Outcomes Contracts & Social Impact Bonds | Big Society Capital

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Outcomes Contracts & Social Impact Bonds

What is a Social Impact Bond

Social Impact Bonds (SIBs) are a form of outcome based contract where social investment is used to finance delivery and take the risk of outcome success. Similar to other outcome based contracts, the commissioner only pays for the intervention if successful. Investors provide upfront working capital for services and are only repaid if outcomes are achieved.

In many instances Social Impact Bonds are delivered through a Special Purpose Vehicle (SPV), a new entity set up for the purpose.

There are 32 Social Impact Bonds in the UK tackling a range of issues including homelessness, youth unemployment, children in or at the edge of care and many others. Most national Social Impact Bonds have contract duration of 3 -7 years. Some of them have funded new innovations with many using the mechanism to scale evidenced alternative approaches. The contract value is typically £1 million - £10 million, with investment requirement usually under £2 million.


How a Social Impact Bond works

Social Impact Bond

Diagram courtesy of the Cabinet Office


The benefits and challenges of social impact bonds

There can be a number of benefits and challenges to being involved in outcome based contracts from a provider, investor or commissioner perspective.

Charities and social enterprises

The benefits might include:

  • Opportunity to expand existing services and flexibility in delivering outcomes
  • Capital to test new approaches
  • Track record for future outcomes based contracts

Some of the challenges are:

  • Complexity and transaction fees
  • Changing ways of working
  • Accessibility to smaller providers
  • Clarity on what follows the delivery of a SIB
Commissioners

The benefits might include:

  • Investment in preventative services, saving money over time
  • Improvement in spending effectiveness by paying directly for outcomes
  • Increase in availability of data and evidence
  • Integration of services

Some of the challenges are:

  • Some complexity in commissioning especially in identifying and pricing outcomes
  • For Central Government, key barriers are annularity of budgets and procurement processes
  • For Local Authorities, resource constraints (time and money) are significant barriers
Investors

The benefits might include:

  • Direct link between social impact and financial return
  • Potential to scale up innovative interventions
  • Rigour and focus from hands on and interactive investment approach

Some of the challenges are:

  • Risk/return profile
  • Lack of scale, leading to high costs of each transaction
  • Limited track record of performance associated with a developing market

Ways to Wellness Social Impact Bond


    Further resources

    Research
    Blogs
    Websites

    Role of Big Society Capital

    Big Society Capital has four objectives in developing outcome based contracts:
    1. Support commissioners in considering an outcome based approach

    2. Support charities and social enterprises to bid for and deliver Social Impact Bonds

    3. Bring in new investors

    4. Share evidence and learnings


    Contact

    Daria Kuznetsova

    Daria Kuznetsova | Strategy and Market Development Director