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CPSM Questions


1. A company hires a supplier to launch a website for a new product. The implementation is very successful, and the supplier would like to publicize its efforts in advertising and on its website, with testimonials from the buying company’s employees. However, the contract prohibits this. Which of the following is the LEAST likely to be the reason for the company’s position on this matter?

(A) Other suppliers may seek endorsement from the company.
(B) Employees might be targeted for sales pitches by the supplier’s competitors.
(C) The company has a policy of not endorsing suppliers.
(D) The company plans to launch additional websites on its own.

2. What is the contract term for the obligation of one party to cover the loss or damage suffered by another party?

(A) Assignment
(B) Confidentiality
(C) Indemnification
(D) Severability

3. A supply manager is evaluating proposals for a critical commodity. Although there is nothing substantively wrong with the low bidder’s proposal, which is likely to result in significant cost savings, the supply manager is concerned about the low bidder’s financial stability. Which of the following is the BEST course of action in this situation?

(A) Award the contract to the next lowest bidder to assure supply
(B) Split the award between the low bidder and the next lowest bidder
(C) Award the contract to the low bidder and ensure that the contract has appropriate protection
from default
(D) Award the contract to the low bidder and develop a reasonable supplier exit strategy


1. Option D is correct because the other considerations are more prevalent and potentially more serious. Unless the company is in the website design business, the supplier that designed the new product launch website is not a potential competitor. Company policy against endorsing suppliers (Option C) may have been based on actual or potential problems resulting from fear that (1) other suppliers’ requests (Option A) may create awkward situations and/or (2) employees may make such endorsements (Option B) although they don’t have authority to speak for the company. Whatever the reason for company policy, it must be respected (as the contract does) or an exception sought.

Bibliographic Key:
#1A: Contracting and Negotiation, 1-A-4, “Manage the preparation and/or issuance of contracts/purchase orders/agreements.”
#2: Chapter 9, “Sustainability and Social Responsibility”

2. Option C is correct because indemnification involves one party’s obligation to cover losses or damages suffered by the other, in specific ways and or situations as detailed in an agreement between them.

Bibliographic Key:
#1A: Contracting and Negotiation, 1-A-4, “Manage the preparation and/or issuance of contracts/purchase orders/agreements.”
#2: Chapter 5, “Contracting”

3. Option D is correct because, at this time, the low bidder’s proposal is responsive to the buying organization’s solicitation and offers cost-saving advantages. Rejecting the low bidder’s proposal (Option A) or splitting the award (Option B) would be questionable unless financial stability was included as a significant evaluation criterion. Including default clauses in the awarded contract (Option C) is usually wise in any contract, but does not ensure continuity of supply for this critical commodity. Being prepared with a supplier exit strategy in case of problems minimizes risks of a supply interruption.

Bibliographic Key:
#1A: Supplier Relationship Management, 1-F-6, “Develop and execute
supplier exit strategies.”
#2: Chapter 4, “The Sourcing Process

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