9 Jun 2021, 1:53 p.m.
Social outcomes contracts continue to be adapted globally in diverse economic and political contexts. With over 140 projects launched over 11 countries, and more than $174 million committed as capital, important lessons have emerged from Europe over the past decade. In this blog, I build on learnings from the experiences of developing and implementing social outcomes contracts (SOCs) in five countries: Portugal, Finland, Netherlands, France, and Spain.
With 16 projects launched so far, Portugal has the highest number of social outcomes contracts in Europe. While resource constraints within the public sector provided the original impetus for trying this new tool in 2014, social outcomes contracts are now seen as offering much more. Over the years, they have proven to be a unique opportunity to partner across sectors and jointly build better solutions to prevailing social issues. Innovative solutions are hence at the heart of galvanising SOCs in Portugal, but collaborative working is key for ensuring eventual success in implementation. As Filipe Almeida from Portugal Social Innovation suggested, “The solution needs to be innovative. And implementation must be in partnership.”
While the ambition in SOCS is to pay on outcomes, in reality some of the projects in Portugal have based remuneration to organisations on the provision of receipts for all their expenditure on a project. This deviates from the ethos of an outcomes-based partnership, and leaves room for improvement in future project implementation.
There are currently 4 SOCs in Finland, including some of the largest impact bonds globally (in terms of capital commitment), such as the €14 million KOTO SIB. Localisation has been a key element in the evolution of these SOCs. Problem identification and project design have been guided by local factors, such as market and culture. Mika Pyykko (Director at the Finnish Ministry of Economic Affairs and Employment) recounted meeting almost half of all Finnish mayors while scoping SOCs in Finland. This meant asking 150 out of 300 municipalities what they needed at the local level. Bringing in perspectives from municipalities helped identify overlaps with national priorities and build joint approaches. In addition, it helped inform subsequent social benefit modelling exercises. Co-creation between national and local actors was vital in both creating shared understanding, and defining measures of success.
While the majority of Dutch SOCs focus on employment and training, an upcoming project centres on healthcare. It aims to prevent falls among seniors, to assist independence and better life outcomes. To Ruben Koekoek (Co-founder and Managing Director at Social Finance Netherlands), this is a testament to social outcomes contracts’ ability to convene fragmented resources and stakeholders around a preventative focus. The project has also been pioneering in incorporating crowdfunding, an innovative step to engage the general public.
While reaching the implementation phase in a new SOC project can be a protracted process involving substantial transaction costs, some of these costs can be mitigated by the timely involvement of stakeholders. Outcome payers and intermediaries need to be involved early, so that a clear scope and objective for the SOC can be defined. Service providers and investors can be brought in at a later stage, when there is better appreciation of who can help deliver the project best. Doing this ‘homework’ beforehand can also put outcome payers and governments in a stronger negotiating position and ensure clear focus for the project.
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In France, there is a move towards using corporate proposals to galvanise bottom-up innovation. Recent calls for proposals invite applicants to submit their own ideas for SOCs encompassing a range of policy objectives such as ecological efficiency, equality of economic opportunities, and inclusive economies. Mathilde Pellizzari from the Impact Invest Lab suggested that this pre-definition of policy areas is helpful, as is the commitment of outcome payments prior to launch of calls for proposals. Meanwhile, sharing a template contract has been crucial to assisting applicants and simplifying legal aspects of launching SOCs. However, she suggests outcomes metrics might still have to be determined individually for projects, to retain the diversity and bottom-up perspectives in SOC projects.
Relative to the above four countries, Spain is at an early stage of SOC development. This means that SOCs are still a relatively new concept and have generated some hesitancy from municipalities. Many of these qualms have been around the legal aspects of this tool, and how they fit in with procurement law. As Laura Blanco (based at Spain’s National Advisory Board for Impact Investment) pointed out, this highlights the need to generate buy-in across all levels of stakeholder organisations. Crucially, this includes going beyond senior officials operating at a strategic level to managerial and operational staff, who are fundamental to ensuring successful mobilisation and delivery of projects.
The above five countries offer a range of lessons on successful development and implementation of social outcomes contracts. Ultimately, the success of these SOCs is underpinned by measuring performance and outcomes effectively. While transaction costs of development and measurement remain a perennial challenge in the world of social outcomes contracting, experts argue that these are worthwhile. They suggest that these costs can be a common occurrence for innovative projects, and are not unique to SOCs. Measuring well might be expensive, but failing to measure might prove even more expensive. Finally, these costs might be outweighed by the expense of inaction or future costs imposed by unmet demands.
While European countries are tailoring their approach to SOCs to fit their own particular needs, there are undoubtedly useful insights that can help each other – and the wider global community – to get the most out of social outcomes contracts.