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Social impact bonds (SIBs): the basics

An overview of the essential concepts and operating mechanisms in social impact bonds

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This page provides a succinct introduction to social impact bonds (SIBs) for public sector commissioners and other practitioners who are seeking to gain a general understanding of SIBs and their core operating mechanisms. 

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  

Chapter 1

What are social impact bonds?

4 mins read

An overview

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.

Social impact bonds (SIBs) are projects that incorporate non-governmental investments paid according to the achievement of social outcomes through a payment-by-results contract, with services typically provided by social sector organisations.

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.  

See our Projects Database for more information on the SIBs launched to date in the United Kingdom. A comprehensive Impact Bond Global Database developed by Social Finance UK can be accessed here.  

Note on terminology

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.

Key stakeholders

A social impact bond can be understood as a three-way relationship between public sector commissioner(s), service provider(s) and investor(s), with capital flowing between the three parties. 

SIB diagram
  • public sector commissioner (or outcome funder) seeks to improve social outcomes for a target population and commits to pay if the desired outcomes are achieved. 
  • Or, a provider develops a new service proposition and offers it to commissioners.
  • A business case (sometimes called a feasibility report) is developed and approved by key internal and external stakeholders, that identifies the potential value and impact of the new service.
  • There is a procurement exercise to appoint service provider(s), or an intermediary organisation who will manage the provider and report on performance. A social investor will engage as part of the intermediary organisation or as part of the service provider supply chain. 
  • Start up funding is raised from social investor(s) to cover the operating costs of implementing a service targeted at the achievement of those outcomes. Investors will usually take on the majority of the risk around the performance of the service (i.e. they stand to lose their investment if outcomes are not achieved) and, depending on the contractual arrangements, they might have the right to change the service provider in the event of non-performance.
  • The results of the service are regularly measured and the overall impact is evaluated against a “counterfactual” which is a measure of what would have happened if the new service was not implemented and a key measure of the comparative impact and value of the SIB for the commissioner.
  • Depending on the level of improvement in social outcomes, the public sector commissioner then makes outcome payments, which reimburse the original investors. Investor returns can vary according to performance delivered, often up to a capped amount.
  • If the service is successful in achieving the outcomes as defined by the commissioner, the commissioner may achieve budget savings that partially or fully offset the cost of outcome payments, depending on their priorities and the nature of the service.
  • If the intervention fails to secure the prescribed social outcomes, the commissioner does not pay and the investors lose their investment. Providers may share some of the performance risk with the investor.
  • Before the completion of the programme, the commissioner needs to consider whether continuity of the service needs to be ensured for the service users or whether exit plans are required. Building on the evidence base acquired through the SIB, the commissioner might choose to re-commission the service, scale up the delivery or, in case of failure, cease the service provision (where the service is not a statutory duty of the commissioning authority).
  • Intermediaries

    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.  

    • A consultant who supports the commissioner to develop a business case for the project that secures internal and external approval to proceed to procure and implement the new service
    • A social investment fund manager who manages a fund on behalf of social investors and manages the project with commissioners
    • A performance management expert, who reports on the performance of the SIB, providing an independent source of information and scrutiny to investors and the commissioner. This might be required if there is a perceived conflict of interest in the provider measuring and reporting on their own performance, or if the provider lacks the skill to deliver the standard of reporting required by stakeholders
    • A special purpose management company that brings together other parties in a contractual relationship and holds the contract directly with the commissioner 

    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.

Chapter 2

Why use social impact bonds?

6 mins read

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.

Principal strengths of the SIB model

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.  

Potential downsides and limitations of SIBs

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:

  • They can be expensive to develop. SIBs are complex and demand a quality of capacity and commitment that is not readily available in the public sector or could detract from other services
  • They do not foster genuine innovation in service provision (as most SIBs deliver services that are backed by an existing evidence base)
  • There is a lack of transparency on cost and investor return post-procurement making it difficult to determine whether SIBs offer value for money
  • SIBs are an act of “financialisation” (a process whereby both macro-economic and public policy making are sub-ordinated to financial sector interests) of the public sector and involve the perverse incentivisation of the philanthropic and non-profit sectors to pursue commercial interests over their social missions
  • It is unclear whether a strong focus on results change the public service ethos or merely lead to a narrow mechanical determinism in service delivery    

Further reading

Outcome based payment schemes: government’s use of payment-by-results. National Audit Office. 2015

Social Impact Bonds. State of play and lessons learnt. OECD. 2016

The potential and limitations of social impact bonds. Brookings Institute. Emily Gustafsson-Wright. 2015

Narratives of Promise, Narratives of Caution: A Review of the Literature on Social Impact Bonds. Policy Innovation Research Unit. Alex Fraser et al. 2016

SIBs as a tool of public sector reform

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:

  • structural impediments (fragmentation of services)
  • temporal restrictions (reactive public services, rather than investment in prevention)
  • cultural inertia (a risk-averse culture)


  • Outcome based commissioning and SIBs facilitate collaboration across multiple commissioners and within provider networks. Pooled outcome budgets can enable collaboration across organisational boundaries.
  • Service activities can ‘wrap around’ service users, responding flexibly to their needs by integrating a range of relevant support services.


  • Well-designed SIBs could enable an invest-to-save approach by channelling investment into interventions that prevent future problems and can potentially generate savings
  • Social investment potentially facilitates the dual-running of services so that ‘upstream’ interventions can be introduced


  • Well-designed SIBs can enable risk transfer from commissioners and providers, which may enable the adoption of new interventions, enhance performance management capabilities, and build the evidence base upon which to make future commissioning decisions.

More evidence is needed to determine if this theory of change holds up in practice.

SIBs Theory of Change

Value for money

For many commissioners value for money is the overriding priority for the project. 

Well-designed SIBs ensure value for money through a number of mechanisms:

  • The payment by results element ensures commissioners only pay for outcomes that are achieved rather than provision of services
  • Given the requirement for evidence on outcomes achieved, SIBs contain a natural evaluation element. Applied adeptly in the longer term, this allows organisations to build evidence around ‘what works’ and ensures future interventions can achieve greater value for money
  • The development of a SIB includes elements of cost-benefit analysis, ensuring interventions are supported by a robust business case

Value for money triangle

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.

What makes SIBs an attractive model?

For commissioners:

  • Potentially more cost-effective approach to tackling complex social challenges
  • Transfer of financial risk
  • Harnessing innovation in service provision
  • Robust outcome measurement and performance management
  • Aligning interest across different levels of government (co-commissioning)
  • Delivering a programme of change to the way a service is provided

For service providers

  • Ability to access Payment by Results contracts and to scale interventions
  • Opportunities to develop new services and generate evidence of impact
  • Greater flexibility in delivering and adapting services
  • Receiving a committed, multi-year funding stream
  • Working with consistent goals and support to build evidence base

For investors

  • Achieving blended returns: social and financial
  • Building a portfolio of projects where they have confidence in the service providers’ ability to deliver impact
  • Enabling investment related to their social mission
  • Introducing a metric for impact

Development challenges

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:

  • Development and transaction costs; long lead time for designing and managing a SIB contract effectively
  • Complexity of designing a robust outcome framework and agreeing on metrics and payment structures
  • Agreeing on the most appropriate evaluation method
  • Designing a payment mechanism that offers appropriate incentives
  • Availability of reliable and timely data

Core feasibility criteria

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:

  • Meaningful and measurable outcomes can be articulated for a defined cohort of service users.
  • Outcomes can be achieved in a limited contractual period.
  • It is appropriate to give service providers the freedom to deliver the service in accordance with their own methods.
  • The outcomes being paid for can be clearly attributed to the impact of the service.

  • The value of the payment, adjusted for performance, is sufficient to reward the provider and investors for the cost and risk of providing the service.
  • The value of the outcome to the commissioner is equal or greater than the cost of the outcome payments or generates some alternative qualitative benefits.
  • The risk of the payment scheme creating perverse incentives for the provider (e.g. opportunities to unfairly select service users or otherwise to game the system) can be managed or designed out.
  • The service can be contracted to an external party without breaching statutory public sector obligations.

  • The service delivered through outcome based contracting is more effective than alternative fee for service models. 

Detailed guidance about determining the viability of a SIB approach is available in our Feasibility technical guide.

Chapter 3

Areas of policy or services where SIBs have been used

4 mins read

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:  

Children in care or on the edge of care

For example:

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. 


For example:

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.


For example:

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:

  • engagement
  • accommodation
  • employment
  • education
  • engagement with Mental Health support
  • engagement with Substance Misuse support

Read more

Long term health conditions

For example:

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).

Mental health & unemployment

For example:

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.

Youth engagement

For example:

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. 


For example:

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.

Distribution of UK SIBs by policy area

UK SIBs by policy theme
The diagram above shows the distribution of SIBs by policy area in England and Wales (as of September 2017).

Chapter 4

Stages of development

1 min read

The approaches to developing Social Impact Bonds are constantly evolving, depending on the context and organisations involved. Generally speaking though, the development process of a SIB will follow these stages:


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.

Chapter 5

SIB structures

3 mins read


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.

p23 replacing Model A - Direct.png


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. 

p23 replacing model B - intermediated.png


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. 

p23 - replacing model c - managed.png


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

Chapter 6

Getting started

1 min read

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.

  • Check the feasibility of developing a SIB for the social issue you are seeking to address. Our Commissioning Journey provides a step-by-step guide to all the key actions and considerations required throughout the development of a social impact bond. Book an advice session with the GO Lab team to discuss your project proposal. 
  • Find out whether there are government outcome funds available. The Government seeks to catalyse the development of scalable and replicable SIBs, by making available to Local Authorities outcome funds such as the Life Chances Fund. The Life Chances Fund provides detailed policy guidance about setting up SIBs in specific policy areas, including examples of models that may be replicated by Local Authorities.
  • Talk to specialist advisors or intermediaries: the GO Lab website hosts directories of advisors and social investment funds. Early conversations about ideas are recommended and welcomed by organisations and it starts relationships that will be crucial to the successful development of the project.