EDGE OF PAGE EDGE OF PAGE

MARGIN MARGIN

CROP MARKS
CROP MARKS

MARGIN
MARGIN

Contracting
for Agile
Finding a better way

July 2019

CROP MARKS
CROP MARKS

MARGIN
MARGIN

MARGIN MARGIN
EDGE OF PAGE EDGE OF PAGE
 EDGE OF PAGE EDGE OF PAGE
MARGIN MARGIN

CROP MARKS
CROP MARKS

MARGIN
MARGIN

CROP MARKS
CROP MARKS

MARGIN
MARGIN

1 | Short headline © 2019 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a
Swiss entity. All rights reserved.

MARGIN MARGIN
EDGE OF PAGE EDGE OF PAGE
 EDGE OF PAGE EDGE OF PAGE
MARGIN MARGIN

CROP MARKS
CROP MARKS

MARGIN
MARGIN

Introduction
In today’s digital market, agility is the magic ingredient. Businesses know they
need to become nimbler and more responsive to market signals, accelerating
development and pivoting quickly when required. Nearly eight in ten UK CEOs
agree they need to act with agility to survive, and over half are actively seeking to
disrupt the sector in which they operate rather than be disrupted.

In order to seize these opportunities, they are What was supposed to be a case study in Agile
turning to Agile. As a way of working, it has can become an exercise in stop-start frustration.
flexibility and responsiveness at its core. However, viable and successful alternative
Through constant iterations and reviews, it models do exist. We have worked with several
increases speed to market and drives up quality. large organisations to overcome the contracting
challenge.
But one of the major barriers to success is a lack
of industry consensus on how to successfully
We believe it’s essential for the
contract for Agile. It represents a fundamentally
different way of working from traditional waterfall customer and supplier to select
development. As a result, we argue, it needs a a commercial model that both
different way of contracting too. appropriately shares risk and
drives the Agile ways of
Time and Materials (T&M) seems the most
working the organisation is
straightforward approach. We estimate that
around 70% of Agile projects are contracted for looking to benefit from.
in this way. However, this leaves customers
carrying all the risk rather than sharing it with The key is for the customer’s Product Owner,
their supplier. The supplier has no compelling Delivery and Commercial teams to work
collaboratively with the supplier to shape

01
incentive to flag quality or productivity issues:
they are being paid for their time regardless of the approach.
the outcome.
In the pages that follow, we set out these
alternative models. In most cases, we believe
All too often, the result is that that a model that better shares risk between the
projects disappoint or simply parties is likely to be a much more satisfactory
break down. The customer splits and productive way of contracting for Agile,
from the supplier, having no benefitting both the customer and the supplier.
recourse apart from termination,
and has to start again.

CROP MARKS
CROP MARKS

MARGIN
MARGIN

© 2019 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of
independent member firms affiliated with KPMG International Cooperative (“KPMG International”), Contracting for Agile | 2
a Swiss entity. All rights reserved.

MARGIN MARGIN
EDGE OF PAGE EDGE OF PAGE
 EDGE OF PAGE EDGE OF PAGE
MARGIN MARGIN

CROP MARKS
CROP MARKS

MARGIN
MARGIN

We need a new way of

contracting for Agile
What are the challenges?
Because Agile is different from traditional waterfall working, the usual ways of contracting can present a
number of issues for the customer. Waterfall projects proceed in a ‘straight line’ with clear sequencing,
milestones and pre-defined delivery outcomes. Contracting for them is therefore relatively simple. But Agile
works through a continual process of review, in a series of small increments or sprints, and with flexible
desired outcomes that may change as the project progresses.
Traditional contracting methods therefore have a number of potential drawbacks for Agile:

01 02 03

T&M contracts don’t Conventional contracting Traditional fixed price

share the risk methods are slow and contracts fail to address
prioritise negotiation frequently changing
over collaboration requirements

T&M is highly flexible but leaves Lengthy fixed scope contracts Traditional fixed price contracts
the customer “carrying the that describe the requirements prioritise the definition of
can” when a third party delivery and outputs in detail can take requirements and a plan above

02
partner fails to deliver. months to draft and focus the collaboration and the ability to
Frequently, agreed quality initial supplier relationship on quickly respond to change. This
thresholds and standards are negotiation rather than overlooks one of the key
not built in. In our view, the collaboration. Again, this is not attributes of Agile – that the
inequality of the risk distribution conducive to the Agile project evolves and may shift
isn’t in the spirit of Agile: it’s got philosophy. its focus as it progresses.
to be more collaborative and
partnership-based.

CROP MARKS
CROP MARKS

MARGIN
MARGIN

© 2019 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

MARGIN MARGIN
EDGE OF PAGE EDGE OF PAGE
 EDGE OF PAGE EDGE OF PAGE
MARGIN MARGIN

CROP MARKS
CROP MARKS

MARGIN
MARGIN

What does In our experience of working with businesses on

contracting models, key lessons learnt are:

successful
Describe the interactions, not the plan:
01
Rather than focusing on a pre-defined plan and set of requirements,
an Agile contract should describe the overall outcomes and the
interactions that will take place between the customer and supplier

Agile contracting to achieve the objective (or, EPIC). For example, how long will
sprints be? How frequently are they envisaged to take place? Will
testing take place within sprints, or outside of them? In this way,
development and prioritisation of the requirements will be conducted

look like?
within a clear framework. Getting clarity on who is doing what and
which Agile ceremonies will be followed (important given the
proliferation of Agile methods out there) will help avoid confusion
down the line.

Define clear quality standards:

It’s easy to find drawbacks in existing 02
practices, in Agile as in anything. But The contract should be clear on quality standards and thresholds.
This means stating when a User Story is ready to enter sprint
what does good contracting actually
planning through a “Definition of Ready” that describes the
look like, in our view? requirements that must be met for this; stating when it is ready to
be deployed through a “Definition of Done” that sets out what
A good Agile contract needs to balance the constitutes the product being production ready; and setting out what
creation of a collaborative culture that allows for level of defects is acceptable post release. The customer needs the
continuous delivery of software and embraces ability to hold a supplier to account for quality – but this should be
change, with the provision of sufficient commercial proportionate to the scope of the work, and is also dependent on the
protection for the customer. It needs to incentivise customer fulfilling its own obligations such as the quality of design (if
all parties to work together and take a shared the customer is responsible for this).
responsibility for success.

03
Set out the commercial principles up front and manage
03 through Governance:
Agree principles up front with the supplier that explicitly describe
how risk will be shared. Define a governance mechanism that
requires the parties to come together if the velocity at which working
software is being delivered or the quality of it falls below the agreed
threshold. In the event the issue is the fault of the supplier, the
customer’s commercial recourse needs to be clearly defined - such
as an increase in supplier capacity at no cost, a financial credit or a
termination right.

CROP MARKS
CROP MARKS

MARGIN
MARGIN

© 2019 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Contracting for Agile | 4

MARGIN MARGIN
EDGE OF PAGE EDGE OF PAGE
 EDGE OF PAGE EDGE OF PAGE
MARGIN MARGIN

CROP MARKS
CROP MARKS

MARGIN
MARGIN

Choose the right

commercial
framework
e.g. T&M, Fixed Price per
Sprint, Outcome based:

There are four main ways of contracting for Agile:

T&M, Fixed Price per Sprint, Fixed Price per Story
Point and Outcome based. Needless to say, the
approach selected needs to be appropriate for the
project, and this will depend on a number of factors.
The approach selected will also drive its own set of
behaviours in both customer and supplier.

04

CROP MARKS
CROP MARKS

MARGIN
MARGIN

© 2019 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network
of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved.

MARGIN MARGIN
EDGE OF PAGE EDGE OF PAGE
 EDGE OF PAGE EDGE OF PAGE
MARGIN MARGIN

CROP MARKS
CROP MARKS

MARGIN
MARGIN

Time and Materials/ Fixed Price Fixed Price per Fixed Price –
capped T&M per Sprint Story Point Outcome based

Pros Pros Pros Pros

Highly flexible with supplier working Supplier can be held responsible for the Similar to Fixed Price per Sprint, but Supplier signs up to delivery of the
under customer direction. quality and volume of what it delivers in supplier is paid based on the number of outcome that the customer is seeking
each sprint. Story Points delivered. to achieve for an agreed price.
Relies on trust between customer and
delivery partner. Simple commercial mechanism-fixed Payment is proportional to the Simple commercial mechanism with
price for the output of a given size of complexity of work delivered. price tied to an outcome
sprint team. Maintains flexibility as
scope is defined in sprint, not up front.

Cons Cons Cons Cons

Customer typically bears the risk of poor Penalties for poor quality can encourage Requires customer and supplier to have Difficult to price accurately without
quality or under performance. supplier to prioritise quality over velocity. a common understanding of what value significant up front work to define
a Story Point represents as typically the scope.
Supplier may be incentivised to sell time, Supplier is only committed to delivery of
they are relative rather than absolute
not to deliver the required outcome. sprint backlog as prioritised by the Product Focus on outcome can reduce the
measures.
Owner, not the wider business EPIC. customer’s flexibility to change
requirements in sprint/programme,
and may require the involvement of
the Commercial team.

When does it work? When does it work? When does it work? When does it work?
Useful for requirements development, Useful for projects where Supplier is Useful where there is a strong common Useful for projects that require the
where the customer is directing supplier responsible for the Scrum team, and in understanding of the value of a Story supplier to be aligned with a pre-
resource in the Scrum team, where which requirements are prioritised on a Point and a desire to pay based on output. defined customer vision that is
there are mixed customer / supplier per sprint basis. Provides commercial sufficiently well documented. Provides
teams or where flexibility is valued protection with consequences if quality commercial certainty.
above commercial protection. and velocity standards are not achieved.

CROP MARKS
CROP MARKS

MARGIN
MARGIN

© 2019 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), Contracting for Agile | 6
a Swiss entity. All rights reserved.

MARGIN MARGIN
EDGE OF PAGE EDGE OF PAGE
 EDGE OF PAGE EDGE OF PAGE
MARGIN MARGIN

CROP MARKS
CROP MARKS

MARGIN
MARGIN

Taking a The best Agile contracts are the product of collaboration between the Customer
Product Owner, Delivery team, Commercial team-and then the Supplier.
In our experience to make contracting for Agile a success, the customer must bring product owners,

collaborative
delivery leads and commercial teams together. This promotes a collaborative environment from the
outset, ensuring that the requirements and associated Statement of Work (SoW) are agreed upon quickly.
Key questions for each role include:

approach
Product Owner Delivery
What are the EPICs, features and user stories to What is the Agile delivery model to be adopted –
be delivered? What approach will be taken to the this could be customer specific, supplier specific
development of the requirements and the design or an industry standard like the Scaled Agile
of the software? What role is the supplier Framework? What are the customer and supplier
expected to play e.g. deliver the end-to-end roles and meeting ceremonies? What behaviours
outcome, support User Story development, or need to be incentivised within the SoW?
act as the software development engine?

Commercial Supplier
What commercial framework best suits the What delivery responsibilities and accountabilities

06
needs of the product owner and delivery lead? will the supplier need in order to accept the
Given the proposed supplier responsibilities desired commercial risk? What dependencies
what is it possible to stipulate in a contract? does the supplier have on the customer and are
What commercial protections are appropriate, these acceptable? What behaviours will the
and how will they influence the behaviours of contract drive, and are these aligned with the
the sprint team? business goals?

CROP MARKS
CROP MARKS

MARGIN
MARGIN

© 2019 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

MARGIN MARGIN
EDGE OF PAGE EDGE OF PAGE
 EDGE OF PAGE EDGE OF PAGE
MARGIN MARGIN

CROP MARKS
CROP MARKS

MARGIN
MARGIN

Our recommendations
As we have seen, there are a number of key principles that we believe
organisations need to embed in their approach to contracting for Agile:

Recognise that Agile Select a commercial Bring together the

contracts need to be framework that is product owner, delivery
constructed in a different appropriate to the scale and commercial teams to
way – rather than of the project, level of develop a contract that
describing the output in requirements and meets the needs of each
detail, describe the commercial protections party, and that will drive
interactions and expected needed the right behaviours in the
quality standards required project team

Whilst T&M will in many cases remain the most appropriate contracting model, in our view
Fixed Price per Sprint provides a valuable alternative - a simple mechanism that holds the

07
supplier responsible for quality, but in which the customer has an appropriate level of shared
obligation too. It combines commercial protection with the flexibility needed for the project
to develop, allowing the business to prioritise the backlog for each sprint without the need to
re-visit the contract.

We believe that it is possible to achieve commercial protection whilst getting the benefits of
Agile, and that sharing of risk between customer and supplier will become the become the
new industry standard – the default position for the majority of Agile contracts in the future.

CROP MARKS
CROP MARKS

MARGIN
MARGIN

© 2019 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of Contracting for Agile | 8
independent member firms affiliated with KPMG International Cooperative (“KPMG International”),
a Swiss entity. All rights reserved.

MARGIN MARGIN
EDGE OF PAGE EDGE OF PAGE
 EDGE OF PAGE EDGE OF PAGE
MARGIN MARGIN

CROP MARKS
CROP MARKS

MARGIN
MARGIN

Case Taking an ‘agile’ approach to sourcing

at Coca Cola European Partners Fixed price
per Sprint

studies
“My teams have successfully followed an Agile
working approach for some time. We’ve made greater
use of Agile delivery across our product portfolio, Coca Cola European Partners (CCEP) wanted to
where it made sense to do so, overcame some steep develop a new contracting approach for Agile,
learning curves, and continuously strived to improve our which both maintained the benefits and
approach with every sprint. However, the one thing we flexibility of Agile, and ensured that its partners
had yet to figure out was how to get better at sourcing were delivering the right quality. This
in an ‘agile’ way. requirement was based on some of CCEP's past
experiences with a Time and Materials (T&M)
Since Coca Cola European Partners is primarily a soft based model, which resulted in a lack of supplier
drinks company and not a software company, we tend focus on quality and a corresponding impact on
to expand our development teams with resources from velocity, as sprints needed to be refocused on
external partners. Typically, the way to source Agile is fixing errors rather than implementing new
through Time and Materials (T&M). However, the features. KPMG worked collaboratively with
problem with T&M is that when something goes
CCEP to:
wrong, we need to take full responsibility, and there is
little incentive for our partners to improve or optimise.
Develop a new approach to
I want our partners to have “skin in the game”, a 01 contracting for Agile, based on a Fixed
shared responsibility for a good outcome, but also give Price per Sprint model
them the chance to innovate, so we are all winners.
That is why we developed a way with KPMG, to
procure Agile development sprints at a fixed cost base. Devise commercial principles and a
02 collaborative way of contracting, which
Consequently, we have greatly improved the achievable
simplified cost management and
and measurable quality of our shippable product,
pushed for shared responsibility for
decreased the financial volatility of our Agile projects,
quality with the supplier
and gained greater collaboration with a governance
model that has clearer roles and responsibilities. We
achieved all this while maintaining the creative freedom

08
Agree a pragmatic approach with its
that our Agile teams need to thrive.“ 03 suppliers for managing instances
where velocity or quality was below
the agreed standards

CCEP has successfully adopted the model with

Kai Uhlemann multiple suppliers to drive improvements in
Director, Collaborative Solutions Sprint velocity and quality, and ensure greater
– Coca-Cola European Partners control over costs. This has led to a greatly
improved Agile process.

CROP MARKS
CROP MARKS

MARGIN
MARGIN

© 2019 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

MARGIN MARGIN
EDGE OF PAGE EDGE OF PAGE
 EDGE OF PAGE EDGE OF PAGE
MARGIN MARGIN

CROP MARKS
CROP MARKS

MARGIN
MARGIN

Fixed price –
outcome based
About KPMG
A FTSE100 general insurer was determined to Turning IT sourcing into your
transform its brown field insurance and IT platform to
enable greater business agility, develop a single view
competitive advantage
of their customers and reduce the cost to run and
change their IT platform. The organisation wanted an We are experts in digital sourcing, and help
Agile delivery method to be adopted, whilst organisations successfully derive greater
confirming certainty of outcome and cost. value from the c.$3 trillion they spend on IT
services globally each year. We deliver this
KPMG provided structure and support to help devise by applying a tested methodology that
a Fixed Price per Outcome approach. We supported supports businesses through the full
the organisation with: procurement lifecycle from understanding
complex requirements to contract and
Selection of the supplier, from RFI to execution. Aligning our deep understanding
01 Down-select of commercial models and robust delivery
framework with our customers’ core
business objectives, we can help them to
negotiate strategic vendor relationships and
Development of the contract, combining Agile implement the digital solutions that enable
02 ways of working with a fixed price for the them to disrupt their industries.
final outcome

Development of the technical roadmap

03 supported by functional and non-functional
requirements development

09
With our help the customer delivered the selection of
an approved System Integrator, an 8-figure
investment approval, an Agile-ready business function,
and upgraded core trading systems supported by
DevOps teams and business automation.

CROP MARKS
CROP MARKS

MARGIN
MARGIN

© 2019 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network
of independent member firms affiliated with KPMG International Cooperative (“KPMG Contracting for Agile | 10
International”), a Swiss entity. All rights reserved.

MARGIN MARGIN
EDGE OF PAGE EDGE OF PAGE
 EDGE OF PAGE EDGE OF PAGE
MARGIN MARGIN

CROP MARKS
CROP MARKS

MARGIN
MARGIN

Contact
Will Ellis
Head of Technology,
Sourcing Advisory
KPMG in the UK
E: william.ellis@kpmg.co.uk
M: +44 20 73114782

Martin Molloy
Partner, CIO Advisory
KPMG in the UK
E: martin.molloy@kpmg.co.uk
M: +44 20 73112323

Jonathan Cohen kpmg.com/uk/Future-of-IT

Principal Advisor, CIO Advisory
KPMG in the UK
E: jonathan.cohen@kpmg.co.uk
M: +44 20 73112345
The information contained herein is of a general nature and is not intended to address the circumstances of any particular
individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that
such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should
Phil Crozier act on such information without appropriate professional advice after a thorough examination of the particular situation.
Partner, Head of CIO Advisory © 2019 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member
KPMG in the UK firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

E: phil.crozier@kpmg.co.uk The KPMG name and logo are registered trademarks or trademarks of KPMG International.
M: +44 20 73111353 Designed by CREATE | CRT115687A

CROP MARKS
CROP MARKS

MARGIN
MARGIN

MARGIN MARGIN
EDGE OF PAGE EDGE OF PAGE