Did we already have social impact bonds?

SF SIB diagram(Social Finance, Towards a New Social Economy, 2010)

During a recent lecture on social impact bonds for the Saïd Business School’s Executive Education Impact Investing course, one of the students asked me, “Am I already part of a social impact bond?”

Social impact bonds (SIBs) are a new construct, with the term coined in 2008 and the concept piloted by Social Finance in Peterborough in 2010. But arrangements that fit our current understanding of SIBs already existed and continue to operate. For organisations involved in these arrangements, the benefits and challenges of identifying with the SIB phenomenon will determine whether or not they associate themselves with the term.

The lady who asked the question was running a non-profit organisation that had an outcomes-based contract with the Louisiana State Government to provide a service. A loan from a local finance institution helped to cover their working capital.

In order to examine whether she was indeed part of a SIB, we turned to the Cabinet Office definition.

SIB definition2

In this arrangement, the first two conditions were certainly met.

To determine whether the third was, we examined whether her creditor could be considered an investor. Her organisation existed for the purpose of providing the service and the contract accounted for the entirety of their service provision. The loan was made on the basis of this single contract with government. The lender was a legally separate entity from both the non-profit and the government. So it looked like her creditor could be considered an investor.

The fourth condition relates to the financial risk of the investor. Was the finance institution truly taking on any financial risk? Indeed, there were two distinct types of financial risk taken on in this situation. Firstly, there was the risk of non-performance; that the non-profit would fail to deliver the results that would trigger payment from government. Secondly, there was ‘appropriations risk’, the risk that government doesn’t approve the payment of a previously agreed contract [1]. If the non-profit, for either of these reasons, did not receive sufficient funds from the government to pay the loan, they would become insolvent and the finance institution would not have the loan repaid. So the fourth condition was met.

This non-profit was certainly part of a social impact bond as defined by the UK Cabinet Office, although none of the parties involved were using the term.

Other examples that may meet the definition of a SIB but not identify with the term include charter schools, which are independently run with three year contracts based on outcomes. If they establish a bridge loan fund to cover the cash flow gap, they may meet the four necessary criteria. These bridge loans are often used for capital infrastructure spend and the financial risk for the lender is sometimes rated, so certainly exists.


  1. When we assess SIBs and compile data or ‘track record’, it may be worth looking at these existing arrangements that fit the SIB definition.
  2. Organisations that are part of arrangements that fit the SIB definition might consider the benefits and challenges associated with the SIB label (e.g. will appropriation and other payment risks be reduced if the contract is ‘announced’ as a SIB).
  3. The Cabinet Office definition came after several SIBs had already been developed and was not written by the Social Finance visionaries responsible for articulating and implementing the original concept. Does it misrepresent the concept? If so, do we need to change the definition?

[1] Appropriations risk is a feature of the US governmental systems and is described by Steve Goldberg in his fourth SIB Trib: “Even if a state signs a valid contract calling for the payment of money, it doesn’t (indeed, can’t) pay what the contract says it owes unless and until the state adopts an appropriation law specifically and affirmatively authorizing the expenditure. What’s more, legislative authority to appropriate funds only lasts as long as the state’s constitution allows budgets to remain in force. In most states that’s one year, in some, two. So not only does a state have to enact budget legislation and then pass separate appropriations bills to legally spend any money, they can only do the latter within the one- to two-year time horizon of the former” (Goldberg, 2013).

The Justice Data Lab – an overview

MoJ Data LabWhat is the Justice Data Lab?

The Justice Data Lab allows non-government organisations to compare the reoffending of the participants in their programmes with the reoffending of other similar ex-offenders. It “will allow them to understand their specific impact in reducing re-offending… providing easy access to high-quality re-offending information” (Ministry of Justice, Justice Data Lab User Journey p.10). There is no charge to organisations that use the Justice Data Lab.

The Justice Data Lab is a pilot run by the Ministry of Justice. The pilot began in April 2013. Each month, summaries of results and data are published, including Forest plots of all results so far.

Who might use it?

The Justice Data Lab can be used by “organisations that genuinely work with offenders” (Justice Data Lab User Journey p.11). One request will provide evidence of a programme’s effect on its service users’ reoffending. Several requests could compare services within an organisation or over time to answer more sophisticated questions about what is more effective.

This information could be used by non-government organisation for internal programme improvements, to report impact to stakeholders or to bid for contracts. It was set up at the time the Ministry of Justice’s Transforming Rehabilitation Programme was encouraging bids from voluntary and community sector organisations to deliver services to reduce reoffending.

What are the inputs?

Input data are required to identify the service users from a specific program and match them with a comparison group. Information on at least 60 service users is required and the organisation must have worked with the offender between 2002 and 2010.


  • Surname
  • Forename
  • Date of Birth
  • Gender

At least one of the following:

  • Index Date
  • Conviction Date
  • Intervention Start Date [note: feedback from applicants is that this is required]
  • Intervention End Date [note:feedback from applicants is that this is required]

Highly Desirable: PNC ID and/or Prison Number

Optional: User Reference Fields

What are the outputs?

The one year proven re‐offending rate –  defined as the proportion of offenders in a cohort who commit an offence in a one year follow‐up period which received a court conviction, caution, reprimand or warning during the one year follow‐up or in a further six month waiting period. The one year follow‐up period begins when offenders leave custody or start their probation sentence. A fictional example of the output provided by the Ministry of Justice is quoted below:

The analysis assessed the impact of the Granville Literacy Project (GLP) on re‐ offending. The one year proven re‐offending rate for 72 offenders on the GLP was 35%, compared with 41% for a matched control group of similar offenders. The best estimate for the reduction in re‐offending is 6 percentage points, and we can be confident that the reduction in re‐offending is between 2 and 10 percentage points.
What you can say: The evidence indicates that the GLP reduced re‐offending by between 2 and 10 percentage points.

Applicants should note the following requirement: “an organisation requesting data through the Justice Data Lab must publish the final report, in full, on the organisation’s website within four months of receiving the final report.”

I’d be very interested in the opinions of applicants on this requirement. Is it an issue? Does it create perverse incentives?

What are the implications?

The implications are huge. Prior to the Justice Data Lab it was very difficult for non-government organisations to establish a comparison group against which to measure their effect. Evaluations of effect are expensive and thus prohibitive, particularly for smaller organisations. In addition, the differences in their methods and definitions meant that evidence was more difficult to interpret and compare.

This is exactly the type of evidence that developers of social impact bonds find so difficult to establish and will be essential to constructing social impact bonds to deliver  Transforming Rehabilitation services. It is a measure of outcome, which is desirable, but often more difficult to quantify than input (e.g. how much money went into the programme), activity (e.g. what services were delivered) or output (e.g. how many people completed the programme).

New Philanthropy Capital (NPC) were involved in designing the Justice Data Lab and their Data for Impact Manager, Tracey Gyateng, is specifically thinking about applications to other policy areas.

How is it going?

See my November 2014 post on information coming out of the Justice Data Lab.

Also note the announcement of an Employment Data Lab by NPC and the Department of Work and Pensions.

More information

Information on the Justice Data Lab home page includes links to a series of useful documents:

  • User journey document – information on what the justice data lab is, and how to use its services.
  • Data upload template – use this template to supply data to the justice data lab. Further descriptions of the variables requested are given, and there are key areas which must be filled in on the specific activities of the organisation in relation to offenders.
  • Methodology paper – this document gives details of the specific methodology used by justice data lab to generate the analysis
  • Privacy impact assessment – this is a detailed analysis of how an organisations’ data will be protected at all stages of a request to the justice data lab
  • Example report template – two examples of a standard report, completed for two fictional organisations showing what will be provided.

Criminal justice service providers might also benefit from getting involved in the Improving Your Evidence project, a partnership between Clinks, NPC and Project Oracle. The project will produce resources and support, so follow the link and let them know what would be of most use. The page also links to an introduction to the Justice Data Lab – a useful explanation of the service.

The bulk of this post has been copied directly from the Ministry of Justice documents listed above. It is intended to act as a summary of these documents for quick digestion by potential users of the Justice Data Lab. The author is not affiliated with the Ministry of Justice and does not claim to represent them.

What do the Peterborough SIB interim results tell us?

Update: actual results are now out.

First cohort results from the Peterborough SIB were released August 7 2014. The Social Finance UK press release on the results has lots of great information, with a quote below.

“Results for the first group (cohort) of 1000 prisoners on the Peterborough Social Bond (SIB) were announced today, demonstrating an 8.4% reduction in reconviction events relative to the comparable national baseline. The project is on course to receive outcome payments in 2016. Based on the trend in performance demonstrated in the first cohort, investors can look forward to a positive return, including the return of capital, on the funds they have invested.”

Outdated information below:

Peterborough Interim ResultsOn the 13th of June, the Ministry of Justice released interim results from the Peterborough Pilot SIB. The results were seen as very encouraging, although Social Finance stressed that the results “do not measure  reoffending behaviour over as long a period as the Social Impact Bond will be judged and are not compiled on precisely the same basis as will be used by the Independent Assessor during the course of 2014 to determine whether a payment is due.”

What the results do tell us

The results tell us that the reoffending events have improved in the Peterborough cohort as the national average has worsened. We can be fairly confident that the reduction in reoffending is due to the Peterborough SIB, or more specifically the One Service. This in itself is quite an achievement for Government policy.

These results are also an excellent demonstration of the need to have a contemporary comparison, in this case the Police National Computer control group, rather than a historical baseline. If the historical re-conviction rates at Peterborough had been used as the only comparison, it would appear that a 6% reduction had been produced. Using the national comparison group shows that the programme also counters an increasing trend in re-convictions to produce a relative reduction of 23%. The inability of historical baselines to represent the fluctuating environment affecting reoffending is further illustrated when we look at results leading up to the 2010 launch of the One Service. The graph below shows that reoffending by both Peterborough inmates and prisoners across the nation was increasing until SIB services began in 2010, but then reversed in comparison to the national rates.

Peterborough Interim Results 2

What the results don’t tell us

The results do not tease out for us which aspects of the One Service might be more or less responsible for success. So, the results do not tell us if the reduction in reoffending is due to the:

  • use of volunteer mentors
  • voluntary, rather than mandatory, participation
  • long-term nature of the SIB funding
  • flexibility of funding
  • ability to innovate programme delivery to optimise outcomes
  • focus on a single outcome
  • extraordinary skills of the people involved in managing and delivering services
  • continuous evaluation and improvement of the One Service
  • discipline of reporting to external investors
  • alignment of financial and social returns.

The April 2014 evaluation commissioned by the Ministry of Justice from Rand Europe sheds some light on the perceived benefits of the SIB model, including the way the flexibility of funding allows for the service to improve in response to performance management data.

Update April 2014

See 24 April results and press release from the Ministry of Justice stating “Before the pilot, for every 100 prisoners released from Peterborough there were 159 reconviction events annually. Under the scheme this figure has fallen to 141 — a fall of 11 per cent. Nationally that figure has risen by 10 per cent over the same period.”

Toby Eccles blog analyses how well the Peterborough SIB achieved its objectives to:

  • Enable innovation
  • Enable flexibility and focus on outcomes
  • Bring rigour to prevention
  • Better alignment
  • Investment in social change.

And a good analysis of the Peterborough journey and what was learnt is given by the Social Spider here. I have a slightly broader view of SIBs in the context of policy reform, but I like the discussion.


Ministry of Justice, Statistical Notice: Interim re-conviction figures for the Peterborough and Doncaster Payment by Results pilots12 June 2013.

Social Finance, Interim Re-Conviction Figures for Peterborough Social Impact Bond Pilot, press release 13 June 2013.

Ministry of Justice, Mentoring Scheme Reduces Reoffending, press release 13 June 2013.

Vibeka Mair, Peterborough social impact bond has slashed reoffending rates says MoJ, Civil Society Finance, 13 June 2013.

Alan Travis, Pilot schemes to cut reoffending show mixed results, The Guardian, 13 June 2013.

BBC, Prison payment-by-results schemes see reoffending cut, 13 June 2013.

Nicholls, A. & Tomkinson,E. Case Study – The Peterborough Pilot Social Impact Bond – Oct 2013, Oct 2013.

A second social impact bond for NSW Australia

Benevolent Society Social Benefit Bond(Source: The Benevolent Society. “First Charity” refers to the Benevolent Society being the first charity established in Australia.)

On June 14 2013 it was announced that the terms of a second social benefit bond have been agreed in New South Wales, Australia. It will provide services to strengthen 400 families and reduce the need for out-of-home care over five years, beginning October 2013. Press releases were issued by the charity service provider, The Benevolent Society and one of their partners in the SIB, Westpac Institutional Bank. The other partner was a second bank, the Commonwealth Bank of Australia and the involvement in this deal of two of the four large Australian banks has captured media attention. The banks were involved in the construction of the bond as pro bono advisors and are also investors. The Benevolent Society is also investing in the Social Benefit Bond, a move promote confidence in their ability to deliver outcomes. Other investors include institutional investors NRMA Motoring & Services and Australian Ethical Investments.

Investors will provide working capital for the services up-front and the NSW Government will cover all repayments once outcomes have been produced and measured. The social benefit bond also involves financial services firm Perpetual as trustee, a move expected to give investors further confidence in the deal. The role of the intermediary as played by Social Finance in Peterborough and MDRC in New York is not played by any organisation in this arrangement in a comparable way. 

Benevolent Society SBB tiers

The offering closed on Friday October 4th having raised $10m. 40 investors make up the low-risk tier and 17 investors make up the high-risk tier. In contrast to expectations that social impact bond risk needs to be reduced to attract investors, the high-risk tier proved more attractive and sold out much faster.

Once again, we see the NSW Government offering a guarantee, which means that the Government will pay even if the service does not produce the desired outcomes for recipients. In the previous NSW social benefit bond this guarantee was for between 50% and 75% of investor capital. This time it’s 100% of investor capital guaranteed, but only for the low-risk tier of investments, worth $7.5m or 75% of total investment. This may be an investment by the Government in establishing a market and track record for social impact bonds, rather than a model we can expect to see replicated in future years. The $7.5m of the bond with protected capital will also accrue variable returns up to 10%, dependent on outcomes. An additional $2.5m high-risk tier of investment will involve capital at risk, but will offer outcome-dependent returns up to 30%.

Media Coverage

Date Author Publisher Title
14/06/2013 Benevolent Society First charity issues Social Benefit Bond with Westpac and CBA
14/06/2013 Bela Moore Super Review Westpac Institutional and Commonwealth team up to launch social benefit bond
14/06/2013 James Fernyhough Financial Standard Big banks move into SBB space
14/06/2013 Australian Financial Review NSW strikes deal for $10m social bond
14/06/2013 Westpac First of its kind Social Benefit Bond supports efforts to keep families together – paves the way for socially responsible investors
15/06/2013 Clancy Yeates The Age / Brisbane Times Lenders back bond to keep children out of foster care
18/06/2013 Pro Bono Charity Issues Bank-Backed Social Benefit Bond
19/06/2013 Rick Morton The Australian Banks pitch in for $10m bond
4/10/2013 Rachel Alembakis The Sustainability Report Westpac, CBA raise $10 million for Benevolent Society SBB
5/10/2013 Sally Rose The Australian Financial Review NRMA and Australian Ethical buy Benevolent Society bond

This is the second of three social benefit bonds that are the product of a request for proposal issued by the NSW Government in September 2011 and awarded March 2012. The first was the Newpin social benefit bond announced in March and the final bond to reduce adult reoffending is still under development by the Government and Mission Australia, a charity service provider.

(Updated 8 October 2013.)

NSW Newpin social benefit bond – returns to investors


(Social Ventures Australia: Newpin Social Benefit Bond)

The NSW social benefit bond (social impact bond) for UnitingCare Burnside’s Newpin programme is attracting interest from a range of investors, including NGS Super – the first time we’ve seen a pension/superannuation fund sign up to a social impact bond. The Newpin programme is for families with children aged 0-5 and results are measured on the proportion of children in out-of-home care (which includes foster care, institutional care and placement with extended family) that are returned to their families by the courts. This is called the restoration rate.

Eureka Report’s A high-yield bond with social benefits recently revealed the social and financial returns over the seven year social benefit bond as follows:

Restoration rate (r) Return to investor (IRR)
≥ 70% 15%
65% ≤ r < 70% 12%
60% ≤ r < 65% 7.5%
55% ≤ r < 60% 3%
•minimum 5% yield over first three years
•no minimum yield after three years
•75% of capital returned if bond redeemed at four years
•50% capital returned if redeemed after four years

The Newpin restoration rates were 74.5% last year. Their approach to this social benefit bond, to measure their results for a similar cohort for the year prior to the bond, gives social investors information with which to judge the social and financial risk of the investors. Providing this information attracts investors beyond the die-hard philanthropists who have backed the programme from the start.

Funds were raised from 59 investors by Social Ventures Australia (SVA) with a minimum investment of AU$50,000. The SIB was oversubscribed. Below is a breakdown of investment by investor categories as presented by Ian Learmonth, Executive Director, Social Ventures Australia at the 2013 Social Finance Forum in Sydney/Australia.

NewPin SIB investors

Did you get what you came for? Realising social impact bond objectives

shopping basketIn a previous blog, Do SIBs Work?, I listed 22 objectives that have been given for pursuing SIBs as they have been announced around the world. Now I want to examine the achievability (is that even a word) of each one. Some objectives are achieved just by signing the contract to deliver a SIB, but some objectives rest on longer-term outcomes and these are the more interesting. But the conditions of achieving outcomes need to be built into SIBs from the start. If we’re after transparency, then we need to publish terms and results. If we want to shift funding to prevention, there must be a plan to continue funding the SIB preventative service after the SIB is over.

Better programs and better results for the people who participate in them
1. Improving results for beneficiaries by focusing on outcomes rather than outputs

I’d say this is the objective most likely to be achieved. Peterborough doesn’t have its results in, but word on the ground is that providers feel the focus on outcomes has made them deliver better services and participants enjoy the holistic and seamless approach. This may be an objective more easily achieved where payments are based on a single outcome, like Peterborough or Essex, than multiple outcomes like the DWP Innovation Pilots.

2. Improve the likelihood of delivering real and sustainable solutions to important social challenges

For this to happen you need a funding to be sustained – there hasn’t been a whole lot of talk so far of what happens after the SIB, but if the solutions are to be sustained, they’re going to need some continuity of funding. I think the services we’re seeing are real solutions, but we can’t think that solving a problem means it goes away. Solving social problems mean they go away for some of the people for some or all of the time – bettering a situation is noble – thinking you’re going to eradicate is is naive.

3. Making effective interventions available to far more people in need than the number that can be reached through traditional state contracts and philanthropy

This will be achieved as long as SIBs are delivering additional services to those who would otherwise have received little to nothing.

4. Harnessing the innovation capacity of both investors and service providers for publicly funded services

We’re unlikely to get any innovation if the same providers are delivering the same proven programmes – the objective will be achieved if there is room to improve and real changes are made on the ground. Peterborough is certainly delivering on this- not in any of the components of service for participants, but in the consistent and collaborative way they are delivered, so that the impact on their lives is real and sustained.

5. Adding discipline to measuring outcomes for government programs because there is an upfront agreement on how to measure success

This depends how much discipline you had about measuring outcomes before and how much political will there is to improve measurement in government – this may be more applicable to an Australian context where increased use of evidence-based policy is very much on the agenda – Peterborough has certainly introduced a measurement system that was then used in a number of other pilots, but it looks like the new Ministry of Justice probation reforms will revert to the less informative binary measure as it’s perceived as more favourable to Ministers and the public.

6. Improving the evidence base for social services, by mandating measurement and publication of outcomes

Only achieved if the results of the SIB are published along with full evaluations of the programmes that achieved them, ideally including follow-up measurement after the SIB is over. 

7. Accelerating the adoption and implementation of promising programs

Dependent on the programme chosen – was it promising? In all SIBs so far I would say yes.

8. Accelerating the expansion of evidence-based programs delivered by effective nonprofits

This is very much the objective that seems to have been focussed on in the US. You’d have to look at the expansion of programmes like Multi-Systemic Therapy (Essex SIB) and Moral Reconation Therapy (New York SIB) to see how the inclusion of the programmes in these SIBs impacted their expansion rates.

A social finance market
9. Unlocking funds to tackle social issues

We’ve certainly seen new funds committed by Government, and the involvement of an investor like Goldman Sachs suggests new funds (unless it comes from their corporate social responsibility budget).

10. Growing the social finance and social business sector

SIBs have certainly grown interest in the social finance sector and have become a bit of a poster-child. This has occurred at the same time as rapid growth in the social finance and social business sector, so I think it’s fair to assume an element of causal relationship.

11. Providing new financial instruments to harness private investment for the benefit of the community

This is achieved the minute the contract is signed. But in all honesty, if investors don’t receive their capital back, there won’t be any more and the instrument will no longer be viable.

12. Enabling investors to achieve financial returns and social impact

SIBs will either achieve both financial returns and social impact or neither, so this objective is pretty achievable. Some might argue that the measurement of impact is a little on the weak side for some SIBs, but if the measurement system is assumed to be a good indicator of social impact, then this is highly achievable.

13. Increasing funding for prevention and early intervention programs in a sustainable manner

This objective will only be achieved if funding is sustained, but we should all be asking the question of commissioners “What happens when your SIB is finished?”

14. Improving accountability and transparency for publicly funded services

Depends on publication of terms and results – some current SIBs are achieving this better than others – if it’s an objective stated at the start, the public should expect and demand publication of information

15. Allowing governments to accept and measure new ideas from external providers, only paying for the ones that deliver

This is difficult and unlikely to be achieved in the current market. Government’s ability to accept new ideas from the market is often limited by procurement rules, but the DWP innovation SIBs certainly allow 10 new ideas to be tested and compared. Only paying for the ones that deliver? This occurs in the UK, but not so much in Australia where investors stand to receive between 50% and 75% of their funds if services deliver no results at all.

16. Saving Government money

There is no doubt that there is a multitude of benefits to government from being involved in a SIB, but money in the hand is one of the least achievable, unless the services that will experience reduced demand are spot-purchased (i.e. purchased as units of service in direct response to demand). Steve Goldberg defines this as an accounting problem, rather than a savings problem, but governments are constrained within their accounting systems and are thus unlikely to cut anyone’s budget to pay for a SIB. The only SIB we’ve seen where savings resulting from a SIB intervention are used to repay investors is the Essex SIB , although these savings will not cover the cost of the SIB.

17. Lowering risk for government

Financial risk may be lower, but due to media attention, the reputational risk of programme failure is extraordinarily high. As a result, the due diligence undertaken by governments mitigates most of the risks of SIBs before they enter.

18. Savings can be recaptured and reinvested into a permanent funding stream for the program

Highly unlikely – see ‘Saving Government money’ above.

Service providers
19. Increasing accessibility of payment by results contracts

This is a UK objective – in the US many not-for-profits are on these kinds of contracts and in Australia there is a dominance of not-for-profits delivering government contracts for social services, despite there being few payment by results contracts. In the UK, it seems that this objective has been achieved for the SIBs introduced, but the test of whether it opens up broader payment by results contracts will be the upcoming rehabilitation reforms.

20. Giving nonprofit providers a committed, long-term funding stream not subject to budget cuts

This is achieved when contracts are signed and seems a significant contribution of SIBs for providers.

21. Aligning the interests of beneficiaries, nonprofit service providers, private investors, and governments

The SIB contract development process certainly achieves this. The only risk is that some voices around the table are louder than others and some interests are therefore maligned, but that consideration would hold over the development of any contracting arrangement.

22. Facilitated coordination with organisations working on overlapping problems

We’ve seen this demonstrated very well in Peterborough, but it will depend on the delivery structure. In New South Wales, Australia, the government has contracted for results directly with UnitingCare Burnside, a service provider, so they are not mandated to work with other delivery organisations.

Social impact bonds: different places, different motives


world map
[Map sourced from www.freeworldmaps.net]
While all jurisdictions that have publicly expressed interest in SIBs recognise a range of common objectives, each has different drivers and emphases. Common objectives across jurisdictions include increasing focus on prevention and early intervention, allowing Governments to only pay for proven services and building a social finance market. But Australia is highlighting the benefits of measurement, while the UK is using SIBs to enable voluntary and community organisations to access Government contracts and in the US SIBs are being promoted as a means of scaling evidence-based programmes.


At last November’s Social Finance Forum in Sydney, speakers involved in developing social impact bonds (or social benefit bonds as they call them) highlighted the benefits of “innovation, capacity building and using data to measure and improve service outcomes” (Tomkinson, 2012).

In the UK, however, the benefits of social benefit bonds as currently defined by the Centre for Social Impact Bonds are:

• they allow commissioners to attract private investors to fund early and preventative action on complex and expensive social problems
• they enable new services to be tried without commissioners having to pay if they don’t work
• they can help services to adapt so that they have a greater emphasis on prevention
• they can allow greater flexibility for those providing the services to adapt and change the service according to their experience
• they can help charities and social enterprises bid for and manage ‘payment by results’ (PbR) projects – projects where the government pays the provider of the service for the results achieved

There’s much less emphasis in the UK on SIBs’ measurement of outcomes as a means for Government to become more accountable for its spending and increase the evidence base for its wider programmes. There is a transparency and accountability agenda in both jurisdictions, but SIBs have not been promoted as central to this movement in the UK.

In Australia, there’s much less emphasis on SIBs as a means for social purpose organisations to attract funding, perhaps because of the larger size of some charities in Australia and their history of winning Government contracts.

In the US, there seems to be a focus on the use of SIBs as a way to bring evidence-based programmes to scale. This has not been promoted as a key driver for interest in either the UK or Australia, although all jurisdictions have acknowledged that savings can only be realised when effective programmes are implemented at scale.

McKinsey in the US presents SIBs in their 2012 Report in terms of scaling programmes. “SIBs are structured to get proven solutions to scale with no risk to public budgets—governments pay for the solutions only if they work. But despite this risk shifting, a SIB’s structure involves several actors—each charging a fee or return. As a result, this tool is a more expensive way to scale programmes than if government simply contracted directly with a service provider”

Excerpts from public releases in several jurisdictions are presented below.

The Peterborough SIB was initially promoted with an emphasis on:
Service reform: “As part of our radical approach to rehabilitation we are considering a range of payment by results schemes like the Social Impact Bond” (MOJ and Social Finance, 2010)
Collaboration and innovation: “They will enable foundations, social sector organisations and government to work together in new partnerships to define social problems and transform the way many social outcomes are achieved.” (Social Finance, 2009)
Involvement of voluntary and community sector organisations in delivering public services: “We want to actively involve individuals and voluntary and community organisations” (MOJ and Social Finance, 2010)
Increased funding for social purpose organisations: “The Social Impact Bond has the potential to unlock an unprecedented flow of finance for social sector organisations” (MOJ, 2010)
Aligning incentives: “The Social Impact Bond aligns the interests of government, charities, social enterprises and socially motivated investors around a common goal” (MOJ and Social Finance, 2010)
More effective services: “Reducing reoffending is one of the Government’s highest priorities” (MoJ, 2010)
Prevention: “The SiB is designed to fund preventative approaches to social issues” (Social Finance, 2010)

The briefing pack for the New York City SIB put forward the following benefits:
A focus on outcomes: “Investing in outcomes to improve the lives of those in need”
Efficiency of funding: “Government is able to preserve public resources for successful interventions while still encouraging innovation in a time of fiscal constraints. Savings can be recaptured and reinvested into a permanent funding stream for the programme”
More effective services: “Accelerate adoption and implementation of promising programmes”
Accountability and evidence: “Brings added discipline to measuring outcomes for government programmes because there is an upfront agreement on how to measure success”
Increased funding for social purpose organisations: “Nonprofit providers receive a committed funding stream not subject to budget cuts”
Social investment: “Can produce financial returns for private investors, who assume the risk while achieving a public good”
Increased funding for social programmes: “Taps into new funding opportunities”
Risk transfer: “Taxpayers only pay for interventions that work”

The Essex County Council SIB was released with the following justifications in the press release:
Service reform: “Social Finance hopes that the Essex Social Impact Bond will catalyse systemic change in public services for vulnerable adolescents”
More effective services: “new social care model to deliver improved services and support for our most vulnerable young people”
Sustained funding for service providers: ‘Stable funding from the Social Impact Bond allows us to work with Essex County Council over the longer term to produce real results that will benefit children, families and communities”
Innovation: “Essex has always strived to be innovative and forward thinking and it is this attitude that has allowed us to explore social investment.”

The Government of New South Wales, Australia, has outlined its interest in SIBs on its website.

“• A focus on outcomes rather than outputs: Under traditional purchaser-provider arrangements, Government payments typically attach to units or blocks of service rather than the outcome the Government is seeking to achieve. In contrast, SBBs provide a direct financial incentive to focus on and improve the outcome in question. This change benefits both the Government and providers: the Government gets better outcomes, while providers are relieved of burdensome reporting to Government about service inputs and outputs, and instead are free to focus on delivering the outcome in a way that best suits their own approach and preferences.
Additional resources towards early intervention: Releasing Government funds for prevention and early intervention can be difficult when resources are oriented towards acute and crisis services. SBBs allow an expansion of investment in early intervention through the use of upfront private funding. If successful, this reduces later demand for acute services and frees up Government funds, part of which can then be used to repay investors.
Innovation: Payment for results, rather than delivery of a prescribed service, frees service providers and investors to explore different ways of achieving better results. Providers have the flexibility to change service delivery approaches or experiment with a number of approaches at the same time. Investors have an incentive to work with providers to drive performance; for example, by encouraging providers to abandon approaches that are not achieving results and supporting them to find and implement new approaches.
Improving the evidence base: SBBs will be more attractive to investors if they are backed by evidence that indicates that the proposed interventions will be successful. Further, the link between payments and results necessitates the robust measurement of outcomes. These features increase locally relevant evidence and data for future policy makers. By improving measurement in these areas, the Government believes that other social policy areas will benefit as well.
Accountability and transparency: The focus on clear outcomes measurement in SBBs ensures that there is clarity about what NSW Government funding is achieving, and when.”

Do Social Impact Bonds (SIBs) work?

Do Social Impact Bonds (SIBs) work?

I’ve heard this question asked (and answered) quite a lot recently.
Every time, I just think ‘work at what?’

Does a SIB work if it manages to get three parties in a room to sign a contract and agree on a price for one outcome? Therefore, can a SIB be said to have worked before it begins to operate?
Does a SIB work if outcomes are improved for the beneficiaries involved? If money flows from governments to investors?
Does a SIB work if a service provider has correctly under-estimated its ability to change an outcome?
Does a SIB work if the majority of people involved in it report a positive experience?
If governments save money?
If governments get better value for money?
If service providers feel they are better able to pursue their mission?
If we learn?
If we change?
Or perhaps SIBs work if we don’t need them anymore in 5 years!

I’ve listed below 22 reasons that have been given for SIBs as they have been announced around the world. Success could be defined by any of these points.
Better programs and better results for the people who participate in them
1. Improving results for beneficiaries by focussing on outcomes rather than outputs
2. Improve the likelihood of delivering real and sustainable solutions to important social challenges
3. Making effective interventions available to far more people in need than the number that can be reached through traditional state contracts and philanthropy
4. Harnessing the innovation capacity of both investors and service providers for publicly funded services
5. Adding discipline to measuring outcomes for government programs because there is an upfront agreement on how to measure success
6. Improving the evidence base for social services, by mandating measurement and publication of outcomes
7. Accelerating the adoption and implementation of promising programs
8. Accelerating the expansion of evidence-based programs delivered by effective nonprofits
A social finance market
9. Unlocking funds to tackle social issues
10. Growing the social finance and social business sector
11. Providing new financial instruments to harness private investment for the benefit of the community
12. Enabling investors to achieve financial returns and social impact
13. Increasing funding for prevention and early intervention programs in a sustainable manner
14. Improving accountability and transparency for publicly funded services
15. Allowing governments to accept and measure new ideas from external providers, only paying for the ones that deliver
16. Saving Government money
17. Lowering risk for government
18. Savings can be recaptured and reinvested into a permanent funding stream for the program
Service providers
19. Increasing accessibility of payment by results contracts
20. Giving nonprofit providers a committed funding stream not subject to budget cuts
21. Aligning the interests of beneficiaries, nonprofit service providers, private investors, and governments
22. Facilitated coordination with organisations working on overlapping problems

Do SIBs work? What do you mean when you say “Do SIBs work”?

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