In significant future uncertainly, why contract for outcomes?

This is the third part of a blog series from our Fellows of Practice 2020 on how outcomes based contracts are adapting in light of Covid-19 (read the first and second part here). In this piece Inga Afanasieva, Infrastructure Specialist at the World Bank explores how we can focus on outcomes when there is great uncertainty in the world. 

When considering why contract for outcomes in these uncertain times, it is fundamentally a question of focusing on achievement of results that everyone has rallied behind vs. prescribing activities in an environment that is becoming increasingly uncertain. I argue that the outcome-based financing structure lends itself to crisis situations because it inherently demands collaborative resolutions by stakeholders towards an outcome. The execution of outcome contracts requires that the incentives of stakeholders – outcome funders, service providers, investors and others – are aligned, and the flexibility of these contracts ensures that the intervention is tuned to the realities on the ground. 

The COVID-19 pandemic and the market crisis have exposed the systemic inequalities that existed. What could we do about it? 

     1.         Be more contextual and situational. More than before we should partner with social enterprises because they are well-positioned to respond quickly, and they have long standing connections to the community and platforms through which to deliver goods and services. They are particularly efficient and are committed to targeting vulnerable groups. Social enterprises often work with or contract informal workers which helps keep low-income communities employed, but they can also be an effective mechanism for reaching and assisting these communities during the crisis and help them rebuild their lives post-pandemic.

     2.         Distribute the risks. COVID is revealing the limitations of markets and the extent to which it can ward off the effects of the pandemic. Of course, a shock like COVID-19 is essentially uninsurable, which leads to skyrocketing risks for impact bonds and early-stage investors backing off, especially commercial investors. This highlights the importance of blended finance in bringing the risk down to manageable levels while continuing to maintain the focus on service delivery to vulnerable groups. Data shows that, in times like these, impact investors and philanthropies ramp up their activity, which could offset the funding gap from commercial sources. 

     3.         Advances, temporary fee-for-service arrangements – why not? Outcome-based financing requires an upfront risk capital. Such capital is particularly scarce in the immediate aftermath of the pandemic However, in GPRBA’s experience and experience elsewhere, results-based financing may include an advance, fee for service, and payments against low-tier outputs to help kickstart or keep the operations going. 

     4.         Attach technical assistance (TA) grants to outcome-based financing. A TA associated with an outcome-based financing project will afford stakeholders to explore solutions in a timely manner to events that are difficult to predict. In a world in which natural and humanitarian disasters occur at an increased rate to not plan for one would be a shortsighted.  

You can join Inga on Day 2 (2nd September) of this year's online Social Outcomes Conference, she is speaking in the Big picture session on 'Fair-weather friend or tool to weather the storm: Growing an ecosystem for outcomes based partnerships in unpredictable times'. You can explore the programme here.