Further resources on developing SIBs are available in the Technical Guides section of this website. As the practice of developing and implementing SIBs is constantly evolving, we have designated this and other GO Lab guidance materials as ‘beta’ documents and we warmly welcome any comments or corrections. We will regularly review and update our material in response. Please email your feedback to firstname.lastname@example.org.
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A social impact bond (SIB) is one form of outcome based commissioning. What differentiates SIBs from other forms of outcome based commissioning is the involvement of social investors to cover the upfront capital required for a provider to set up and deliver a service. The service is set out to achieve measurable outcomes established by the commissioning authority, for example a Local Authority or a central government department, and the investor is repaid only if these outcomes are achieved.
The first social impact bond (SIB) was launched in the UK in 2010, and since then over 36 SIBs have been implemented, with many more in the pipeline. Worldwide over 90 SIBs have been launched or are under development in countries such as the United States, Canada, Australia, Japan, the Netherlands, Portugal and Israel.
In financial terms, a SIB is not technically a bond. Bonds generally have an unconditional and guaranteed rate of return, while a SIB is entirely contingent on performance and rates of return may vary. As financial instruments, SIBs are more aligned to project financing, but with the investors carrying significant direct risk of non-performance and sheltering service providers from all or some of the risk of non-payment. More definitions of key terms are available in our Glossary.
Social impact bonds sometimes use experts to provide specific services. Confusingly these are typically all referred to as “intermediaries”, but encompass at least four quite different roles.
The Big Lottery Fund have developed a directory of organisations that can provide support on developing a social impact bond, which can be accessed here.
In many cases it will not be possible to determine whether a project has delivered according to the objectives of the commissioner without conducting an independent evaluation. Performance management processes measure whether the service has delivered against a narrow range of indicators, but it does not conclusively evidence that the new service is effective and good value. Decisions will need to be made early on about the scale and form of evaluation required for a particular SIB programme. This includes whether it should be commissioned externally or conducted in-house, either partially or wholly.
Further guidance on developing an evaluation strategy and pursuing an externally commissioned evaluation is provided in our Evaluation how to guide.
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Government is increasingly looking to test innovative approaches to managing demand, improving value for money and tapping into new sources of funding, such as social investment.
The social impact bond model has emerged in response to these challenges, and it builds on the government’s commitment to foster more cross-sector collaboration with the voluntary and the private sectors to tackle complex social problems. In this context, SIBs can be seen as a funding mechanism that allows VCSE organisations to deliver a payment by results contract without shouldering financial risks, whilst also unlocking private capital, as well as the expertise of social investors.
Unlike other public service commissioning models, the measurement of social outcomes is a necessary component for a SIB, since this functions as the trigger for payments by the commissioning authorities and is the basis on which investors are repaid. As such, SIBs are seen as an innovative tool for delivering better social outcomes whilst ensuring value for money for public spending.
Some of the most often cited benefits of using SIBs include:
Unlocking future savings by investing more up-front. SIBs enable government to focus on prevention and early intervention services that might otherwise not get funded. This helps improve the life chances of the most vulnerable people in society and reduces the demand for public services in the long term.
Improving value for money of public spending. SIBs ensure government only pays for interventions that are effective and provide a clear measure of what has been spent to deliver that impact. It provides the potential for a better quality of accountability for public sector spending, by fostering a culture of robust performance monitoring and evaluation.
Collaboration and cross-sector expertise. Service providers often have a deep understanding of a particular cohort of people and the type of interventions that are effective. Socially-minded investors may have both finance and contract measurement experience, as well as a desire to have a social impact. SIBs allow commissioners to bring together these complementary competencies. Much of the qualitative evaluations of SIBs indicates that those involved see significant value coming from the collaboration of investors and providers, combining operational expertise with a robust approach to evidence-led management and scrutiny of performance.
Driving innovation and agile working in the social sector. SIBs shift financial risk of new interventions away from the public sector, towards investors and service providers, resulting in innovation and diversification of service provision. Unlike traditional outsourcing where contracts are designed around a presumption of existing expertise, SIBs are designed for contracts where all parties accept a level of uncertainty and the need for change. This balances accountability for achieving outcomes, with the flexibility to innovate and try out new methods of delivering services.
Voluntary sector engagement. One of the originating policy arguments for SIBs is that they level the playing field for voluntary, community and social enterprise (VCSE) organisations in delivering payment by results contracts. This remains a principal consideration where social value and the strengthening of the VCSE sector, as well as economic value, are seen as key priorities.
Better quality of evidence. The legacy of a SIB, where there is a focus on impact evaluation as well as measurement of outcome, is that the commissioner can make a much better informed decision around future spending.
Some analysts have argued that SIB practice to date has not always lived up to some of the early promises made by the proponents of this approach. The criticisms levelled against SIBs include:
Although the evidence of improved impact is not yet sufficient for SIBs overall, the GO Lab has identified a theory of change for SIBs - namely that they have the potential to improve outcomes by addressing three key public service challenges:
More evidence is needed to determine if this theory of change holds up in practice.
Well-designed SIBs ensure value for money through a number of mechanisms:
N.B. Attribution refers to the extent to which changes in outcomes of interest can be attributed to a particular intervention. Deadweight refers to the outcomes which would have occurred without a policy, programme or intervention. Further key definitions are provided in our Glossary.
As a form of contracting, social impact bonds can be technically challenging to develop and place additional demands on commissioners. SIBs should be designed to provide better value to commissioners than any available alternative, and commissioners of SIBs should make an evidence-based business case for choosing SIBs over other funding models.
While it is likely that the development process will become easier as the market matures, some of the current challenges to setting up SIBs include:
Social impact bonds are not suitable for all social policy areas and in many cases more traditional approaches to funding services continue to be more appropriate. To ensure the suitability of a SIB approach, a number of conditions must be met, including:
Detailed guidance about determining the viability of a SIB approach is available in our Feasibility technical guide.
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In the UK, SIBs have been used to fund solutions to complex social problems, often where there is a high per person cost. Globally, SIBs have also been used for environmental problems and in tackling issues such as refugee support. In the UK, SIBs coalesce around the following areas of policy/service, partly because of the terms of co-funding programmes, but also because the characteristics of the cohorts and cost of services makes SIBs a viable and appropriate approach:
Essex County Council launched a £3.1m Social Impact Bond
to deliver a five year Multi-Systemic Therapy (MST) programme to 380
adolescents at the edge of care in Essex so that they can remain safely
at home with their families. MST is an evidence-based programme with
30 years international track record and is being provided by Action for
Children, a leading children’s charity that supports the needs of the
most vulnerable children and families in the UK. The Social Impact Bond funds two MST teams over five years to
deliver a five month family intervention at home. They equip families
to manage future crisis situations, improving parenting and rebuilding
positive relationships within the family and between the family and the
wider community. Action for Children is operating under a traditional
fee for service contract with risk of intervention failure transferred to
the investors, and away from the local commissioner.
It’s All About Me (IAAM) is the first nationwide SIB to find families for harder to place children. The IAAM programme is delivered by six Voluntary Adoption Agencies: Action for Children; Adoption Matters NW; After Adoption; Caritas Care; Family Futures and PACT. The programme will aim to register approximately 250 children who are looking for adoptive families, and find stable adoptive placements for at least 198 of these. As a result, these children have a greater chance of better long-term outcomes than if they had remained in the care system (to be tracked via a ten-year evaluation), and the commissioning local authorities will save money through reduced fostering fees and social worker costs.
DCLG announced in 2016 the launch of a £10 million Social Impact Bond programme to drive innovative approaches to tackle entrenched rough sleeping. This programme will allow local areas to develop holistic and multi-agency approaches to put in place the right support to help long-term rough sleepers move off the streets and into stable accommodation. The programme is designed to work with rough sleepers who have been homeless for a lengthy spell, including recurring periods of moving between the streets and accommodation. This includes those currently living on the streets and those who have become trapped in a repeat cycle of homelessness.
Local Authorities interested in commissioning a Social Impact Bond programmes were invited to submit bids (individually or as part of a partnership bid) and the successful areas were announced in December 2016. It is envisaged that the locally commissioned SIBs will be up and running by Quarter 3 of 2017/18.
Funding will be paid to successful bidder using a payment-by-results model. The broad metrics are:
Ways to Wellness is a service for people in the west of Newcastle whose daily lives are affected by certain long-term health conditions. GPs and their primary care teams use social prescribing to refer patients to the service. Ways to Wellness adds to and complements the medical support that people receive, to help them feel more confident to manage their long-term conditions and make positive lifestyle choices.
The aim of the service is to improve patients’ quality of life and reduce their use of mainstream health services by enabling them to lead healthier lives and better manage their conditions. It will also reduce the cost of meeting their needs, particularly to the Newcastle West Clinical Commissioning Group (now part of Newcastle Gateshead CCG) and other parts of the National Health Service (NHS).
The Reconnections Social Impact Bond (SIB) aims to directly reduce loneliness and isolation for 3,000 people over the age of 50 in Worcestershire. Reconnections is the first SIB in England aimed at reducing loneliness and social isolation. Worcestershire County Council (WCC) and three Clinical Commissioning Groups co-commissioned Reconnections. Nesta is the main funder and Age UK Herefordshire and Worcestershire is the main provider for the SIB. The SIB facilitates access to services to reconnect these individuals with their communities to reduce loneliness. The improved health and wellbeing of beneficiaries is expected to deliver more than £3 million worth of savings to the public sector over 15 years. The maximum amount of outcome payments attached to the SIB is £2 million based around a key payment outcome of an improvement in levels of loneliness.
Teens and Toddlers is a SIB in its second contract period. Young people with low self-esteem, low educational attainment and lack of positive role models are more likely to not make a successful transition into work, training or education, and are more likely to become parents at an early age. Teens and Toddlers targets two groups of vulnerable children simultaneously, raising the aspirations of young people (age 13-17) by pairing them as a mentor and role model to a child in nursery in need of extra support. The service is funded through savings linked to tackling youth unemployment.
One Peterborough was the first ever Social Impact Bond in the UK and the contract has concluded. It was designed to reduce reoffending among short-sentenced offenders leaving prison and was measured by a reduction in the number of re-conviction events. The One Service was an umbrella organisation designed to respond to the complex needs of offenders to help them break the cycle of reoffending. Over five years of operation, support from the One Service was offered to two cohorts of 1000 short-sentenced male prisoners for a period of up to 12 months post-release. Engagement was voluntary but the whole cohort was included in the measurement of the results.
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Establish whether tackling a particular social issue lends itself to a SIB or outcome commissioning approach
Development of a full business case that demonstrates the additional value and impact delivered by the new service and commissioning approach
Identify/procure service provider(s) and investors (raise capital); negotiate and sign contacts, mobilise the service
Deliver the service and manage performance; make changes to service as necessary; make payments
Evaluate impact of the service
Our Commissioning Journey provides further information and resources on the stages of development of a social impact bond.
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There are currently three broad types of contractual structures, but it is worth noting that in practice the design of the contractual arrangements in a SIB can vary greatly in terms of the roles and responsibilities of the organisations involved, depending on the capacity, expertise, and risk appetite of these parties, as well as the type of contract and number of participating providers, commissioners and investors. Please see our guide on Contracting & Governance for more detailed information and practical advice.
Often a Special Purpose Vehicle (SPV) is created as a conduit for funds in the deal. An SPV is a legal entity (usually a limited company) that is created solely for a particular financial transaction or to fulfill a specific contractual objective. Investor funding is channeled into the SPV, which enters into a contract with the commissioner. The SPV then acts as the delivery body for the service and SIB through an appointed director.
An SPV is appropriate when there are multiple investors and providers as it mitigates the need for each party to contract individually with one another. Furthermore, it minimizes the level of on-going engagement required of each of the parties involved in the SIB as the SPV is responsible for financial management.
The service provider contracts directly with the commissioner and the service provider takes responsibility for the reporting on the performance of the contract. Where investment is required, the investor will contract with the provider. The provider may set up a subsidiary or project entity and in some instances, investors may co-invest through that entity.
An intermediary (usually a social investment intermediary or intermediaries) establishes a special purpose vehicle (SPV), and is the contracting party with the commissioner.
The SPV will manage the performance of service providers and may engage more than one provider in delivery. There may be one or multiple investors with a stake in the SPV and it may also hold operational expertise and seek to hold contracts (share resources) with multiple commissioners.
A service provider acts as the prime contractor for multiple delivery partners and takes responsibility for overall performance management. Where investment is required, the service provider will contract with a social investor.
2009 – Government commits to piloting Social Impact Bonds as a new way to fund third sector service delivery (‘Putting the frontline first: smarter government’, HM Government, 2009)
2010 – Peterborough One Service SIB launched (prisoner rehabilitation)
February 2011 – Government publishes strategy to grow social investment market (Growing the social investment market: a vision and strategy, HM Government, 2011)
May 2011 – The Department for Work and Pensions (DWP) launches £30 million Innovation Fund (10 SIBs, youth employment and education)
July 2011 – Government sets out its vision for using Payment by Results as part of wider reforms to public service provision (‘Open Public Services White Paper’, HM Government, 2011)
April 2012 – Launch of Big Society Capital (with specific purpose to grow the social investment market)
Nov 2012 – Cabinet Office launches £20 million Social Outcomes Fund
Nov 2012 – Cabinet Office launches Centre for Social Impact Bonds
2012 – The Department for Communities and Local Government (DCLG) and the Greater London Authority launch two SIBs (rough sleeping)
Nov 2012 – First SIB commissioned by a local authority is launched in Essex (children in care)
July 2013 – Big Lottery Fund launches the Commissioning Better Outcomes Fund
2013 – First UK-wide SIB is launched (It’s All About Me Adoption SIB)
2014 – Two SIBs for children in residential care launched by local authorities in Birmingham and Manchester
2014 – DWP announces £16 million Youth Engagement Fund (4 SIBs, youth employment and education)
Dec 2014 – DCLG launches £15 million Fair Chance Fund (7 SIBs; youth homelessness)
March 2015 – Ways to Wellness SIB launched in Newcastle (social prescribing)
May 2015 – Reconnections SIB is launched in Worcestershire (social isolation and loneliness)
September 2015 – First Collective Impact Bond (West London Zone) is launched (early years)
June 2016 – Mental Health Employment Partnership SIB is launched in Staffordshire (mental health and employment)
July 2016 – Government announces the Life Chances Fund
Oct 2016 – DCLG launches Rough Sleeping SIB Fund
April 2016 - DfE announces the launch of the Children's Social Care Innovation programme (Care Leavers SIB fund)
2017 – HCT Travel Training SIB is announced (travel training for children and young people with special educational needs)
July 2017 - The final impact evaluation of the Peterborough One Service SIB shows that the service has cut reoffending rates by 9 per cent, 1.5 percentage points above the target set by the Ministry of Justice
October 2017 - Mayday Trust launch 'Be the Change', the first SIB for people experiencing homelessness in England where the local commissioners are the primary outcomes payers
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As a new form of commissioning, developing social impact bonds does place additional demands on commissioners, and can be technically challenging at first. At the same time, the potential benefits of this approach have prompted a growing number of local authorities to explore and engage with the model, providing examples of how to adopt new practices and share learning.
The GO Lab offers advice and support to local authorities interested in exploring social impact bonds models of service provision. The GO Lab team provides a wide range of support activities and resources, specifically tailored to the needs of local commissioners.
If you are interested in pursuing a SIB either as a commissioner or a service provider here are some suggested first steps.