Delivering the Promise of Social Outcomes: The Role of the Performance Analyst

I’ve wanted to write about performance management systems for a long time. I knew there were people drawing insights from data to improve social programs and I wanted to know more about them. I wanted to know all about their work and highlight the importance of these quiet, back-office champions. But they weren’t easy to find, or find time with.

Dan Miodovnik, Social Finance

I worked at Social Finance in London for three months in late 2013, a fair chunk of that time spent skulking around behind Dan Miodovnik’s desk. I’d peer over his shoulders at his computer screen as he worked flat out, trying to catch a glimpse of these magic performance management ‘systems’ he’d developed. At the end of my time at Social Finance, I understood how valuable the performance management role was to their social impact bonds (SIBs), but I still had no idea of what it actually entailed.

Antonio Miguel, The Social Investment Lab
Antonio Miguel, The Social Investment Lab

Then early 2014 Antonio Miguel and I took a 2-hour bullet train ride through Japan while on a SIB speaking tour. On this train journey I asked Antonio to open his computer and show me the performance management systems he’d worked on with Social Finance. Two hours later, I understood the essential components of a performance management system, but I didn’t fully grasp the detail of how these components worked together.

So I proposed to Dan that we join Antonio on the beaches of Cascais in Portugal in August 2014. My cunning research plan was to catch them at their most relaxed and pick their brains over beach time and beers. Around this time I saw a blog written by Jenny North, from Impetus-PEF that mentioned performance management. A call with her confirmed that they were as enthused about performance management as I was. So I drafted a clean, six-step ‘how to’ guide for constructing a performance management system. I hoped that a quick edit from Dan and Antonio, a couple of quotes and I’d be done.

Interviewing Dan and Antonio blew me away. Only when I heard them talk freely about their work did I realise the magic wasn’t in their computer systems, it was in their attitudes. It was their attitude to forming relationships with everyone who needed to use their data. It was their attitude to their role – as the couriers, rather than the policemen, of data.

They told me that there were plenty of ‘how to’ guides for setting up systems like theirs, but that the difficult thing was getting people to read and implement them.

Isaac Castillo, DC Promise Neighbourhood Initiative
Isaac Castillo, DC Promise Neighbourhood Initiative

They suggested I throw out my draft and interview more people. People who were delivering services and their investors. I didn’t just need to understand the system itself, I needed to understand what it meant for the people who delivered and funded services. I gathered many of these people at San Francisco’s Social Capital Markets (SOCAP) conference and several more from recommendations. One of these recommendations was Isaac Castillo, who works with the DC Promise Neighbourhood Initiative’s collective impact project. He is now managing not only his team of performance analysts, but the service delivery team too. It’s revolutionary, but it makes complete sense.

Interviewing these people has been a most humbling experience. It has revealed to me the extent of their dedication, innovation and intelligence. It has also revealed to me how little I knew, and in turn, how little we, as a sector, know about these people and their work. I am honoured to share their stories with you – please read them at

This research is published by The Social Investment Lab (Portugal), Impetus-PEF (UK) and Think Impact (Australia).

logos in row

Seoul Social Impact Bond (SIB)

On February 18 2014 a press release announced a Social Impact Bond for Seoul. It came from the The Department of Women and Family Policy, Office of Children and Young People, Seoul Metropolitan Government who have signed an MOU with Korea Social Investment. This could be the first Social Impact Bond in Asia, with several other countries also exploring the concept. Continue reading

Social procurement: purchasing social value too

A better way of doing business

unemployed boySocial procurement involves additional social value being purchased alongside goods or services, such as the employment of long-term unemployed people. The concept of social procurement has been around in Australia for a few years, but it’s really gathered momentum in recent months and is fast becoming the standard, rather than alternative, way of purchasing. The September 2013 launch of Social Procurement Australasia marks a significant milestone, creating an umbrella-body over several organisations working in this area and provides support and resources to the wider community.

Three examples of social procurement are below:

Western Sydney Parklands

  1. When the Western Sydney Parklands Trust tendered for a contractor to help control the spread of weeds, they included a selection criterion for social program.  This was worth 20% of the total score. The Trust didn’t specify what the social program had to be, offering providers flexibility and ingenuity in what they suggested. The successful contractor was an indigenous employment social enterprise. The Trust understood and accepted that including social benefits may cost them more than a standard contract and had budgeted for this possibility. In a presentation to local procurement officers, they stated that they were pleasantly surprised by the final result and estimated that they were within 10% of a standard contract price. They’ve made a great video about this contract – watch it here.human services
  2. The Department of Human Service (DHS) uses social procurement to drive change. In one tender to clean the common areas of a social housing estate, the Department of Human Services included a specific clause in the tender, requiring the respondent employ 35% of the contract workforce from unemployed social housing tenants living on the estate. This, along with other contracts including security services for the estate, makes a significant difference to the proportion of people that are employed in the estate, increasing confidence, skill and employability of residents and providing more role models for children in the estate. Tendering this way does not preclude commercial organisations, but does influence them to enhance the social benefit of what they do.City of Sydney
  3. Another way social procurement can be achieved is by purchasing from social enterprises (businesses that trade for a social and/or environmental purpose). For example, City of Sydney purchases catering from Yaama Dhiyaan [highly recommended – delicious and generous!] which offers hospitality training to Indigenous and non-Indigenous unemployed people. While this is an example of direct tendering, selective tenders can also be let to a range of social enterprises and not-for-profit providers. The Social Enterprise Finder from Social Traders will help find social enterprises in Australia, in a similar way to the directory for the Buy Social campaign by Social Enterprise UK. Buying fairtrade will ensure a fair price is paid to overseas suppliers, as the National Australia Bank demonstrated with its nationwide switch to fairtrade coffee, tea, sugar and hot chocolate.

Promoting social value through legislation

“There is nothing in any of the Local, State or Federal laws, or the common law, which prevents or limits the ability of either Local or State Government to consider the social outcomes / benefits which might be gained from a particular tender as part of Government’s procurement processes. In fact, in a very real sense both Local and State procurement regulations require these types of outcomes / benefits to be considered in order to achieve the best value for money when assessing tenders.” (Social Procurement in NSW, p.24)

European procurement law is similarly open to the consideration of social outcomes in the assessment of value for money, however in practice non-financial outcomes were overlooked. In an effort to encourage commissioners to more consistently value social value, the Social Value Act has been introduced in the UK.

Social Value Act

The Social Value Act

In 2012, the UK Government passed the Public Services (Social Value) Act 2012 which directs public authorities procuring goods or services to consider how their decision “might improve the economic, social and environmental well-being of the relevant area”.

The Social Value Act has been widely supported by the social sector and has empowered and encouraged social sector organisations to demonstrate their social and environmental impact when responding to tenders. It encourages the inclusion of social value in cost-benefit analyses, an area of confusion previously. Part of the implementation of this Act has been through social enterprises clearly articulating their social value in tender responses, thus educating procurement officers as to the type of evidence they could be considering.

What’s better? Both together!

The Social Value Act relies on respondents including and demonstrating social value, and leaves it to procurement officers to decide how to value this as they assess bids. Social procurement is more proactive and prescriptive in pursuing social outcomes. There is, however, a greater benefit to be realised by having both the legislation and the practice working together.

*For the purpose of this article, no distinction is drawn between procurement and commissioning, with both assumed to describe the entire purchasing process

*For anyone interested in what we can learn from the US, check out AbilityOne

Local Currency: ‘A Direct Assault on Global Trade’

lemonade stand

While HSBC (advertising campaign featured on the right) tells us ‘In the future, even the smallest business will be multinational’, local currencies and the communities that use them are deliberately bucking the trend.

The idea of the local currency is that it can only be spent in local businesses, signalling a commitment to buy locally by the customer, the business and the supplier.

The local currency concept is not new, in fact the WIR bank in Switzerland has been operating since 1934 as a way of providing Swiss businesses with credit and stability, using each other to increase sales and buying power. Annual sales in WIR Francs are now worth billions of pounds a year.

While not of the same scale, local currencies in the US and Europe are continuing to emerge with the belief that social, environmental and economic benefits will ensue.

Who has a local currency?

  • Prien am Chiemsee ‘Chiemgauer’, Bavaria, Germany ‘Chiemgauer’ 2003 begun by an economics teacher and his students, it is growing at 100% per year – expires every three months to encourage circulation.
  • Berkshire ‘Berkshares’, Massachusetts, 2006 ‘envisions a diverse and resilient regional economy that supports and prioritizes responsible production and consumption’
  • Totnes Pound, UK, 2006 ‘Local money helps us think about our local economy, enquiring where our money goes once we spend it and finding ways to keep it from leaking out.’
  • Lewes Pound, UK, 2008 ‘Making Money work for Lewes’
  • Brixton Pound, UK, 2009 now available in electronic form with the ability to pay by text
  • Villeneuve ‘Abeille‘, France, 2010 declines in value over time to encourage spending
  • Pézenas ‘Occitan‘, Languedoc-Roussillon, France, 2010 ‘resiliance’
  • Bristol Pound, UK, 2012 ‘Bristol Pounds stick to Bristol’
  • Oxford Pound, UK, announced in 2013 to support local independent shops

This is not an exhaustive list, there are many more examples from across the world and throughout history!

Buy local

Local currencies are a concrete way of implementing ‘Buy Local’ ideology, which has seen increasing interest. Plymouth Council was one of a group of local organisations that committed to the procurement of local goods and services and reported boosting the local economy by millions of pounds. Across a network of 29 UK communities, Totally Locally emphasises the social benefits of their work: ‘Totally Locally is about people. Great people. People who care about what they do, what they grow, what they make. And people like you who care about what they buy and where they shop.’

San Fran local suppliers croppedLast week I was at an event where the digital currency bitcoins, was discussed. Bitcoins have a transaction log and are controlled by the bitcoin community. It is seeing advantages for particular purposes emerge, such as having evidence of a patent transaction for use if challenged in court. Someone in the audience lamented that electronic payments have removed the social aspect of financial transactions, with some pensioners really missing the physical collection of their pension cheque. Buying locally embraces social, environmental and economic goals in unison. This photo (taken by planwise founder Vincent Turner) from San Francisco shows what has become common in cafés there – a proud list of local suppliers on the wall. These suppliers are not only local but committed to their community and sustainable practices.

Where’s it heading?

Wider recognition and uptake of local currencies are reflected in:

Perhaps in the future all business won’t be multinational. Perhaps in the future we will see a strengthening of this emerging trend to reconnect finance to people and communities.

Fewer criminals or less crime? Frequency v binary measures in criminal justice

The June 2013 interim results released by the Ministry of Justice gave us a chance to examine the relationship between the number of criminals and the number of crimes they commit. The number of criminals is referred to as a binary measure, since offenders can be in only one of two categories: those who reoffend and those who don’t. The number of crimes is referred to as a frequency measure, as it focuses on how many crimes a reoffender commits.

The payments for the Peterborough SIB are based on the frequency measure. Please note that the interim results are not calculated in precisely the same way as the payments for the SIB will be made. [update: the results from the first cohort of the Peterborough SIB were released in August 2014 showing a reduction in offending of 8.4% compared to the matched national comparison group.]

In the period the Peterborough SIB delivered services to the first cohort (9 Sept 2010-1July 2012), the proportion of crimes committed over the six months following each prisoner’s release reduced by 6.9% and the proportion of criminals by 5.8%. In the same period, there was a national increase in continuing criminals of 5.4%, but an even larger increase of 14.5% in the number of crimes they commit. The current burning issue is not that there are more reoffenders, it is that those who reoffend are reoffending more frequently.

Criminals or crime 1Criminals (binary measure) in this instance are defined as the “Proportion of offenders who commit one or more proven reoffences”. A proven reoffence means “proven by conviction at court or a caution either in those 12 months or in a further 6 months”, rather than simply being arrested or charged.

Crime (frequency measure) in this instance is defined as “Any re-conviction event (sentencing occasion) relating to offences committed in the 12 months following release from prison, and resulting in conviction at court either in those 12 months or in a further 6 months (Note: excludes cautions).”

The two measures are related – you would generally expect more criminals to commit more crimes. But the way reoffending results are measured creates incentives for service providers. If our purpose is to reduce crime and really help those who impose the greatest costs on our society and justice system, we would choose a frequency measure of the number of crimes. If our purpose is to help those who might commit one or two more crimes to abstain from committing any at all, then we would choose a binary measure.Criminals or crime 2Source of data: NSW Bureau of Crime Statistics and Research

The effect of the binary measure in practice: Doncaster Prison

A Payment by Results (PbR) pilot was launched in October 2011 at Doncaster Prison to test the impact of a PbR model on reducing reconvictions. The pilot is being delivered by Serco and Catch22 (‘the Alliance’). The impact of the pilot is being assessed using a binary outcome measure, which is the proportion of prison leavers who are convicted of one or more offences in the 12 months following their release. The Alliance chose to withdraw community support for offenders who are reconvicted within the 12 month period post-release as they feel that this does not represent the best use of their resources. Some delivery staff reported frustration that support is withdrawn, undermining the interventions previously undertaken. (Ministry of Justice, Process Evaluation of the HMP Doncaster Payment by Results Pilot: Phase 2 findings.)

I have heard politicians and policy makers argue that the public are more interested in reducing or ‘fixing’ criminals than helping them offend less, and thus the success of our programmes needs to be based on a binary measure. I don’t think it’s that hard to make a case for reducing crime. People can relate to a reduction in aggravated burglaries. Let’s get intentional with the measures we use.

Start a mistakes log

mistakes“No one is exempt from the rule that learning occurs through recognition of error.” Alexander Lowen, Bioenergetics

There’s too many lessons we’re missing out on because of our tendency to only publish good results. It’s perfectly understandable to want to promote wins, but publishing mistakes and what’s been learned from the them may be even more valuable.

Ben Goldacre is crusading against publication bias in evidence based medicine. He is one of the forces behind, an online petition to get all medical trials registered and subsequently all results reported. This is important stuff.

But apart from medicine, those of us involved in designing and delivering social programmes continue to repeat the mistakes of the past, because we simply don’t know enough about what has happened. I’m a strong believer in evidence-based policy, but evidence of policy history and why things failed is rarely captured and shared. Might it be possible for us to value mistakes enough to create incentives for their publication?

Curt Rosengren writes in his blog, the genius of mistakes:

You might even try keeping a mistake genius journal. Not a place for you to berate yourself for how many mistakes you make, but a place for you to actively learn from what has happened. Explore the mistake, explore what insights you’ve gained as a result, and summarize those insights into key points.

One organisation that’s created a ‘mistakes genius journal’ is Givewell in the US, with a section on their website, Our Shortcomings, logging their mistakes and what they’ve done in response. My opinion of the organisation was heightened by this discovery and I thought that this honest recognition and promotion of continuous improvement might have had the opposite effect most would expect from publishing their mistakes. Yes, we’re all worried about tabloid headlines, but wouldn’t it be a little less exciting when it’s not a secret ‘uncovered’, but a quote from the source straight off their public website. Imagine how wonderful it would be if governments and service providers kept similar logs!

As we try to design new services and financial products to address entrenched problems in this emerging social investment market, it would be really valuable to know what didn’t work out for others and most importantly, what they changed in response.

Allia recently showed an exemplary commitment to learning following the closure of their Future for Children Bond, which was the first opportunity for retail investors to invest a proportion of funds in a social impact bond, but failed to raise sufficient capital.

As a first pilot product, the Future for Children Bond has nevertheless been hugely valuable in assessing the retail market for social investment and generating learning about the steps needed to enable it to grow. These lessons will be used to inform the development of future Allia products and will be shared with the sector, together with policy recommendations, in a report by NPC to be published in May.

So here’s to seeing a whole lot more mistakes logs and lessons learned appearing in the public domain – great PR and enhanced social impact – what is there not to like?

Something old or something new?

The social investment market is characterised by new organisations, new programmes, new models of financing, and new cohorts of service users. There is great value in demonstrating the social return of something new, but the risks associated are inherently greater. Investors may therefore require a higher financial return. Investors in innovation often receive valuable media attention, as new programmes are more newsworthy.

Some social programmes have been robustly evaluated as to their effect. These evaluations can cover applications of the programme in different places and to different intervention groups. The culture of developing, defining and trade-marking a social programme such that it has training and resources and can be delivered across contexts is more apparent in the US. With these types of programmes, investors are likely to perceive less risk, as they have data relating to previous effect sizes and the proportion of programmes that achieved them. They also have the organisation that developed the programme providing training, resources and support to the service providers.

The words ‘evidence’ and ‘innovation’ are both commonly used by all parties when justifying involvement in a social impact bond (SIB). In all SIBs, there is likely to be innovation around the partnerships that are formed, the way services are delivered and the people services are delivered to, and the basis on which Government pays – outcomes, There is also likely to be more evidence gathered about the outcomes of a programme than has previously been collected or made publicly available. SIBs are paid for on an outcomes basis, which means that service delivery organisations are free as to how services are delivered. But this is not always the case.

The Peterborough SIB collects performance management data and uses this to improve its services as the SIB progresses. Contracts are renegotiated with service providers annually and changed to better deliver the outcome of reduced reoffending. The NY City SIB for young offenders on Rikers Island is developing a new programme, but its primary component is Moral Reconation Therapy, a model of Cognitive Behavioural Therapy, that has been well researched and has an evidence base. The Essex SIB will deliver Multi-Systemic Therapy and Manchester City Council is looking to provide Multi-dimensional Treatment Foster Care. These programmes also have an evidence base.

So can you have a greater impact if your SIB delivers a programme that is already well-evidenced or can you have a greater impact if your SIB delivers something completely new?

In The Good Investor, Hornsby and Blumberg (2013) argue that potential social return is greater for programmes that have yet to establish an evidence base.

“Investments that lie on the higher sections of the curve are likely to be increasingly characterised by less well tested, less evidenced approaches, but which are innovative, and present the potential for high levels of impact generation (e.g. through effecting a game-change in the prevailing dynamics). Investments that lie on the lower sections of the curve are more likely to be in established approaches and fields of operation, where investors know more what they are going to get, but the impact that stands to be generated is comparatively modest”.

Good Investor

NESTA conceptualises the impact objectives of its funds in its report Standards of Evidence for Impact Investing using the diagram below. They aim to invest in early-stage innovations where both impact risk and potential impact is high, and then reduce impact risk as they scale effective programmes by increasing available evidence (Puttick and Ludlow, 2012, p.7).


It should be noted that well-evidenced programs are not spread evenly across areas of social need, thus reliance on evidence – or programme outcomes that are easily or cheaply evidenced – could create a bias towards investment in certain social issues.

In their 2012 report, From potential to action: Bringing social impact bonds to the US, McKinsey gives three primary benefits of SIBs, one of which is:

“SIBs are a tool to scale proven social interventions. SIBs could fill a critical void: other than market-based approaches, a structured and replicable model for scaling proven solutions has not existed previously. SIBs can give structure to the critical handoff between philanthropy (the risk capital of social innovation) and government (the scale-up capital of social innovation) to bring evidence-based interventions to more people. SIBs can do this by aligning incentives among a broad set of stakeholders and shifting financial risk away from government” (p.7).

The McKinsey perspective may be reflective of a culture of evaluating and comparing social programmes in the US, such that it is possible to chose from a range of proven social interventions to bring to scale. The role of philanthropy as the ‘risk capital of social innovation’ may also apply more to the US than other jurisdictions. The cultural and political contexts of SIB development seem to be driving different assumptions concerning the impact of evidence-based versus innovation models. There may emerge an overwhelming conclusion as to which is the more attractive for a SIB model, but it may be more appropriate for each SIB to respond the objectives of its stakeholders.

Can I SIB this?

SIBsAs interest in SIBs grows and the number of SIBs increases, it can be interesting to explore what could potentially be contracted using a SIB structure.

Can SIBs only be applied to services? If a SIB was used to purchase goods, what would it add? Most payments for goods occur after goods are delivered and deemed to be of a satisfactory standard, which is usually only a short period of time after they have been requested. Grey areas like infrastructure or consulting project might be more interesting to consider. Government has experimented with several variations of performance-enhancing contracts for infrastructure projects including Public-Private Partnerships and bonus payments for on-time completion. However we have yet to see Government tender not for an output, such as a highway or rail line, but for an infrastructure outcome without e.g. the construction of a transport solution so that people in A can get to B at any time of day in less than 30 minutes. Perhaps due to the allocation of land for infrastructure projects, this is something we will never see. Consulting projects are sometimes contracted on the basis of the receipt of a good, such as a report. Will we ever see consultants paid for outcomes such as the improvement in a process if recommendations are accepted and implemented, or the increased confidence of the commissioner to make a decision, or the increase in public understanding on a topic after publication?
Can SIBs only be applied to services with a social impact in the country they are delivered? The name certainly suggests a focus on social impact. There has been discussion of ‘environmental impact bonds’ and there is a history performance-based contracts in environmental management. Social Finance has begun work on ‘development impact bonds’ for the distribution of overseas aid. The Greater London Authority homelessness SIB also makes payments for accommodating homeless people in the countries from which they came.

Can SIBs only be applied to prevention and early intervention? Certainly a shift of funding towards prevention and early intervention services was a key focus in early publications about SIBs, and has been used to justify all SIBs established so far. But does that mean that a SIB could not be used to deliver acute care? The line between prevention and acute care isn’t always so easy to draw. One area that could be suitable for a SIB is palliative care, where the delivery of medical services in the home might be more desirable for the patient and less expensive. It could be argued that these services ‘prevent’ a patient from requiring hospitalisation which is typically regarded as acute care, but palliative services delivered in the home may also be considered acute care. Prison is usually considered ‘acute care’, yet the manager of Her Majesty’s Prison Peterborough has suggested that all prison contracts be made on the basis of a single reoffending outcome, which could easily be structured as a SIB. It could be said that the SIB model will only work financially if the cohort receiving services are predicted to have high future costs to Government, but a SIB could also work if the cohort has high alternative costs to Government, should the SIB not be delivered.

Can SIBs only be applied in a service ‘gap’? There are several reasons it is easier to introduce a SIB into a service gap. It might make it easier to convince government officials to accept the programme, easier to measure a result, easier to deliver and easier to attribute a result to a particular service. But a SIB could be used to deliver an existing contract. The contract could be redesigned with payments based on outcomes that may or may not represent an improvement in the service, depending on how well current services are perceived to be delivered. Or one (or more) of a number of similar contracts could be delivered via a SIB, with payments based on equivalent or improved outcomes.

Do SIBs have to make savings? SIBs may be more attractive to Government or other commissioners if they produce savings. As seen above, however, a commissioner may recontract a service with a SIB in order to improve or account for the outcomes of the service, rather than to create savings.
Can SIBs only be applied to service areas where there is an evidence base? The evidence base of similar programs in a service area enables investors, commissioners and service providers to estimate the potential range social outcomes for their SIB and likelihood of achieving them. They will also use the evidence base to form eligibility requirements for the SIB, to design the most effective service possible, estimate the cost of services, choose partners and providers, and design the measurement system. But SIBs may provide an unprecedented opportunity for Government to try new services or new delivery organisations that don’t have the evidence base, as they only pay if they produce the desired outcomes.

Can SIBs only be applied to a large cohort? If the payments made by Government are based on the outcome difference between cohort and a comparison group, then the group needs to be large enough for this measurement to be statistically significant. That is, there is a high degree of confidence that the effect was due to the services delivered. This was a consideration in the development of the Peterborough measurement system. Subsequent SIBs have introduced smaller cohorts with payments made on individual outcomes as they happen, with payment size reflecting the historical likelihood of outcomes occurring without services.

Can SIBs only be applied to service areas where commissioners want to spend AND investors want to invest AND service providers want to deliver services? Absolutely, the only real constraint to a SIB is that all parties agree to it. This assumption is closely related to the definition of a SIB. There may be service areas that will never be attractive to one or more of these parties. As more SIBs develop, it will be interesting to discover which services these are and monitor any adverse effects on these services and the people who benefit from receiving them. In order to secure the participation of all three parties, they will need to be confident that the SIB will achieve its desired outcomes. It will be easier to agree a SIB if it includes:
• High likelihood that the cohort will want to engage with services
• Eligibility or referral criteria that are clear and objective
• An outcome that can be objectively measured
• A close relationship between the outcome and costs to Government
• Sufficient data to predict the outcomes for the cohort with and without effective services
• A small cost of intervention in relation to potential benefits to Government

Ministry of Justice (UK) innovation pilot invites the market to design new financing mechanisms

This pilot was put on hold (indefinitely) by the new Justice Secretary as he introduced his widespread probation payment-by-results program

In August 2011, Minister for Prisons and Probations, Crispin Blunt MP introduced the innovation pilot programme with

It has, for too long in my view, been held that Whitehall knows best.  I can only imagine how dispiriting it must be for well-intentioned organisations to try to influence the government and come up against what must sometimes seem like an impenetrable barrier…  The government has listened and is not shying away from creating a market for public service delivery that is open to this innovation. 

The briefing presentation that went with this includes:

  • a request for proposals that are of sufficient size for payment and evaluation, focus on outcome measures, create incentives to intervene with the entire cohort and use measurement as a trigger for payments
  • an intention for at least one pilot to result
  • an allocation of £20m for success payments
  • outlines of Peterborough SIB and Doncaster Prison payment by results contracts

Following this, in December 2011, the Ministry of Justice (UK) released an open tender asking organisations to propose both innovative funding and service delivery models to tackle reoffending called Payment by results – innovation pilots. These pilots are on top of six other payments-by-results pilots they are running.

What’s interesting about this?

  1. This is the first tender I’ve seen where a government is open to market suggestions for financing mechanism to reward outcomes. We might see new payment by results mechanisms.
  2. Prior to this, the only government organisation to run a competitive process for a Social Impact Bond had been the NSW Government with their Social Benefit Bonds Trial. This tender goes beyond that and is open to any payment by results financing model.
  3. Innovation = new = increased perceived risk. The Ministry of Justice has a decade-long history of tying payment rewards and penalties to their prison management contracts and was the first government organisation to implement a Social Impact Bond. It also broke ground with its Doncaster Prison payment-by-results contract, where 10% of contract payments are tied to a single reoffending indicator. It will be interesting to see how the risk of new financial mechanisms may be reduced, for example by cornerstone payments or existing programs with strong evidence behind them. Or the risk of new programs may be offset by a more established financial mechanism.
  4. Justice is leading the field in payment by results initiatives around the globe. Employment services contracts used to be the most innovative. Which service area will be next to emerge and how far can payment by results be feasibly extended?

The official tender information on Payment by results – Innovation pilots was released in December 2011. Prequalification questionnaires were submitted in January 2012 and organisations then engaged in developing proposals.

Both lots contain the text:

We seek to develop the market for payment by results through innovative forms of finance and strong involvement from voluntary and social enterprise organisations, including smaller organisations and; as part of the payment by results programme of pilots learn what works and develop a broader evidence base to support design of future policy.
Contract duration is dependent on proposal details. We expect pilots to run for no less than 2 years and no more than 6 years. Up to 20 000 000 GBP has been identified for rewarding successful outcomes of innovation pilots. This funding for outcome payments is for the whole innovation pilots programme. The potential for a small amount of start up funding or working capital is also available. MoJ will consider providing working capital, the precise amount to be negotiated as part of the contracting process.

Lot 1 is looking for programs for short term prisoners that are an

innovative approach to tackling re-offending of offenders who have served a sentence imposed by a Court and have been released from sentences of less than 12 months.

And Lot 2 asks proponents to define their cohort for an

innovative approach to tackling re-offending of offenders; we will accept proposals that focus on offender cohort and any size cohort.

The tender will be awarded to

the most economically advantageous tender in terms of the criteria stated below:

1. Operational service delivery. Weighting 20

2. Commercial financial. Weighting 203. Partnership & stakeholders. Weighting 15

4. Commercial legal. Weighting 10

5. Supply chain management. Weighting 10

6. Implementation. Weighting 107. Human resources & organisational change. Weighting 5

8. ICT & information security. Weighting 5

9. Continuous improvement. Weighting 5

12 points of interest in the New York (Rikers) Social Impact Bond

  1. There was no hype before the Social Impact Bond (SIB) was announced – this is in contrast to other Governments who have announced their intention well before finalising details. Perhaps the deal was developed quickly, which may well be the case with Bloomberg controlling both the philanthropic guarantee and political appetite. Or perhaps the parties didn’t want to announce before they had signed the contracts, avoiding the pressure of having to live up to an announcement of intention.
  2. In addition to a press release, the City of New York released a briefing pack outlining the justification, partners, program and payment terms of the SIB. The terms of Government payment are clearly set out, unlike in the Peterborough SIB. For a new funding mechanism, this certainly promotes understanding.
  3. It’s called a Social Impact Bond- Obama’s administration announced funding for “pay for success” bonds and the NSW Government has branded them Social Benefit Bonds. Using the same term as Peterborough makes it clear that they follow the same model and helps keep related literature together.
  4. Bloomberg Philanthropies guarantees it – they’ve only guaranteed $7.2m of the $9.6m Goldman Sachs investment, but having the guarantee reduces investor risk and may be one of the key factors in getting this deal finalised. It’s not clear under what terms the guarantee is paid or what happens to it if it’s not required. The fact that it’s a grant seems to suggest that MDRC would repurpose it. This also means that like Peterborough, if outcomes are not achieved, there is no payment of public monies.
  5. The Goldman Sachs payment to MDRC is described as a loan – people often ask of SIBs “Are they debt or equity?”. In fact, they are neither, they are multi-party contracts. Payments from Government are due to an outcomes-based contract. The private investor is really buying a futures option. Classification as debt sheds light on how Goldman Sachs will account for this investment. It also may suggest that Goldman Sachs will take a hands-off approach. If this is so, the benefit of investor skills and incentive are not transferred through to the service providers. This transfer has historically been referred to as one of the reasons for involving external investors, but we’ve yet to see a SIB where investors have a relationship with service providers.
  6. Similar to Peterborough, there is a third-party, independent evaluator. This may prove to be an essential feature of all SIBs as they emerge.
  7. The intermediary is MDRC, a research centre – the strengths of MDRC are in program evaluation and design. Intermediaries in other SIBs bring financial investment or service delivery experience to the SIB. In NSW, the intermediary role will be played in part by banks and not-for-profits, as well as by the intermediary Social Finance (no relation to the UK or US Social Finance).
  8. The payment terms state that a 10% reduction in recidivism is the threshold for investors to break even, although when cost of capital is factored in, this will represent a loss. It is not clear what the 10% reduction is in relation to i.e. what the comparison group is. The SIB also uses stepped payment terms, rather than a sliding scale, which is simple and unambiguous.
  9. There is value in being a first mover – the press releases announces the “Nation’s First Social Impact Bond Program”. There is a conflict between the kudos received for being a first-mover and the confidence gained by waiting to see how other SIBs turn out. It will be interesting to see whether SIBs become more popular and mainstream, or whether development of this model will slow once its novelty wears off.
  10. Benefits to nonprofit providers are described in the briefing pack as “a committed funding stream not subject to budget cuts”. The literature that exists on SIBs describes the major benefit to be providers being the flexibility afforded by focusing on outcome, rather than current prescriptive Government contracts. This could be a sign that MDRC will be prescriptive in what it asks of the two providers, or that prescriptive contracts are less of an issue in this jurisdiction.
  11. Is there conflict between innovation and evidence? The briefing pack justifies the SIB as “encouraging innovation in a time of fiscal constraints”. The idea that SIBs encourage innovation by allowing Government to pay only if outcomes are achieved might be one for the long-term market only. At the moment, the reputational risk of failure to all parties and intense media scrutiny has resulted in SIBs providing services with a strong history and evidence-base that may require strict adherence to service models. These services are so safe they would be ideal candidates for a direct outcomes-based contract with a provider. The real innovation occurring here might be in how the delivery partners have to work together towards agreed outcomes.
  12. They’re creating a pipeline – the press release refers to an August 2 request for expression of interest for additional social impact investment projects by the City of New York. This would suggest that a pipeline of proposals will be established, but I haven’t been able to find the request anywhere. It would be interesting to see whether outcomes are suggested and priced, in the manner of the NSW Government, or whether this will be up to the market.