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The National Lottery Community Fund has recently published the latest Update Report from the evaluation of the Commissioning Better Outcomes (CBO) Fund. Neil Stanworth, Director of ATQ, GO Lab Fellow of Practice and one of the co-authors of the report, highlights some of the key findings.

The CBO Fund is funded by the National Lottery Community Fund, with a mission to support the development of more SIBs and other outcomes-based commissioning models in England. The Fund launched in 2014 and closed to new applications in 2016, although it will continue to support projects through co-funding outcome payments until 2023. Like the similar Life Chances Fund which followed it, the CBO Fund supports SIBs developed locally by both commissioners and providers, in a variety of forms, at widely different scale and across numerous policy sectors. 

Ecorys and ATQ have been evaluating the Fund and the projects it has supported since its launch, and will continue to do so until the Fund ends.  The evaluation allows us to look at specific projects in depth – see this earlier blog by Sam Magne of the National Lottery Community Fund about two such reviews.  But also, through our Update Reports,  we can look more broadly at common findings, drawing on both the in-depth reviews and other work, notably stand-alone surveys of key stakeholders in SIBs.  And since we have produced these reports at intervals, with a baseline “State of Play” report in 2014 and a first Update Report in 2016, we can also look at key trends and developments over time.

The findings of the report 

The scope of the Update Report makes it hard to summarise in a blog, and I would urge everyone interested in our findings to read either the full report or its executive summary. There are also shorter reports picking out key findings likely to be of most interest to commissionersproviders and investors; and a separate report on the findings from our survey of these three key stakeholder groups, which is one of the largest of its type and includes the views of 91 commissioners, 77 providers and 18 social investors.

Perhaps the most important single finding – which will not surprise those who follow impact bonds closely – is what might be termed the “infinite variety” of SIBs.  As numbers grow, so does diversity, across sectors, commissioning and delivery models, and financial structures.  We are a long way from ‘one size fits all’, and closer to ’50 shades of SIBs’.  As much of GO Lab’s own research has found, people are finding new ways to use outcomes contracts supported by external social investment to achieve often very different objectives.

The upsides and downsides of impact bonds 

Looking in more detail at the upsides and downsides of impact bonds, the clear message from our research is that the main benefits lie in the availability of ‘upfront’ funding from investors – which enables commissioners to pay only for outcomes achieved rather than all services delivered, and (sometimes) relieves providers of financial risk; and the creation and embedding of a more outcomes-focussed culture, especially among providers – a theme that is emerging more widely as noted in Nigel Ball’s recent blog on ten years of impact bonds.  Commissioners, providers and investors all tell us that this focus on outcomes is beneficial.

On the downside, the disadvantages seem to remain much as they have always been, but we now know a good deal more about them. In simple terms, impact bond projects and contracts take a long time to develop and put in place and cost a good deal of time and money – although most of those we have consulted agree that they appear to be worth it. Some solutions are emerging to these challenges – notably replicating contract models that have already been proven elsewhere, in whole or in part.  But even with replication the challenge remains that by their very nature impact bonds tend to be complex and require both early and ongoing engagement of a wide range of stakeholders, and detailed agreement on contracting arrangements between at least three and often several more parties.  

A collection of reflections  

Overall, our research shows that most stakeholders who have implemented or considered SIBs – an important qualification since many have not – are giving them a qualified thumbs-up.  Commissioners like the up-front funding for services that would otherwise have been too risky or unaffordable in the current climate; service providers can deliver services that would not have been commissioned otherwise; and investors have seen positive social and financial returns.  And everyone believes a positive focus on outcomes rather than activities is a good thing.  

However, mainstream adoption of impact bonds still appears some way off. Awareness has increased but they are still niche, only a small number of people have a detailed understanding of them, and they rely on subsidies (top up funding, development grants and free support) to get off the ground. The evidence base underpinning the effectiveness of impact bonds has strengthened and is mainly positive, but is still relatively limited.

Moreover commissioners’ experiences have been more mixed than providers and investors, possibly because most of the costs (of both outcome payments but also of contract development and management) fall to them; whilst most of the benefits (of delivering new services and receiving returns) fall to service providers and investors. 

So while many still argue that impact bonds are a ‘win, win, win’ for the three key parties,  it would appear that some stakeholders sometimes win more than others.

Over the next four years we will be publishing four more update reports, and in depth reviews of nine impact bonds, which will shed more light on these findings.