1. Social Benefit Bonds pilots
New South Wales, Australia
Ben Gales
Director, Program Review and Performance
2. Agenda
1) What is a Social Benefit Bond (SBB)?
2) Why is NSW piloting SBBs?
3) What are some of the challenges we are facing?
4) Conclusions
3. 1a) What is a Social Benefit Bond?
Private Investors
1. Up-front 4. Repayment of
investment for investment plus
working capital return based on
performance
3. Payment based
on outcomes
Service Social Benefit achieved by Government
2. Funding for
Provider(s) services Bond Issuer provider
4. 1b) How do SBBs compare?
Traditional NGO-Govt Social Benefit Bonds
contracts
Pay for process Pay for outcome
Prescribe that the same service Allow NGOs to be responsive
is delivered across the state to local and individual needs
Government bears risk of Investor bears risk of
unsuccessful interventions, but unsuccessful interventions,
reaps 100% benefit shares benefit with Govt
Government oversight Investor oversight
Different sets of data used for Alignment of data focussing on
Government, donors and outcomes
operations
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5. 1c) A social benefit bond must deliver financial benefit
Case Study: economics of avoiding unnecessary out-of-home care
entry (illustrative figures)
Lifetime cost of out-of-home care Economics of the Social Benefit Bond
COSTS BENEFITS
Add’l
benefits
25% effectiveness: foster care is
only avoided for one in four Additional
children and families in the $150k benefit to
Public NSW
service Benefits community
Savings to
cost of out- NSW Govt
of-home $200k
care p,a, Preservation Expenditure
service cost per avoided $300k Return to
per family OOHC place investor
$38k
$25k
$100k Cannot
$100k Savings to proceed
$300k Government
(8 yrs without
@ =$280k avoided government
$38k) OOHC cost
savings
lifetime cost in
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out-of-home
All costs are purely illustrative. This example does not factor in the substantial costs of establishing and operating the bond.
care
6. 2) Why NSW is piloting Social Benefit Bonds
• Support Innovation
– Government specifies the outcomes
– NGOs determine the best way of achieving these
outcomes
• Increase investment in Prevention and Early Intervention
• Improve capabilities across the sector
– we get better at measuring what we do, in particular
understanding what outcomes are achieved
– improve the evidence base of what works
• Improve outcomes for vulnerable people
7. 3a) Many implementation challenges
• It requires a change of mind-set for Government, NGO and the
investor communities:
– The bond must work within Government procurement and
funding environments, while encouraging innovation and
flexibility
– NGOs must engage with investor community (and vice-versa)
– Investors back a financial instrument without a track-record.
• Government and NGOs must improve their understanding of
what outcomes and benefits programs aim to achieve.
• It requires increased capacity for data collection, analysis and
continuous improvement.
• High initial set up and transactions costs.
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8. 3b) The measurement challenge is large
Payments will be triggered by demonstrated improvement
against a control group or counterfactual, NOT a baseline
50
outcome measure
40 Improvement
in outcome
30
20
10
0
Start 1 Yr 2 Yrs 3 Yrs
Baseline Control Intervention
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9. 3c) UK Experience highlights the complexity
• The development of the Peterborough social impact bond took
– 18 months from the time Social Finance UK approached the
Government to when the contract was signed
– 2.5 person-years of Social Finance employee time
– 300+ hours of pro bono legal advice
• It involves complex and time-consuming work on outcome
measurements and analysis by Government, work that continues
during the bond life
• It’s still too early to know whether Peterborough is a success
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10. 4) This is an exciting opportunity for NSW
• NSW Government is developing up to three pilots in the
areas of recidivism and out-of-home care (foster care)
• But SBBs are not a panacea
• Principles in SBBs are relevant to other contracts
– payment linked to achievement of outcome
– evaluating the impact of public spending ($ and
outcomes)
– providing incentives to innovate and improve
– NGO capacity to deliver and manage contracts
– intervention addresses need and Government priorities
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