.
c.
Access to cost/price information.
d.
Access to supplier technology.
e.
Supplier opportunism.
84. Which of the following is not one of the potential disadvantages of using long-term contracts?
a.
Supplier volume uncertainty.
b.
Volume leveraging.
c.
Buyer is unreasonable.
d.
Selecting the wrong supplier.
e.
Supplier foregoes other business.
85. _____ are based on the notion that as purchase volume increase, cost structures change.
a.
Short-term contracts
b.
Firm fixed price contracts
c.
Long-term contracts with incentives
d.
Time and materials contracts
e.
Blanket orders
86. All of the following are reasons for suppliers preferring long-term contracts except _____.
a.
the supplier receives better scheduling information, which in turn helps the supplier’s production area improve
efficiency and materials planning
b.
detailed projections of volumes and delivery dates allow the supplier to better budget the flow of funds and
investment stemming from the expectation of continued future volume
c.
the supplier’s organization lowers unit costs because fixed costs are spread out over the term of the contract
d.
the supplier can afford to pay its workforce higher wages to increase productivity
e.
the supplier can realize lower administrative costs over the term of the contract.
Moderate
Analytic
87. Which of the following is not an example of a contingency element of a long-term contract?
a.
Initial price.
b.
Price-adjustment mechanisms.
c.
Delivery dates and times.
d.
Supplier performance improvement.
e.
Evergreen, penalty, and escape clauses.
Easy
Analytic
88. A/An _____ clause assumes the contract will be renewed every year unless the supplier is otherwise notified that this
is not the case.
a.
evergreen
b.
due diligence
c.
penalty
d.
escape
e.
None of the above.
Easy
Analytic
89. A/An _____ clause allows the buyer (and possibly the supplier) to terminate the contract if either side fails to live up
to contractual requirements.
Analytic
Chapter 14 — Contract Management
a.
penalty
b.
evergreen
c.
systems contract
d.
time and materials
e.
escape
Easy
Analytic
90. A/An _____ contract is designed to provide access to expensive computer networks and software that single
companies are unable to afford on their own.
a.
time and materials
b.
systems
c.
firm fixed price
d.
cost-sharing
e.
evergreen
Easy
Analytic
91. Which of the following is not one of the basic levels of service that a systems supplier can provide to the buyer?
a.
Turnkey.
b.
Modular.
c.
Shared.
d.
All of the above.
e.
None of the above.
Easy
Analytic
92. In the _____ approach to a systems supplier’s level of service, the client company essentially turns over the entire
outsourced service at a given point in time.
a.
modular
b.
incremental
c.
turnkey
d.
shared
e.
None of the above.
93. In the _____ approach to a systems supplier’s level of service, the outsource service supplier takes on only two or
three small functions from the client, using a stepping stone approach.
a.
evergreen
b.
turnkey
c.
shared
d.
modular
e.
time and materials
Easy
Analytic
94. In the _____ approach to a systems supplier’s level of service, the service provider and the client company share
resources and operational control over the outsourced service.
a.
shared
b.
commonality
c.
evergreen
d.
modular
e.
turnkey
Easy
Analytic
95. A/An _____ is new intellectual property (such as tools, methodologies, and knowledge) developed as the result of the
interaction between the enterprise and the consulting company.
a.
evergreen contract
b.
output
c.
good
d.
service
e.
residual
Easy
Analytic
96. A/An _____ generally runs for a 12-month period and may or may not come up for renewal at the end of the year.
Easy
Analytic
Chapter 14 — Contract Management
a.
national contract
b.
annual contract
c.
open-ended agreement
d.
blanket order
e.
None of the above.
97. A/An _____ specifies that the buyer will buy a certain amount of goods and services for the duration of the agreement.
a.
pricing agreement
b.
evergreen clause
c.
national buying agreement
d.
national contract
e.
blanket order
98. A/An _____ specifies that business units within a corporate organization must buy from specific suppliers during the
term of the contract.
a.
corporate agreement
b.
open-ended order
c.
online MRO catalog
d.
blanket order
e.
open-ended order
99. A/An _____ is nonbinding on either the buyer or the supplier and typically provides discounts to corporate buyers
based on total volume for the corporation as a whole, not for any subunits individually.
a.
annual contract
b.
pricing agreement
c.
corporate agreement
d.
escape clause
e.
national buying agreement
100. A/An _____ is an agreement that typically covers many different items that can be purchased under the same
purchase order number, thereby minimizing repetitive paperwork in the purchasing department for relatively low-cost
items.
a.
annual contract
b.
national contract
c.
blanket order
d.
national buying agreement
e.
corporate agreement
101. A/An _____ occurs in situations in which a buyer is allowed to automatically discount the published purchase price
by a negotiated percentage for all purchases from a given price list or catalog during the contract period.
a.
pricing agreement
b.
international contract
c.
national contract
d.
open-ended order
e.
None of the above.
102. A/An _____ is similar to a/an _____ but allows the addition of items not originally included in the order and may
allow the original purchase order to be extended for a longer term.
a.
closed-end order….open-ended order
b.
national contract….national buying agreement
c.
open-ended order….blanket order
d.
open-ended order….pricing agreement
e.
blanket order….national buying agreement
103. All of the following are major issues to be considered with respect to e-commerce contract issues except _____.
a.
parity between electronic and paper records
b.
enforceability of shrinkwrap, clickwrap, and boxtop agreements and licenses
c.
attribution procedures
d.
digital signatures
e.
location of the supplier’s facility in relationship to the buyer’s location
Moderate
Analytic
104. The use of [a/an] _____, or third party, to help settle contractual disputes is the fastest-growing method of conflict
resolution among contracting parties, both in the United States and overseas.
a.
rent-a-judge
b.
litigation
c.
mediation
d.
mini trial
e.
outside arbitrator
Easy
Analytic
105. _____ is defined as the submission of a disagreement to one or more impartial persons with the understanding that
the parties will abide by the decision.
a.
Negotiation
b.
Arbitration
c.
Litigation
d.
Mediation
e.
Authorization
Easy
Analytic
106. [A/An] _____ is an intervention between conflicting parties to promote reconciliation, settlement, or compromise.
a.
mediation
b.
arbitration
c.
litigation
d.
mini trial
e.
rent-a-judge
107. [A/An] _____ is a form of presentation, involving an exchange of information between managers from each
organization involved in the dispute.
a.
mediation
b.
arbitration
c.
rent-a-judge
d.
mini trial
e.
dispute prevention
Easy
Analytic
108. In [the] _____, a court refers a pending lawsuit between the parties to a private, neutral party who conducts a “trial”
as though it were conducted in a real court.
a.
mediation
b.
mini trial
c.
dispute prevention
d.
arbitration
e.
rent-a-judge
Moderate
Analytic
109. Which of the following is not one of the factors to consider when deciding which dispute-resolution mechanism to
use?
a.
Status of the relationship between the parties in the dispute.
b.
Type of outcome desired by the purchaser.
c.
Type of contract leading to the dispute.
d.
Level of emotion displayed by the principals.
e.
None of the above.
Moderate
Analytic
Easy
Analytic