CIPS Exam L4M3 Topic 2 Question 54 Discussion

Actual exam question for CIPS's L4M3 exam

Question #: 54
Topic #: 2

[All L4M3 Questions]

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...?

AIncentive pricing arrangement

BGain-share/pain-share arrangment

CCost-plus pricing arrangement

DFixed-pricing arrangement

Show Suggested Answer

Suggested Answer: A

When a party takes on a contractual obligation, they are legally required to perform the obligation.

That same contracting party is still entitled to subcontract out the work to another service provider, unless the contract:

- is a contract for personal services, such an employment contract

- contains an express term preventing subcontracting out the work, or an implied term

Subcontracting clauses are written to control whether the contractor is entitled to subcontract, and how purchaser shall control that subcontracting process.

- Subcontracting clauses (delegation of contractual obligations to third parties)

- CIPS study guide page 153-157

LO 3, AC 3.2

by Sharmaine at Feb 11, 2025, 09:48 AM

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Germaine

1 days ago

I'm not sure, but I think it could also be C) Cost-plus pricing arrangement because the profits are based on a percentage of the entire cost.

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Tomoko

5 days ago

I agree with Jesus. The terms of the contract suggest a gain-share arrangement.

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Jesus

9 days ago

I think the answer is B) Gain-share/pain-share arrangement.

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