Question 1

The longer the term of the purchase agreement, the less likely firm-fixed price contracts will be acceptable to the supplier.

Accepted Answer

Firm-fixed price contracts are based on a predetermined price and require the supplier to absorb any additional costs that may arise. The longer the term of the purchase agreement, the greater the risk of unexpected market fluctuations, changes in regulations, or unforeseen events that could increase the supplier's costs. Therefore, the supplier may be less willing to accept firm-fixed price contracts in longer-term agreements, as they may not accurately reflect the actual cost of producing and delivering the goods or services.

Question 2

Agreeing to a short-term contract frequently allows the buyer to have access to more detailed cost and price information from the supplier in exchange for the shorter contract term.

Accepted Answer

False

Question 3

As the total dollar value/unit cost of the contract decreases, purchasers must spend more effort creating effective pricing mechanisms.

Accepted Answer

As the total dollar value/unit cost of the contract decreases, the incentive to spend significant effort on creating complex pricing mechanisms diminishes because the potential savings or financial impact is smaller.

Question 4

Long-term contracts can help the buyer to gain exclusive access to proprietary supplier technology, and blocking competitor access to this supplier technology can result in at least a short-term competitive advantage for the buyer.

Accepted Answer

Long-term contracts often involve sharing of proprietary technology between the buyer and supplier. By gaining exclusive access to this technology, the buyer can prevent competitors from accessing it, giving them a short-term competitive advantage.

Question 5

Fixed price contracts are the most complex and difficult for purchasing to manage because there is a need for extensive auditing or additional input from the purchasing side.

Accepted Answer

Fixed price contracts are generally considered less complex and easier to manage compared to cost-reimbursement contracts because the price is agreed upon upfront, reducing the need for extensive auditing and additional input from the purchasing side.

Question 6

In the firm fixed price contract, the price stated in the agreement does not change, regardless of fluctuations in general overall economic conditions, industry competition, levels of supply, market prices, or other environmental changes.

Accepted Answer

In a firm fixed price contract, the price remains fixed and does not change with any external factors.

Question 7

Once a contract has been negotiated and signed, the real work is over.

Accepted Answer

Signing the contract is just the beginning of fulfilling the terms and obligations outlined in the agreement. Both parties must follow through with their responsibilities and ensure that the contract is properly executed.

Question 8

Cost-sharing contracts are especially important during a period when raw material prices are decreasing.

Accepted Answer

Cost-sharing contracts are actually more important during a period when raw material prices are increasing. This is because cost-sharing contracts allow for the distribution of the increased costs among multiple parties, rather than just one party bearing the brunt of the cost increase.

Question 9

The use of automated online catalogs by major suppliers of MRO items allows users to buy directly from blanket orders and national contracts from their desktops.

Accepted Answer

Automated online catalogs by major suppliers of MRO items do allow users to buy directly from blanket orders and national contracts from their desktops.

Question 10

In many instances, the alternatives to court adjudication are slower than litigation.

Accepted Answer

This statement is false. Generally, alternatives to court such as negotiation, mediation, and arbitration are faster than traditional litigation.

Question 11

Once a long-term contract with a supplier has been executed, it is much more difficult (and expensive) to switch suppliers.

Accepted Answer

This statement is true. Once a long-term contract is signed, it is legally binding and can be costly to terminate early or switch to a different supplier.

Question 12

Perhaps the most important clause of a consulting contract to the consultant is the assurance of payment.

Accepted Answer

The assurance of payment is important for the consultant as it ensures they will be compensated for their work. Without this clause, there is no guarantee of payment, which could be a major concern for the consultant.

Question 13

Escalation clauses allow increases in the base price but not decreases.

Accepted Answer

Escalation clauses can allow for both increases and decreases in the base price, depending on the specific terms outlined in the contract. They are designed to adjust prices based on changes in certain economic indicators or costs.

Question 14

To be successful, a good long-term contract needs to only consider the needs of the buyer.

Accepted Answer

A good long-term contract should consider the needs of both parties, the buyer and the seller, in order to create a mutually beneficial agreement that promotes a strong, ongoing business relationship.

Question 15

Even when there is no contract, most transactions are covered by a "gap filler" known as the Uniform Commercial Code.

Accepted Answer

The Uniform Commercial Code (UCC) provides default rules to govern commercial transactions, even when there is no express contract between the parties. These default rules are often referred to as "gap fillers," as they fill in the gaps that would otherwise exist in the absence of a written agreement.

Question 16

One of the leading causes for failure of systems contracts is that buyers get locked into price structures that do not adequately reflect changes that have occurred once the agreement is signed.

Accepted Answer

This statement is true. Often, contract prices may be based on assumptions or market conditions at the time of signing, but changes in variables such as raw material costs, labor costs, or even changes in regulations can make the original price structure inadequate or problematic for the buyer.

Question 17

The assignment and contracting clause of a contract stipulates whether the supplier can assign its rights described in the agreement to another party and whether subcontracting is permissible.

Accepted Answer

The assignment and contracting clause of a contract does indeed stipulate whether the supplier can assign its rights to another party and whether subcontracting is allowed.

Question 18

If suppliers are not forthcoming with labor and material cost data, cost models can be developed to improve the buyer's negotiating position using material/labor ratios available from industry databases.

Accepted Answer

Cost models can use industry data on material/labor ratios even if suppliers are not providing cost data, allowing the buyer to improve their negotiating position.

Question 19

Purchasers cannot rely on an arbitration clause contained in their forms, particularly if the suppliers' forms do not contain such a clause.

Accepted Answer

Purchasers cannot assume that an arbitration clause is present in their forms simply because the suppliers' forms contain one. The presence of an arbitration clause is determined on a case-by-case basis, based on the specific terms of each contract.

Question 20

It is important to ensure that an arbitrator's opinion will not be binding on both parties to the dispute.

Accepted Answer

An arbitrator's opinion is typically binding on both parties and enforceable by law. This is a key characteristic of arbitration and sets it apart from other alternative dispute resolution methods such as mediation.

Quiz 14: Contract Management