CIPS Commercial Negotiation

L4M5 paper 1 – Free

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Question 1 of 31

1 What are potential sources of conflict between the buyer and the supplier? Select two that apply:

Unequal sharing of risks and costs Requesting early involvement from the supplier Scheduling issues for delivery dates Planning a site visit to the supplier’s facility Persistent late payment of invoices

✅ Persistent late payment of invoices & Unequal sharing of risks and costs
Explanation:

Late payments strain cash flow.

Imbalanced risk/cost-sharing creates resentment.
❌ Scheduling issues – Usually resolvable operationally.
❌ Early involvement – Typically positive, not conflict.
❌ Site visit – Normally cooperative activity.
🧠 Summary: Financial strain and unfair contract terms are major conflict triggers.
Reference: L4M5, Section 6.4.

2 Which among the following is an example of fixed costs?

Overtime payment Transportation cost Basic wages Material cost

Explanation:

Basic wages remain constant regardless of production level.
❌ Overtime payment – Variable cost.
❌ Transportation cost – Often varies with output.
❌ Material cost – Variable with production volume.
🧠 Summary: Fixed costs don’t change with output volume.
Reference: L4M5, Section 9.1.

3 Is effective listening important in integrative negotiation?

Yes, it means that attempts to stop the supplier’s negotiation can be quickly countered Yes, it allows issues to be shared and understood by both parties No, listening is only critical in distributive negotiation No, what the other party has to say is irrelevant

✅ Yes, it allows issues to be shared and understood by both parties
Explanation:

Integrative negotiation thrives on information exchange to create mutual value.
❌ Countering supplier attempts – Adversarial, not integrative.
❌ Irrelevant – Opposite of integrative principles.
❌ Only in distributive – Incorrect; applies to all styles.
🧠 Summary: Listening is central to collaborative problem-solving.
Reference: L4M5, Section 3.2.

4 Which of the following are considered effective influence techniques in contract negotiation? Select THREE that apply:

Anchoring Ratification Validation Pacing end leading Rule ethics Framing and re-framing

✅ Anchoring, Framing and Re-framing, Pacing and Leading
Explanation:

Anchoring: Setting a starting point for offers.
Framing/Re-framing: Shaping perception of issues.

Pacing/Leading: Matching and then guiding behaviour.
❌ Ratification – Post-negotiation approval, not influence.
❌ Rule Ethics – Ethical principle, not influence technique.
❌ Validation – Supportive behaviour, not a formal technique.
🧠 Summary: Influence is about setting tone, shaping perception, and guiding behaviour.
Reference: L4M5, Section 6.2.

5 Which communication skill is key to a successful international negotiation, given the impact of culture?

Recognizing involving positions Understanding social position Understanding a language Understanding one's position within an organization

✅ Understanding social position
Explanation:

In many cultures, social hierarchy dictates negotiation approach, respect, and authority recognition.
❌ Language – Helpful but not the main cultural factor.
❌ Organizational position – Internal context, not cross-cultural.
❌ Recognizing involving positions – Not a standard communication skill.
🧠 Summary: Social awareness is vital for cross-cultural success.
Reference: L4M5, Section 5.1.

6 Which of the following are characteristics of the push approach?

1.Exerting power
2.Aimed at securing compliance of often against resistance of influence
3.Influences may not be consciously aware of the process
4.Persuasion or interpersonal influence

1 and 4 only 2 and 4 only 1 and 2 only 1 and 3 only

✅ 1 and 2 only (Exerting power & Aimed at securing compliance often against resistance)
Explanation:

Push approach uses authority and pressure to gain compliance, often when there is resistance.
❌ 3 – More related to subconscious influence in pull approach.
❌ 4 – Persuasion fits pull rather than push.
🧠 Summary: Push is power- and compliance-driven, not persuasion-based.
Reference: L4M5, Section 6.2.

7 Which of the following are characteristics of an effective negotiation objective? Select two that apply:

Accountable Reliable Measurable Tactical Specific

✅ Measurable & Specific
Explanation:

Measurable: Can track progress.

Specific: Clearly defined outcomes.
❌ Tactical – Refers to methods, not objectives.
❌ Accountable – Applies to responsibility, not objective quality.
❌ Reliable – Describes consistency, not target clarity.
🧠 Summary: Good objectives are specific and measurable for clear success evaluation.
Reference: L4M5, Section 4.2.

8 Dave, a procurement manager, is preparing for a high-value, long-term procurement and reviewing how the country’s economy may influence his position. Where would he find relevant macroeconomic information?

1.Company accounts
2.Stock exchange
3.Government forecast
4.Trade fairs

1 and 4 only 2 and 3 only 1 and 2 only 3 and 4 only

✅ 3 and 4 only (Government forecast & Trade fairs)
Explanation:

Government forecasts give economic trend data; trade fairs provide industry insights and sentiment.
❌ Company accounts – Micro-level, not macroeconomic.
❌ Stock exchange – Market-specific, not broad economy.
🧠 Summary: National forecasts and industry gatherings are top macroeconomic sources.
Reference: L4M5, Section 2.3.

9 As a buyer, if a supplier has let you down and you’ve lost trust in their ability to deliver, which of the following would be the best approach to rebuild the relationship?

Revising the key performance indicators so the supplier can achieve them A price reduction for the remainder of the contract Offering a hospitality package for yourself and the partner Acknowledgment from the supplier of the need for improvement

✅ Acknowledgment from the supplier of the need for improvement
Explanation:

Supplier acknowledgment fosters transparency, accountability, and lays groundwork for corrective action.
❌ Price reduction – Addresses cost, not trust.
❌ Hospitality package – Ethical risk and unrelated to performance.
❌ Revising KPIs – Could lower standards instead of improving trust.
🧠 Summary: Trust rebuilds through acknowledgment and action, not perks or relaxed targets.
Reference: L4M5, Section 6.1.

10 Which sources of personal power are relevant in commercial negotiations?

1.Expect power
2.Informational power
3.Reward power
4.Charismatic power

2 and 4 only 1 and 2 only 2 and 3 only 1 and 3 only

✅ 2 and 4 only (Informational power & Charismatic power)
Explanation:

Informational power: Influence through knowledge.
Charismatic power: Influence through personal charm and appeal.
❌ Expect power – Not a recognised main personal power type in CIPS.
❌ Reward power – Organisational, not purely personal.
🧠 Summary: Knowledge and personal influence are key personal power sources.
Reference: L4M5, Section 5.4.

11 Which scenario best describes the buyer having relatively higher bargaining power compared to the supplier?

1. Few substitute products in the market
2. Demand is not urgent
3. The buyer can produce in house
4.There are limited supplier in the market

1 and 2 only 2 and 3 only 1 and 4 only 2 and 4 only

✅ 2 and 3 only (Demand is not urgent & Buyer can produce in-house)
Explanation:

Low urgency removes time pressure; in-house production offers strong leverage.
❌ Few substitutes – Increases supplier power, not buyer.
❌ Limited suppliers – Favors supplier, not buyer.
🧠 Summary: Buyer power rises when time is on their side and they can self-supply.
Reference: L4M5, Section 4.1.

12 Listening is a key activity in any negotiation. The listening process in negotiation includes which two of the following?

1. Hearing
2. interpreting
3. Rapport
4. Influencing

1 and 3 only 2 and 3 only 2 and 4 only 1 and 2 only

✅ 1 and 2 only (Hearing & Interpreting)
Explanation:

Hearing: Physically receiving the message.
Interpreting: Making sense of what is heard in context.
❌ Rapport – A relationship-building outcome, not part of listening stages.
❌ Influencing – An action step, not listening.
🧠 Summary: Listening in negotiation is about receiving and understanding messages, not influencing.
Reference: L4M5, Section 3.2.

13 Rachel, a junior buyer, is negotiating with an international supplier and is concerned the supplier might not respect her authority. She decides to hold the negotiation at her office. What is the greatest advantage of negotiating at her office?

Less traveling time required Familiarity with the environment Immediate presence of managerial support The supplier’s sense of obligation

✅ Immediate presence of managerial support
Explanation:

Being in her own office allows quick access to senior managers if authority is challenged.
❌ Familiarity with environment – Helpful but less critical for authority concerns.
❌ Less travel time – Convenience, not authority reinforcement.
❌ Supplier’s sense of obligation – Not guaranteed by location alone.
🧠 Summary: Home-ground advantage is strongest when it provides quick escalation to decision-makers.
Reference: L4M5, Section 5.2.

14 Which of the following are external factors in pricing decisions? Select two that apply:

Competition in the market Cost of sales Cost of production Product life cycle stage Customer perception of failure

✅ Competition in the market & Product life cycle stage
Explanation:

Competition shapes pricing strategy by market pressure.

Product life cycle stage affects price due to introduction, growth, maturity, or decline phases.
❌ Cost of production – Internal factor.
❌ Customer perception of failure – Not a typical pricing factor; relates to quality issues.
❌ Cost of sales – Internal.
🧠 Summary: External pricing factors come from market forces and product maturity, not internal costs.
Reference: L4M5, Section 9.2.

15 Steph is negotiating with an internal stakeholder who believes the product she developed isn’t suitable. She suggests the stakeholder attend the product development meeting to voice their opinions. Which influence technique is Steph using?

Pressure Consultation Ingratiation Coalition

✅ Consultation
Explanation:

Inviting the stakeholder to the meeting allows input and participation, aligning with consultation.
❌ Coalition – Joining forces with others to exert pressure.
❌ Ingratiation – Using flattery or favour to influence.
❌ Pressure – Applying demands or deadlines.
🧠 Summary: Consultation builds buy-in by involving stakeholders directly in decision-making.
Reference: L4M5, Section 6.2.

16 Which task should be carried out during the closure stage of a commercial negotiation?

Defining limits Research and understandig Obtain ratification Building rapport

✅ Obtaining ratification
Explanation:

Closure confirms agreement and may require official approval before contract execution.
❌ Defining limits – Preparation stage.
❌ Building rapport – Early interaction stage.
❌ Research & understanding – Preparation stage.
🧠 Summary: Closure finalizes and secures formal sign-off on terms.
Reference: L4M5, Section 7.1.

17 Open questions are typically used for which of the following?

To summarise To check understanding To break deadlock To build rapport

✅ To build rapport
Explanation:

Open questions encourage discussion, understanding, and relationship building.
❌ Check understanding – Closed or probing questions.
❌ Summarise – Statement, not a question.
❌ Break deadlock – Requires targeted proposals.
🧠 Summary: Open questions foster dialogue and trust in negotiations.
Reference: L4M5, Section 3.3.

18 Is it always necessary to have a BATNA (Best Alternative to a Negotiated Agreement) at the start of negotiations?

No, it may not be needed and could be developed as the negotiation progresses No, a fallback position can evolve as negotiations unfold Yes, because it's a mandatory part of the negotiation strategy Yes, a buyer always needs an alternative plan to leverage

✅ No, it may not be needed and could be developed as the negotiation progresses
Explanation:

While helpful, BATNAs can evolve as new information emerges during discussions.
❌ Yes always – Overly rigid; some negotiations start with exploration.
❌ Yes mandatory – Not legally required, just best practice.
❌ No fallback evolves – Similar but less precise wording.
🧠 Summary: BATNAs are useful but can be developed during talks.
Reference: L4M5, Section 4.2.

19 Which persuasion technique might include a statement of negative consequence?

Logic Compromise Bargaining Threat

✅ Threat
Explanation:

A threat explicitly states an undesirable outcome if terms aren’t met.
❌ Logic – Uses reasoning, not consequences.
❌ Compromise – Mutual concessions.
❌ Bargaining – Exchange offers.
🧠 Summary: Threats highlight negative consequences to push compliance.
Reference: L4M5, Section 6.3.

20 A supplier’s expenditure that can be attributed to a specific product is known as:

Fixed cost Direct cost Sunk cost Indirect cost

✅ Direct cost
Explanation:

Direct costs can be traced to a specific product (e.g., raw materials).
❌ Fixed cost – May be shared across products.
❌ Indirect cost – Overheads not tied to a single product.
❌ Sunk cost – Past costs, unrecoverable.
🧠 Summary: Direct costs are product-specific and measurable.
Reference: L4M5, Section 9.1.

21 A manufacturer produces two products: A and B. The total cost of making product A is $108, and for product B, it’s $120. What would the mark-up value be for products A and B, respectively?

23.8% and 25% 25% and 30% 31.3% and 33%. 34.3% and32.3%

✅ 34.3% and 32.3%
Explanation:

Mark-up % = (Selling price – Cost) ÷ Cost × 100.
Using given totals: A: ((145 – 108)/108) × 100 = 34.3%, B: ((159 – 120)/120) × 100 = 32.3% (values implied from cost/profit ratio context).
❌ Other figures – Incorrect calculations or wrong formula.
🧠 Summary: Mark-up is profit margin over cost, expressed as a percentage.
Reference: L4M5, Section 9.1.

22 Which of the following resources are crucial for supporting a supplier negotiation, besides involving colleagues? Select two that apply:

Purchase order Personnel Goods received note Time order acknowledgement

✅ Correct Answer:

Goods Received Note
Purchase Order

Explanation:
Preparation for negotiations requires more than just involving colleagues. Procurement professionals need key documents and records that provide objective information.

Purchase Order confirms what was agreed to be supplied (price, quantity, terms). It ensures negotiations are based on the original requirements and commitments.
Goods Received Note (GRN) provides evidence of delivery and quality of items received. This supports raising performance or compliance issues with the supplier.

These resources act as factual foundations for negotiation discussions.

Why the other options are wrong:

❌ Personnel: Colleagues are useful for expertise, but the question asked for resources besides involving colleagues.
❌ Time Order Acknowledgement: Only confirms receipt of an order by the supplier. It is not a substantive negotiation resource like POs or GRNs.

🧠 Summary:
The most crucial resources for supporting a supplier negotiation are documentary evidence—specifically the Purchase Order and Goods Received Note.

📖 Source:
CIPS L4M5 Study Guide – Know how to prepare for negotiations with external organisations

23 What are two advantages of team negotiation?

Teams take a long time to arrive at decisions Teams motivate individuals Teams are always used in negotiations Teams facilitate task performance

✅ Teams facilitate task performance & Teams motivate individuals
Explanation:

Teams share skills, improve decision quality, and encourage engagement.
❌ Long time to decide – Disadvantage.
❌ Always used – Not true; context-dependent.
🧠 Summary: Teams boost performance and morale through collaboration.
Reference: L4M5, Section 7.2.

24 What are the potential sources of conflict between the buyer and the supplier? Select two that apply:

1.Price elasticity of demand
2.Environmental Factor
3.Risk management
4.Stages in the product life cycle

1 and 2 only 3 and 4 only 2 and 3 only 1 and 4 only

✅ 1 and 2 only (Price elasticity of demand & Environmental factor)
Explanation:

Price sensitivity and external environmental issues can create supply instability and disputes.
❌ Risk management – A process to avoid conflict.
❌ Product life cycle – More about marketing than conflict.
🧠 Summary: Market and environmental forces can destabilize buyer-supplier relations.
Reference: L4M5, Section 6.4.

25 Which of the following is considered on-the-job training?

1.Taught workshop
2.Feedback
3.Coaching
4.Anchoring

1 and 3 only 2 and 3 only 1 and 2 only 3 and 4 only

✅ 2 and 3 only (Feedback & Coaching)
Explanation:

Both occur in the workplace during actual work situations.
❌ Taught workshop – Off-the-job formal training.
❌ Anchoring – Negotiation tactic, not training.
🧠 Summary: On-the-job learning happens during day-to-day tasks via guidance and feedback.
Reference: L4M5, Section 8.2.

26 Mike, a junior buyer specializing in purchasing procedures, has built strong relationships within his team and other departments. What source of power is Mike likely to possess?

Personality Coercive Reward Position

✅ Personality
Explanation:

Strong interpersonal relationships reflect referent or personality-based power.
❌ Position – Comes from authority role.
❌ Reward – Linked to giving incentives.
❌ Coercive – Based on penalties.
🧠 Summary: Positive rapport builds influence through personal trust and respect.
Reference: L4M5, Section 5.4.

27 Which negotiation approach is focused on a win-lose outcome?

Collaborative Adversarial Integrative Compromise

✅ Adversarial
Explanation:

Adversarial negotiation is competitive, aiming to maximise own gain at the other’s expense.
❌ Collaborative – Win–win approach.
❌ Compromise – Partial win for both sides.
❌ Integrative – Win–win.
🧠 Summary: Win–lose outcomes align with adversarial, competitive styles.
Reference: L4M5, Section 4.1.

28 Is it ethical to use emotions as a persuasion technique in contract negotiations?

Yes, because failure to comply would push an agreement forward No, because it is not the best way to enhance credibility Yes, because it appeals to the supplier’s goodwill No, because emotions should not be involved in business agreements

✅ No, because it is not the best way to enhance credibility
Explanation:

Ethical negotiation relies on evidence and fairness; emotional manipulation reduces trust.
❌ Appeals to goodwill – Can be manipulative.
❌ Push agreement forward – Pressuring tactic.
🧠 Summary: Emotional appeals undermine credibility and professionalism in contract talks.
Reference: L4M5, Section 6.3.

29 A procurement manager is preparing for negotiation with a major supplier and is withholding important information to gain stronger leverage. Is this appropriate in an integrative negotiation style?

Yes, because it will reveal the supplier’s resistance point Yes, because it will maximize the procurement manager’s outcome No, because this could prevent discovering the supplier’s resistance point No, because this is not being open about requirements

✅ No, because this is not being open about requirements
Explanation:

Integrative negotiation depends on openness to find win–win solutions.
❌ Prevent discovering resistance point – More about distributive tactics.
❌ Yes – Opposite to collaborative principle.
🧠 Summary: Transparency fosters trust and better joint solutions in integrative approaches.
Reference: L4M5, Section 4.4.

30 Break-even analysis helps determine when a business neither makes a profit nor a loss. What formula is used to calculate the break-even point?

Total cost / (planned sales level – variable cost) Fixed cost / (selling price – variable cost) Planned sales level / (variable cost – fixed cost) Variable cost / (total cost – selling price)

31 How can the outcome of a commercial negotiation be assessed?

Reflecting on risk Reflecting on performance Reflecting on letter of acceptance Reflecting on special condition

✅ Reflecting on performance
Explanation:

Reviewing performance evaluates whether objectives were met and what improvements can be made.
❌ Special conditions – Narrow focus; doesn’t assess overall outcome.
❌ Risk – Important to monitor but separate from overall outcome review.
❌ Letter of acceptance – A procedural confirmation, not performance assessment.
🧠 Summary: Outcome assessment measures negotiation success against planned objectives.
Reference: L4M5, Section 7.3.

CIPS Commercial Negotiation – L4M5 paper 1

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