This document discusses the regulatory and contractual aspects of implementing social impact bonds. It provides details on the key elements that should be included in: 1) The instruction agreement between the government authority and social service provider which outlines the social program, services, duration, payments and termination conditions. 2) The loan agreement between investors and the social service provider covering the loan amount, repayment terms based on program outcomes, and information rights. 3) The service agreement between the evaluator, social service provider and authority regarding the outcome measurement process, data collection, reporting and dispute resolution.

1. Social Impact Bonds (outcome based payments
contracts)
Contract implementation and Regulatory aspects
Yvette Verleisdonk
Evelyne Maes
31 May 2016

2. Contract implementation
(based on publicly available data on SIB Duo for a Job)
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Actiris
(Brussels
authority
for
employme
nt)
Duo for a Job
provides coaching
by seniors in
finding a job (3h
per week during 6
months)
Brussels
Observatory of
Employment
Evaluator
Young migrants job
seekers in Brussels
Instruction
Investors
Loan
output
Start: summer 2015
Duration: 2 years, possible extension
by 1 year
Amount: Eur 234,000
Outcome/ return:
Repayment of principal if Duo for a Job
is 10% more efficient than Actiris
Payment of principal plus 6% ROI if
Duo for a Job is 60% more efficient
than Actiris
Cost of coaching: Eur 2,000 per
person
Cost of government: Eur 35,000 per
person

3. Contract implementation (2)
• The seven golden rules for SIB contracts
1. Use separate contracts
2. State the mutual goals and relationship of trust
3. Focus on the social return
4. Agree on the allocation methodology
5. Agree on the methodology for measuring social return
6. Agree on the working relationship and an escalation procedure
7. Agree on the termination events
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4. Contract implementation (2)
• Instruction agreement government authority – social service provider
– Description of social program – shared aims – trust - partnership
– Services of service provider (minimalist, but realistic approach –
flexibility for service provider – focus on output)
– Duration: preparation – performance – monitoring period
– Information rights (privacy law!), review meetings, monitoring rights
– Limited control rights for authority (reputational damages/ other costs)
– Insurances for service provider (professional indemnity, third party
liability)?
– Service failures (breach of contract, unsatisfactory outcomes): remedial
plan to be agreed upon
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5. – Termination events for both parties, eg unremedied breach of contract
– Termination events for authority: eg insolvency, withdrawal of license
– Right of voluntary termination for either party (after x months, with x
notice period) – compensation payable by authority?
– Payment obligation of authority to service provider in case of success:
definition program group and comparison group, outcome
measurement, provision of data, amounts, timing.
Note: bankruptcy risk on social service provider
– Force majeure, assignment, subcontracting, boiler plate provisions
– To be disclosed to investors
5
Contract implementation (3) – instruction
agreement (continued)
Presentation Curia
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6. Contract implementation (4)
• Loan agreement investors – social service provider
– Amount of loan (min Eur 700,000?) and duration (3-7 years)
– To be disclosed to/ approved by authority
– Use of loan: only for performance social program
– Description of social program and outcome
– (Only) information rights of investors (during/ after program)
– Events of default: early repayment by service provider
– Repayment of loan by social service provider during and at end of
program, based on objective and measured outcome
if outcome [x] – no repayment
If outcome [y] - repayment of principal only
If outcome [z] - repayment of principal and ROI
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7. Contract implementation (5)
• Service agreement Evaluator – Social Service Provider - Authority
– Appoints external, objective evaluator
– Process of measurement (report on each date, draft report for
comments prior to final report)
– Who provides data? Privacy law issues?
– Evaluator determines whether outcomes have been achieved and level
of payment due
– Dispute resolution: arbiter?
– Replacement of evaluator
– To be disclosed to/ approved by Investors
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8. Contract for social services: European rules
• ≥ 750 000 euro: particular procurement regime (articles 4, d and 74 Dir.
2014/24)
• European rules:
1. publication of intention of awarding :
− by means of a contract notice (Annex V Part H) or
− by means of a prior information notice, which shall be published
continuously (Annex V Part I). (incl. types of services, award
without further publication and invitation of interested economic
operators to express their interest).
2. publication of a contract award notice (Annex V Part J): can be done
on a quarterly basis.
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9. National rules for contracts ≥ 750 000
• “non-discrimination, equal treatment and transparency”
1. ensure the principles of transparency and equal treatment of economic
operators and take into account the specificities of the services in
question.
2. take into account the need to ensure
– quality, continuity, accessibility, affordability, availability and
comprehensiveness of the services,
– the specific needs of different categories of users, including
disadvantaged and vulnerable groups,
– the involvement and empowerment of users and
– innovation.
– best price-quality ratio, taking into account quality and sustainability
criteria for social services.
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10. Exclusive right to participate
• Exclusive right for organisations to participate in these procurement
procedures, if contract no longer than 3 years
• Conditions for organisations:
– its objective: the pursuit of a public service mission linked to the
delivery of the social services;
– profits are reinvested with a view to achieving the organisation’s
objective. Where profits are distributed or redistributed, this should be
based on participatory considerations;
– the structures of management or ownership of the organisation
performing the contract are based on employee ownership or
participatory principles, or require the active participation of employees,
users or stakeholders; and
– the organisation has not been awarded a contract for the services
concerned by the contracting authority concerned pursuant to this
Article within the past three years.
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11. • A single stage procurement in which bidders are assessed against a clear
set of criteria to select a preferred provider;
• A two stage procurement involving expressions of interest and
subsequent selection of a short list of providers for more detailed
dialogue;
• Engagement with a third party (in the form of a Joint Venture, partner or
concessioner) to deliver some or all of the services required for the
implementation of an outcomes-based service.
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Possible procurement approaches
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12. European budget rules
• European System of Accounts 2010 (implementation since 2014)
• No explicit rule on social impact bonds
• By analogy: principles of PPP’s,… (risks-assessment)
– Hypothesis: public sector no control over SSP
o If payment (amount and time) is certain: budgeting
o If payment (amount or time) is uncertain: provision
• Only public debt in the year the payments are budgeted or provisioned
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