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NEW QUESTION 40
Infra Constructions receive a contract for construction of a building, and following terms were agreed upon. "The entire cost of the project will be reimbursed to Infra Constructions (estimated cost of the project being $ 25 million). The profits will be 20% of the entire cost of a project subject to a max of $ 5 million." This arrangement is an example of...?

A. Cost-plus pricing arrangementB. Gain-share/pain-share arrangmentC. Incentive pricing arrangementD. Fixed-pricing arrangement

Answer: A

Explanation:
In the contract term, the buyer agrees to pay the contractor the cost of doing project plus a profit. This is an example of cost-plus pricing arrangement.
On the other hand, "Fixed-pricing arrangement" often refers to lump-sum contract or supply/service contract with fixed price. "Incentive pricing arrangement" and "Gain-share/pain-share arrangement" have the same meaning. In this type of arrangement, both supplier and buyer agree on a target (it can be cost, or lead time, or quality, etc). Once the supplier reaches that target, it will be rewarded with a portion of the gain that the buyer gets, and will pay the price if it fails.
Reference:
LO 3, AC 3.3

 

NEW QUESTION 41
Which of the following contracts would be best suited to a 'variable pricing' arrangement?

A. A contract for the supply of 100 printing machines to be delivered next monthB. A contract for the supply of lubricating oil for immediate deliveryC. A contract for window cleaning during the next three monthsD. A contract for road building estimated to take five years to complete

Answer: D

Explanation:
Variable pricing is suitable to situations when the cost of certain elements of the product fluctuate unpredictably. For road building, asphalt fluctuates regularly. Furthermore, 5 years are long period, then variable pricing is the most appropriate method to achieve value for money and control budget.
A contract for window cleaning during the next three months is a short-term service contract, fixed price is the most suitable method.
A contract for the supply of lubricating oil for immediate delivery is an one-off contract, only fixed price is applicable.
A contract for the supply of 100 printing machines to be delivered next month is also an one-off contract.
Reference:
LO 3, AC 3.3

 

NEW QUESTION 42
Which of the following should include in the service level agreement that is an appendix of a contract?
1. How often the service is measured
2. Minimum qualification of supplier staffs
3. Remedies to resolve dispute
4. On time service delivery

A. 1, 2 and 4 onlyB. 2, 3 and 4 onlyC. 1, 2 and 3 onlyD. 1, 3 and 4 only

Answer: A

Explanation:
When the SLA is a schedule or an appendix to the contract, it should clearly state the following:
1. KPIs: how they are to be measured, who measures them and how often
2. How the measurements convert into scores
3. Any other service level standards, which may be of lesser importance than the KPIs
4. Minimum acceptable standards or scores in each case
5. Range of scores both above and below the minimum acceptable
6. Any mitigating factors which might apply in the event of poor performance
7. Any time period permitted in which to remedy a situation or poor performance.
In this question, "2. Minimum qualification of supplier staffs" and "4. On time service delivery" are the KPIs, while "1. How often the service is measured" is the frequency in which the KPIs are measured.
The remedies available in the event of poor performance should be set out in the body of the contract, along with those for any other contractual breach. These clauses should be cross-referenced in the SLA.
Reference:
LO 2, AC 2.2

 

NEW QUESTION 43
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