Procurement precedents for social impact bonds (SIBs)

There are many ways to procure for a SIB. The following examples of procurement processes have been chosen to demonstrate variation. The advantages and disadvantages of each are context specific – if you are developing a new procurement process you might want to think about whether each variation promotes or hinders your objectives.

I the word ‘procurement’ to refer to any of the means by which governments might ask external organisations to deliver a service under contract.

Please refer to the source information if you are producing further publications – I have tried to faithfully summarise each procurement process, but my interpretations have not been checked with the parties involved. Happy to accept corrections or suggestions.

Ontario, Canada

Deloitte won the initial RFP is currently in the final stages of that contract, with an Ontario Government decision expected in the next few months. An interesting feature of this process is the parallel ‘internal’ and ‘external’ streams, where public servants are proposing their outcome ideas at the same time as people in the market are also proposing. External ‘registrations’ of interest were called for in the following priority areas:

  • Housing – Improving access to affordable, suitable and adequate housing for individuals and families in need.
  • Youth at Risk – Supporting children and youth with one or more of the following: overcoming mental health challenges, escaping poverty, avoiding conflict with the law, youth leaving care, Aboriginal, racialized youth, and other specific challenges facing children and youth at risk, for example employment.
  • Employment – Improving opportunities for persons facing barriers to employment, including persons with disabilities.

procurement Ontario

New South Wales, Australia

In New South Wales we suffered from locking ourselves out of developing the idea with organisations over the 6 months it took to run RFP and negotiate the contracts for the next stage. We did not agree a maximum budget or referral mechanism until the joint development stage – we asked for organisations to come up with these as well as a full economic and financial model in their RFP. None of us who were involved in designing the procurement process feel we got it quite right, yet given the opportunity, we would all redesign it in different ways! (See NSW Treasury page on ‘Social Benefit Bonds’)

procurement NSW

Procurement timeline:

November 2010 NSW Government commissions a feasibility study from Centre for Social Impact
February 2011 SIB Feasibility Study report submitted  and published
March 2011 State government elections and change of government (left to right)
September 2011 (due Nov) SBB Trial Request for Proposal released
March 2012 3 consortia announced joint development phase begins
March 2013 Newpin Social Benefit Bond contracts agreed
June 2013 Benevolent Society + 2 banks Social Benefit Bond contracts agreed

New York City, USA

An interesting feature of the New York City SIB development process was that service delivery partners were procured for first, and started delivering services while being involved in developing a SIB for future financing of the service.

procurement New York City

New Zealand

The New Zealand process appears to be the only one where the government procured for the intermediaries and service providers separately. It is not yet clear what the benefits of this might have been or how they will be matched up.

procurement New Zealand


Several US states have followed a similar procurement process to Massachusetts, which first involved a Request for Information from organisations external to government. This approach allows the market to shape government thinking and recognises that there may be social issues and intervention types that government hasn’t previously considered. Some jurisdictions have accomplished this with less formal consultations e.g. Queensland Government’s cross-sector payment-by-outcomes design forum and Nova Scotia Government’s cross-sector SIB Working Group.

procurement Massachusetts

Massachusetts Selection Criteria:

  1. Government leadership to address and spearhead a public/private innovation.
  2. Social needs that are unmet, high-priority and large-scale.
  3. Target populations that are well-defined and can be measured with scientific rigor.
  4. Proven outcomes from administrative data that is credible and readily available in a cost effective means.
  5. Interventions that are highly likely to achieve targeted impact goals.
  6. Proven service providers that are prepared to scale with quality.
  7. Safeguards to protect the well-being of populations served.
  8. Cost effective programs that can demonstrate fiscal savings for Government.

Department of WOrk and Pensions UK

The Department of Work and Pensions developed a ‘rate card’ for payment per individual outcome for their procurement. They asked organisations to choose a subset of outcomes to deliver, nominate a price per outcome and the intervention that would achieve them. A social impact bond structure was not mandated – seven out of the ten chosen programs involved external investors. The following process occurred twice in 2012:

procurement DWP

DWP Rate Card: DWP pays for one or more outcomes per participant which can be linked to improved employability. A definitive list of outcomes and maximum prices DWP was willing to pay for Round 2 is:

DWP rate card

Saskatchewan, Canada

This process may be followed if an unsolicited proposal is received. An interesting feature of the Saskatchewan SIB is that the investor has also signed the contract with government.

procurement Saskatoon

Essex, UK

The process of developing the Essex social impact bond is described in Social Finance’s Technical Guide to Developing Social Impact Bonds. Social Finance worked closely with Essex County Council to research and develop a SIB, with the final step being procuring for a service provider.

procurement Essex


Governments need to think about which information need to be included in a procurement document. For example, if it is desired that organisations external to government come up with completely new service areas, then a procurement process that does not state the social issue to be addressed or contracting department might be suitable. But information and constraints that are known should be included in a tender document. It’s simply irresponsible to have a criminal justice organisation spend time working on a response offering intensive services for 30 female offenders if there was never any possibility the SIB was going to be in justice, or with female offenders, or with a small group of people.

Key questions when procuring for a social impact bond (SIB)

While SIBs can be brought to government through unsolicited proposals (in jurisdictions that allow this), most governments will procure for a SIB by going to market and asking for organisations to respond. (This approach to market is usually called a tender or Expression of Interest or Request for Proposals or something else with a different name but similar meaning.)

The question is, what to procure for?

  • an outcome?
  • an intermediary?
  • a service provider?
  • ideas for procurement?
  • ideas for SIBs that could be constructed in the future, should procurement proceed?
  • an organisation to tell government what to procure for?

The first step for government is clarifying its objectives in pursuing a SIB. SIBs are a catalyst for change, but different governments use them to change different things. (See analysis of stated objectives for the first few SIBs.) The objectives of government will make a big difference to how procurement is approached. For example, if a key objective is rigorous measurement of attribution, then a large population and randomised control trial might be required. If a key objective is to adequately fund small providers in remote locations to work together to help their communities, then ‘roadshows’ for awareness, accessible information and additional resources for capacity building might be part of the procurement process. If long-term funding for outsourced social programs is a big change for government, then it may require legislative change or significant work with internal government stakeholders to understand and manage perceived risks.

The main decisions government will need to make in deciding a SIB are:

  • Social issue area / Contracting department
  • Payment metric e.g. number of reconviction events or number of days happily employed
  • Maximum budget OR value per payment metric
  • Period of time over which budget will be deployed
  • Cohort / Referral mechanism

These decisions can be made before an approach to market, or after responses have been received. Some jurisdictions have asked their markets to suggest responses to almost all the above decisions, and some have made almost all of them internally before approaching the market.

The final decision is which organisation to contract with, which is usually (but not always e.g. Peterborough, Saskatoon) the result of a procurement process.

I haven’t spoken to anyone so far who thinks their procurement process was perfect, so let me know if you find one where all stakeholders agree it’s good!

Governments going to market with as much of the draft contract as possible may help speed and clarify the process. A lot of the contract will be relevant to most situations, so provision of basic clauses provides clarity and allows negotiation time to be focused on the issues that are new.

The following questions might be useful for governments to ask themselves when approaching procurement:

  • What are we trying to achieve or test?
  • Does it matter how much investors stand to return?
  • Does it matter how many organisations are involved in delivering the SIB and what their relationship is?
  • Does it matter how money flows?
  • What really matters to us?
    • service improvements in difficult areas?
    • innovation in services for populations of service failure?
    • a service model that can be used in other locations or service areas?
    • savings?
    • a shift of focus into preventative services?