social impact bonds

Changing a Social Impact Bond (SIB) metric mid-flight

Emma Tomkinson Australian Social Benefit Bonds, Social Impact Bonds ,

Social impact bonds are new, so involve a lot of learning on the job. This learning is less that one SIB ‘works’ and another SIB does not, but more about the iterative adjustments that allow for more effective services, more flexible procurement processes, more alignment of incentives in contracts. One aspect of SIBs that is new for many jurisdictions is long-term contracts. Long-term contracts have many benefits to those delivering and receiving services, but in order to respond to information that comes to light over this time, they must also allow for adjustment and termination.

As its second year draws to a close, investors in Australia’s first social impact bond, the Newpin Social Benefit Bond, have been asked to approve an amendment to its payment metrics, so that they more faithfully reflect success for the children and families it serves.

The reason for this is that the metric rewards investors when children in foster care are restored to their families by the court (“restorations”). When developing the metrics, the breakdown of restorations where children would return to foster care (“reversals”) was discussed, but failed to be written into the contracts. The intention of the metrics is to reward social outcomes with financial return, which means that while restorations should result in payments, reversals should not.

The Newpin Social Benefit Bond has two different payment metrics. One that determines payment from government to the delivery charity, UnitingCare, and a different one metric to determine payment from UnitingCare to Investors.

Newpin SBB payment metrics

The problem with each metric and the amendments proposed to rectify these problems are shown below. For original contracts and a more detailed summary of metrics see the bottom of this page.

What is the problem?

  • Metric 1 NSW Government => UnitingCare: a drafting error was made that did not deduct reversals in the current measurement period, only previous measurement periods. So the government does not make payments for reversals that occurred in the previous financial years, but does make payments for reversals in the most recent financial year.
  • Metric 2 UnitingCare => investors: UnitingCare makes payments based on the cumulative rate of restoration of children to their families. This includes restorations that have been reversed and thus does not faithfully reflect success for families.

In the second year of the SIB, several reversals occurred. So all parties wanted to ensure that these were not paid for in the same way as successful restorations. Government and UnitingCare agreed to amend their metric (Metric 1). An amendment to the investor metric (Metric 2) was also sought to limit payments for unsuccessful restorations. In order to change the metrics, all 60-odd investors had to agree to it. They were also given the option of selling their investment. Using the results to the end of May 2015, the amended metric would return 7.5% interest to investors for the year, while the original contract would return 13.5% interest for the year. If investors did not agree to the amendment UnitingCare would have to pay the inflated interest and continue the service with an imbalance between payments from government and the interest paid to investors. This may have led to UnitingCare exercising their termination rights at the end of year 3. A 10% cap on reversals was proposed in order to limit the ongoing risk to investors and increase the likelihood that they would agree to the amendment.

The proposed amendment

  • Metric 1 NSW Government => UnitingCare: change to not paying for reversals that occur within 12 months of a restoration.
  • Metric 2 UnitingCare => investors: change to not paying for reversals that occur within 12 months of a restoration, but only up to a cap of 10% of restorations. If more than 10% of restorations are reversed, then reversals over this cap are treated as successful restorations for the purpose of calculating the interest paid by UnitingCare to investors.

The amendment still leaves us with an imperfect metric.

  1. If the proportion of reversals is above 10%, UnitingCare will make interest payments to investors (based on the cumulative restoration rate) which will include restorations that have been reversed, even though this does not reflect success for the families involved.
  2. If the proportion of reversals is above 10%, UnitingCare will make a success payment to investors that includes reversals over the cap, but for these reversals, UnitingCare will not receive government outcome payments.
  3. There were no reversals in the first year of the SBB and 28 children were restored from the mothers’ centres. In the second year to May 2015 (not a full year), 20 children were restored from the mothers’ centres, and 7 of these restorations were reversed, some being reversals of restorations from the previous year. The reversals at the mothers’ centres represent 15% of cumulative restorations. Therefore reversals for the second year are above 10% of restorations. If the amendment is agreed and applied retrospectively to year two, UnitingCare will pay investors for restorations that were not maintained, and for which they themselves receive no payments.

What can we learn?

There are several key lessons I draw from this experience. Note that every other stakeholder may have a completely different list!

  1. It’s important to be able to learn as you go and respond to new information, allowing for amendments, dispute and termination on fair terms.
  2. Having different metrics determining payments to the delivery agency and payments from the delivery agency means that there is some misalignment of incentives.
  3. The Newpin SBB has a mix of ‘impact-first’ and ‘finance-first’ investors. The 10% cap was a way of striking a balance between them. While the fiduciary duties of those investing through structures such as self-managed super funds and Private Ancillary Funds do not conflict with them making social/impact investments, some perceived agreeing to a lower rate of return as conflicting with their fiduciary duties as trustees.
  4. When contracting for outcomes, enormous attention has to be paid to thinking through all potential scenarios, however unlikely, to ensure the intended social outcomes are reflected in the legal terms.
  5. It is very difficult to reflect the journey of someone through social service systems with a binary measure. The definitions and metrics deem the program as either successful or unsuccessful for children and their families, with no ability to accommodate degrees of success or episodes of care over time.

Update on results to July 2015 (2.25 years of service delivery and second payment to investors)

The amendment was passed by all investors. Without the amendment, the Restoration Rate would have been calculated at 68% and the Interest Rate at 15.08%. With the amendment, the Restoration Rate was calculated at 62% and the Interest Rate paid to investors was 8.92%. If there had been no cap, and all reversals were considered unsuccessful outcomes, the Restoration Rate would have been calculated at 58% and the Interest Rate would have been 5.6%. So the investors did agree to forgo much of the interest that was due to them under the original agreement, but gained over 3% more than if all reversals were treated as unsuccessful outcomes. The difference in the investor interest was paid by the charity UnitingCare. The amount they were paid by NSW Government paid was not affected by this.

Newpin SBB metric - year 2

References

Metrics summary

  • Metric 1 NSW Government => UnitingCare: for Cohort 1 Outcome Payment = (the total number of restorations for all Mothers’ Centres and Fathers’ Centres – the counterfactual restorations) x the amount in payments look-up table. The counterfactual restorations are set at 25% for the first three years and then by a live control group. There are also payments that do not depend on outcomes and outcome payments for other cohorts.
  • Metric 2 UnitingCare => investors: Interest Rate = 3% + [0.9 x number of restorations for all Mothers’ Centres/(number of referrals to Mothers’ Centres– 55%)] subject to:
    • if the Restoration Rate is below 55%, the Interest Rate is nil; except
    • a minimum of 5% is applied over the first three years; and
    • a maximum of 15%.

*Note that investor payments relate only to Mothers’ Centres as they were considered lower risk at the time the metric was developed. The discussion above focuses on Mothers’ Centres only.

Disclaimer: Emma is a retail investor in the Newpin Social Benefit Bond. She bought her parcel from a wholesale investor when the restrictions around types of investors expired. She firmly believes that Newpin does wonderful and important work with families.  

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

Emma Tomkinson Social Impact Bonds, Social Impact Measurement, Social Innovation , , , , , , , , , , , , , ,

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
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 deliveringthepromise.org.

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

logos in row

Malaysian Innovation: Building a Social Impact Bond (SIB) Pipeline

Emma Tomkinson Social Impact Bonds , , , , , , , , ,

Agensi Inovasi Malaysia, part of the Malaysian Government, has embarked on a journey towards Social Impact Bonds that reflects the Malaysian social and policy context. There are three innovative features of their program, ‘Social Service Delivery’, worth highlighting:

  1. Explaining SIBs as a public-private partnership for social good
  2. Creating a market of new interventions to contract via a SIB
  3. Exploring Islamic finance as a source of SIB funding

Let’s explore each of these innovations in turn.

Explaining SIBs as a public-private partnership for social good

Social Impact Bonds were first implemented by an organisation called Social Finance in the UK in 2010. The idea has since generated interest all over the world. The concept can be overwhelming for stakeholders, who seek to understand how far away this model might be from their current reality. In Malaysia, Social Impact Bonds have been framed as the logical next step after the recent introduction of other long-term partnerships and privately financed initiatives (PFIs) towards new infrastructure such as buildings and roads. The 2010 New Economic Model for Malaysia from the National Economic Advisory Council called for ‘academia, business, the civil service, and civil society’ to ‘work together in partnership for the greater good of the nation as a whole’ (Part 1, p. 68). Social Impact Bonds are one vehicle by which these recommendations will be delivered. They are an arrangement where a non-government organisation delivers an intervention that is first financed by private investors who stand to be repaid with interest from government funding if a social outcome is achieved. There are incentives for each stakeholder to be involved (see the Agensi Inovasi Malaysia diagram below).

Diagram of objectives of program

(Agensi Inovasi Malaysia)

Creating a market of new interventions to contract via a SIB

Most jurisdictions that have developed a SIB have first scanned their market for investors, intermediaries and proven or promising social delivery organisations. And then they’ve thought about how to run a procurement process that brings the best of these players together, along with an intervention to achieve a priority outcome for Government. Although procurement approaches have varied, all have rested on the ability of the market to delivery suitable interventions that can be managed by organisations with sufficient capabilities to produce the desired social outcomes. Agensi Inovasi Malaysia has enhanced their opportunity to engage with capable service providers by holding a competition for new ideas in priority areas, and then incubating and collecting evidence on these new initiatives, with the end goal of a Social Service Delivery contract. This is not only a way to provide services that are suitable for the first Social Impact Bonds in Malaysia, but creates a pipeline of evidenced programs for the future.

Social impact bonds emerged in the UK in 2010, with 23 currently in operation. Development plateaued, however, during 2013 and 2014 (see chart below).

SIBs launched white background

In the latter half of 2013, attention turned to the development of a pipeline of SIBs to bring to market. Big Lottery Fund and the UK Cabinet Office are working together on “a joint mission to support the development of more SIBs” through their social outcomes funds totalling £60 million. Social Finance, in partnership with the Local Government Association, has been commissioned to support applicants to their funds and there is also a program of grants for organisations requiring specialist technical support to apply (Big Lottery Fund).

Agensi Inovasi Malaysia will potentially avoid the problems of the UK, by seeding and supporting a pipeline of interventions up front. This pipeline has been created through the ‘Berbudi Berganda: Social Impact Innovation Challenge’ which called for social organisations to submit their ideas for interventions to tackle the priority issues of:

  • youth unemployment
  • homelessness
  • elderly care.

The top 12 organisations won funds and support to implement their ideas, the impact of which will be the subject of action research over their first four months. This research will form the basis of a framework and delivery model addressing the priority issues. The pilot program timeline is below.

Apr 2014 Feasibility study
Sep 2014 Focus group discussion
Oct – Nov 2014 Social Innovation Challenge
Jan – Apr 2015 Incubation
Jan – Apr 2015 Intervention
Jan – Apr 2015 Action research and impact study
2015 Social Finance Policy Framework
2015-16 Model for ‘Social Service Delivery’

The benefits of the competition and incubation approach include:

  • focusing NGO innovation in government priority issue areas
  • government being able to work with NGOs over a longer period of time, thus gaining a better understanding of the ability of the organisation to deliver effective programs and outcomes
  • creating an evidence base that will inform the design of ‘Social Service Delivery’
  • supporting organisations to build and test interventions suitable for a Social Impact Bond.

The Agensi Inovasi Malaysia approach might require more up-front government funding than other jurisdictions have been or will be able to provide. But for a government that has limited experience outsourcing social services, it is a collaborative and supportive way to create a market of interventions that might otherwise not exist.

Exploring Islamic Finance as a source of SIB funding

The potential for Islamic finance to become a source of funding for Social Impact Bonds is significant and has not yet been explored. The Islamic religion obliges its followers to give the zakat, a portion of their wealth to ease inequality and suffering. The total given each year is estimated at 15 times that of global humanitarian aid contributions, and in Malaysia the zakat collected by Government is over US $400 million (Irin News).

Islamic finance includes Musharakah (Joint Venture Partnership), Waqaf (charitable donations), Debt Structure, and Sukuk (Islamic Bonds). A Musharakah could be used as the structure that holds the contracts with other parties. Sukuk could be used for investment, although their flexibility in terms of repayments that are dependent on outcomes will need to be determined. Waqaf could be used to fund a specific fixed cost such as legal fees, extra staff for development of a SIB, software, premises, audit, insurance, performance management or evaluation. The way this could fit into a Social Impact Bond structure is shown below.

Malaysia 2

Conclusion

Agensi Inovasi Malaysia has created a unique pathway towards Social Impact Bonds. Their approach mitigates the risks of implementing the model in a country without a history of outsourcing social services. They have framed this new contracting model in the broader policy context of public-private partnerships, which aids wider understanding of both the model and the objectives of government. By seeding and supporting new programs that address priority issues, the Government will be able to understand and evidence the impact of these new programs, before contracting them for ‘Social Service Delivery’. Finally, the exploration of the role Islamic finance can play in a Social Impact Bond has the potential to be applied in other jurisdictions and extends the ability of Islamic finance to achieve social outcomes.

This blog was written as a result of a project Emma is working on with Agensi Inovasi Malaysia. It describes aspects of their programs that she found interesting and relevant. These are Emma’s personal views and should not be taken as representative of Agensi Inovasi Malaysia or any other organisation. 

Procurement precedents for social impact bonds (SIBs)

Emma Tomkinson Procurement , , , , ,

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

Massachusetts

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

Conclusion

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.

The Peterborough Social Impact Bond (SIB) conspiracy

Emma Tomkinson Peterborough SIB, Social Impact Bonds , , , , , , , , , ,

If you think Social Impact Bonds are the biggest thing to hit public policy EVER, then you were probably horrified at the cancellation of the final cohort of the flagship Peterborough SIB. How is it possible? What does it mean?

Since the news was broken in April this year (2014), I’ve had questions from as far afield as Japan and Israel trying to discover the UK Government’s TRUE agenda. More recently, at the SOCAP Conference in San Francisco in August, it was raised again. Eileen Neely from Living Cities, which has provided $1.5 million in loan financing for the Massachusetts Social Impact Bond was discussing “shut down risk: what happens if one of the parties decide they don’t want to play.”

She said, “In the Peterborough deal in the UK, the government decided that they weren’t going to play any more… so there’s some who say ‘Oh it’s because it wasn’t going well’ and others are saying ‘It was cos it was going too well’ so whichever it is, they decided that they weren’t going to do it, that they weren’t going to go into the next cohort, so what does that mean to the investors?” Eileen made it quite clear “I haven’t talked to any of the participants there, I’m just outside, reading the articles and the blogs …”

I thought it was about time we summarised the evidence for those who continue to ask these questions. Continue reading →

Using SROI for a Social Impact Bond

Emma Tomkinson Social Impact Bonds, Social Impact Measurement , , , , , , , , ,

Social Return on Investment (SROI) and Social Impact Bonds (SIBs) are two ideas that are increasingly mentioned in the same breath. SROI is a measurement and accounting framework and SIBs are a way to contract and finance a service. Both require three common ingredients:

  • the quantification of one or more social outcomes for beneficiaries,
  • a valuation of these outcomes, and
  • an estimation of the cost of delivering these outcomes.

While not a necessary ingredient, SROI can contribute to the design, operation and evaluation of SIBs.

*NB the word ‘outcome’ is used here to represent a change in someone’s life – some readers (particularly from the US) may use the word ‘impact’ to mean the same

SIBs and SROI 1 Continue reading →

Social impact bond (SIB) research questions

Emma Tomkinson Social Impact Bonds , , , , ,

It seems that more and more students around the world are keen to do some research on social impact bonds. Great! But we can do better than ‘Do SIBs work?’ (try defining success first…) or ‘What’s the relationship between financial return and effect size?’ We don’t have the data for questions like this yet, but there are so many other wonderful questions we can be asking. There’s also a lot of data on twitter and in the media that could be used for interesting studies of stakeholder perception and reaction.

If you are a student researching SIBs and would like to be connected with other students, please use the contact form and include your university, level of study and research topic. I will connect you via email with other students around the world. If anyone else has more questions they’d like on this list, please pop them in the comment box.

Some questions

  • What are the effects of publicly announcing a SIB? How does timing affect whether a SIB gets agreed and how long it takes to agree?
  • What are the key characteristics of SIBs that have been announced by haven’t happened? How is this different from those that have happened? What has been the result of these projects e.g. funded by other means, directly commissioned etc.
  • Beyond risk and return: what are investors in social impact bonds looking for and attracted to? On what factors does the success of a SIB fund-raising effort rest? E.g. SVA great brochure, Westpac worked with existing customers, Social Finance builds closer relationships and confidence with investors.
  • Procurement – how do SIBs challenge the assumptions, processes of procurement? Comparison of jurisdictions. Implications for changes in law.
  • What do you procure for i.e. organisation, idea, full blown proposal or service – advantages and disadvantages from cases around the world.
  • Making responses public – e.g. Illinois for their request for information – does this impede or encourage innovation?
  • Appropriation risk (US only?) – how is this quantified, perceived, legislated against and what are the effects of that on a SIB? Conversely, how might the increased profile of a SIB affect appropriation risk?
  • Unstable governments – what are the implications for contractual partnerships in those countries? What’s the financial cost too?
  • Relationship between payment metric, measurement confidence and timing of payments – perhaps already in existing literature on performance-based contracting.
  • The role of guarantees – how does it change perception of what you’re doing by different stakeholders?
  • Who initiates and drives a SIB – how does this shape perceptions of risks and benefits by different stakeholders?

Strongs compressed

Legacy

Alex Nicholls and I published a set of questions in our Case Study: The Peterborough Pilot Social Impact Bond (2013, published by Saïd Business School, University of Oxford) around the often overlooked issue of legacy: what happens when the SIB is over. Not all of these are research questions, but studies that go some way to addressing these broader questions might be useful. The following is quoted directly from the paper.

One key question of a SIB is when and why should it end? Other key questions to consider are set out below from the perspective of each stakeholder typically involved in a SIB:

Government

  • How to institutionalise innovation into future welfare programmes and in the wider social services market?
  • If early prevention is successful, how to maintain and fund preventative services after SIB ends? Do SIBs need to ‘rollover’ to produce sustainable change?
  • How can SIB outcomes data (likelihood, effect size, cost of delivery, value or savings to tax payer, related externalities/proxy outcomes) drive better commissioning across government?
  • How to achieve key outcomes post SIB?
  • How to continue to grow the social finance market to fund welfare services?
  • How to report on and share SIB learning and data more widely?
  • How to calculate savings from SIB interventions?

Investors

  • How to develop a secondary market exit?
  • How to develop a follow-on SIB investment?
  • How to adjust risk and return dynamically to the availability of new information from SIBs in the market?
  • How to tranche investments in a single SIB according to different risk and return profiles and different personal costs of capital?

Service Providers

  • How to ensure continuity of funding of increased capacity?
  • How to institutionalize SIB performance data?
  • How to build capacity to engage in future SIBs?
  • How to manage on-going collaborative relationships?
  • How to disseminate learning?
  • How to leave a community stronger when a service ends?

Intermediaries

  • How to build a pipeline of SIB deals?
  • How to build capacity in providers so that they are stronger for having worked on a SIB?
  • How to continuously innovate?
  • Where to apply SIBs and develop other models that build upon SIB learning?
  • When are SIBs no longer necessary, if ever?
  • How to build a business model, given high transaction costs?
  • How better to segment the investor market to the real, rather than perceived, risk and return opportunities of SIBs?
  • How to manage the involvement of commercial, rather than purely social, investors in terms of expectations of high returns and the potential for risk dumping?

Service Users

  • How to ensure that a service gap does not arise for current participants and relevant future populations/cohorts?
  • How to avoid worse outcomes in the long term?
  • Will improved outcomes be sustained for those who participated in a SIB?

Breakdown of social impact bond investors in Australia

Emma Tomkinson Australian Social Benefit Bonds, Social Impact Bonds, Social Investment & Finance , , , , , , , , ,

There are two social impact bonds in Australia that have raised investment and are delivering services. They have been called “Social Benefit Bonds (SBBs)” by the New South Wales Government, the state government that initiated them. They are the Newpin SBB and the Benevolent Society SBB and both of them work to strengthen families to ultimately reduce the need for children to be placed in care outside their homes. Investment for both deals was open to wholesale investors upon application. One parcel of investment in the Newpin SBB was transferred to a retail investor in August 2014, so is not shown on the chart. Also interesting to note is that the Benevolent Society, the charity delivering services for one SBB, has invested in the Newpin SBB, as well as in their own. A breakdown of investor types for each SBB is below.

Newpin investor breakdown(Source: Presentation by Ian Learmonth, 2013, p.14)

Bensoc investor breakdown(Source: KPMG Evaluation of the Joint Development Phase of the NSW Social Benefit Bonds Trial, 2014, p.30)

Who do you need in government to get a SIB off the ground?

Emma Tomkinson Social Impact Bonds , , , , ,

The social impact bonds (SIBs) so far agreed have displayed striking similarities in how they have been resourced. They have, at a minimum, featured two key roles: (1) the worker and (2) the senior champion. After speaking to most of the people responsible for SIBs agreed across the globe, it appears to me that these two roles are essential to driving SIB development all the way to signing a contract. These two roles are by no means sufficient to achieve a SIB contract, but they are necessary.

The worker

Somebody needs to take responsibility for doing the bulk of the work within the commissioning body. This involves briefing and negotiating with internal stakeholders, acting as secretariat for decision-making committees, collecting and analysing data analysis and liaising with external stakeholders. Imagine this person researching, writing and then physically chasing up decision documents and moving them from one desk to the next. They need the flexibility to work in this way, requiring different processes and a broader scope than those in established roles, and they need to be enough of a risk-taker to keep fighting the barriers to change. They need to enjoy the exploration of something unknown and be naturally inclined to include both internal and external stakeholders on the journey. They cannot do this work on top of their normal day job. People who have performed this role say:

  • “I almost created my own job”
  • “I was never part of the wider set-up – I was never a civil servant within the hierarchy.”
  • “I’m a bit of a square peg in a round hole”

The focus of developing a SIB is to get everyone to agree. Working towards an agreement necessarily involves a range of stakeholders as the project progresses in an iterative manner. Sometimes external service delivery providers, data custodians, other government agencies and investors have been involved in discussions before a government decision has been sought to work on development. Sometimes the government decision is made first and then work with stakeholders sets the direction of the development process. A SIB won’t happen because one person worked very hard, alone at their desk for a long time, they need to be saying, “I’m a networker – I connect with people and get things done”.

All successful SIBs have been driven by people who are passionate about the project, who won’t give up on finding solutions to new problems on a daily basis “it was about keeping the energy going – you can’t recreate that in someone that is not interested”. Several SIB development projects have stalled within public agencies due to the nominated SIB producer rationally declaring this mountain too high to climb.

The senior champion

Doing the legwork on a project that breaks new ground every day is too hard a task if the ‘worker’ also has to justify why they are creating work for everyone by pushing through change. A senior champion is crucial to validate the project and its resourcing, as well as compelling the necessary people at all levels across government to participate in discussions. Interviewees said things like, “My boss allowing me to have time to work on it was absolutely key” or “Having them state this was their pet project opened doors.” The senior champion is also responsible for political negotiation and positioning.

Informal connections may lead to successful formal ones

Vital SIB partnerships have been started in unlikely places. These include parties, running groups and corridors. This reflects the cross-sectoral nature of SIBs and that at the moment, they are built by alliances between first-movers, rather than through established communication channels.

Why are SIBs so difficult for government agencies to develop?

SIBs are difficult because they involve change. Public service agencies aren’t set up to change often – they are structured to maintain huge, vital service systems and every public servant is a dedicated cog in this machinery. SIBs ask for a whole lot of changes at once. The first is the measurement of outcomes and the valuation of those outcomes, such that payment may be made on the basis of measurement. That’s pretty new for most public agencies delivering services. SIBs also involve procurement practices that don’t specify ‘how’ services should be delivered, which can be contrary to traditional risk and quality management practices. Social impact bonds require new ways of thinking and decisions from public service units responsible for legal, finance, procurement, service design and data. And then all the external stakeholders are required to change the way they’ve been thinking and operating too!

The Harvard SIB Lab

The Harvard SIB Lab is a clever model because it recognises the difficulty public agencies have with resourcing SIB development. The Lab rewards successful applicants with someone dedicated to working on the project. This person may or may not take on the role of owner of the work, depending on the person and situation.

Department of Work and Pensions Innovation Fund

This suite of programs, which includes several SIBs, was developed differently to other SIBs so far. An allocation of £30m was made for an innovation fund to explore early intervention programs with young people. The next step was to think about how to distribute this funding and a decision made to tender for ten programs financed by social investment, some of which are SIBs. Public servants involved in this project seem to have been able to do so within their existing roles.