Certified Professional Contract Manager (CPCM) 2025 – 400 Free Practice Questions to Pass the Exam

Question: 1 / 515

What are stipulated damages in a contract?

A fixed sum or formula determined by the parties

Stipulated damages in a contract refer to a predetermined amount or formula agreed upon by the parties involved, outlining the compensation to be paid if one party fails to fulfill their contractual obligations. This concept serves to provide clarity and predictability regarding potential liabilities in the event of a breach.

By establishing stipulated damages in advance, parties can avoid lengthy disputes over the appropriate amount of compensation, as the terms have already been set. This encourages compliance with the contract terms and allows for more efficient resolution of issues that may arise.

While options discussing penalties for late delivery, minimum payments, or variable costs based on performance touch on aspects of contracts, they do not accurately define stipulated damages, which specifically focuses on the agreed-upon monetary compensation regardless of the actual harm suffered.

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A penalty for late delivery

A minimum payment for services rendered

A variable cost based on performance

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