Three good articles today discussing different aspects of the SIB model – happy reading!
The state’s experiment in funding social programs based on their results received a boost Monday when the federal government awarded Massachusetts an $11.7 million grant.
The grant will help expand a program designed to help young offenders who are aging out of the state’s juvenile justice and probation system to ensure that they are prepared to join the workforce and don’t return to prison.
Under the financing plan, called “pay for success” or “social impact bonds,” an organization and its investors spend their money upfront. If their program is successful and saves the state money by, for example, keeping juvenile offenders from returning to prison, the government would use a portion of the savings to pay the organization, usually more than it would get under traditional government contracts.If the program fails to perform as promised, it gets no payments.
Variations on the word “results” have become omnipresent in the development vernacular. Phrases such as results-based management, results-based financing, results framework, results measurement, and disbursement by results abound. And this is for good reason. Vast sums of taxpayer and philanthropic dollars are spent each year to pay for services to support poor and vulnerable populations in developing and developed countries alike. But key challenges remain for advancing a results-driven development sector that is linked to the way in which these services are purchased.
When governments and donors invest in social programs, they typically bear most of the financial and performance risk. They pay for services upfront while measurable outcomes remain elusive. The incentive structure tends to focus on process and input tracking rather than the final results that they wish to achieve. Furthermore, scarce resources tend to be directed first to urgent problems requiring immediate attention, thereby limiting funding for prevention-oriented interventions that are less time sensitive. Some of these early intervention programs can actually save money by eliminating the need for future services. But these savings are difficult to monetize.
Now, imagine a world where governments only buy impact: the final outcomes that get at the root cause of complex social problems. The upfront costs and the financial and performance risk of providing social services are borne by a third party and the government (or donor agency in some cases) only pays based on measurable outcomes.
Social Impact Bonds – A Very New Business Model
The term “Social Impact Bond” or “SIB” is very much in vogue but is often misunderstood. In its strictest sense a SIB is a form of contract between a public sector commissioner, a group of social investors and an experienced service delivery provider, whereby payments will be made by the commissioner for measurable improvements in specifically targeted social outcomes (such as reducing rough sleeping or re-offending rates etc). The main difference between a SIB and the more commonly used Government Payment By Results (or “PBR”) contract is the direct involvement of social investors in a SIB.
The investors in the SIB provide the up-front risk funding and only make a financial return when payments are made by the public sector commissioner on the basis of improved and evidenced social outcomes achieved.
Naturally the Government is very keen to promote SIBs as part of its overall public sector reform agenda because (on the face of it) many of the financing risks are transferred from the taxpayer to the private social investors. If the improved social outcomes aren’t achieved, then the taxpayer doesn’t pay anything and investors stand to lose their investment. However, if improved outcomes are achieved, then everyone wins – including the beneficiary of the service, the taxpayer (who is paying for a positive result) and the investor (who gets a return or gain on their investment).
The UK is undoubtedly a pioneer in the development of SIBs but these are still early days and to date, there are only around 15 SIBs in existence. Those who have commissioned SIBs include DWP, MoJ and one or two forward thinking local authorities including Greater London Authority (GLA) and Essex County Council. The social outcome targets for these early SIBs include; improving employment prospects for disadvantaged young people, reducing rough sleeping in London, reducing re-offending and helping children at risk of going into care.