Social sector is missing out on key public sector contracts

Outcomes-based commissioning is on the rise. By our reckoning, the Government commissioned about £15bn worth of outcomes contracts during the last Parliament – and judging by the noises emanating from Westminster, this is only the beginning. However, only a tiny fraction of this was delivered by the social sector. This represents a missed opportunity, both for the sector and for the Government.

Bridges started investing in outcomes contracts because we believed they had the potential to transform the way we tackle difficult social issues. If providers are paid purely according to outcomes, they can be much more flexible about how they deliver the service – so they can constantly adapt and improve their programme over time, depending on what’s working and what’s not. Unlike standard fee-for-service public sector contracts, they also have a clear incentive to over-deliver.

Social impact bonds (SIBs) are essentially just a tool to help social sector organisations bid for and deliver outcomes contracts, by giving them access to dedicated project finance and management support. Since these organisations are so close to these issues, they will often be perfectly placed to come up with better solutions. SIBs, we thought, would help to unleash some of their creativity and enterprise, and allow them to compete on equal terms against bigger private sector companies.

Six years after the first SIB was commissioned in Peterborough, we’re starting to accumulate some evidence that this approach actually works. In 2015, the first three of the 13 SIB-funded outcomes contracts we’ve backed to date completed their original programmes. All three delivered positive social outcomes, helping disadvantaged children re-engage with school, gain new skills and qualifications, and develop greater resilience. And two of the programmes – both of which came in well ahead of their impact targets – have already been recommissioned for a second iteration, at a lower cost to Government. In both cases, investors achieved positive financial returns, which they used to support the 'follow-on' SIBs.

Social sector organisations can compete successfully with the private sector

A key lesson from these early SIB investments is that properly-funded outcomes contracts can play a significant role in driving efficiency and improving performance within existing services – for example, by allowing providers to invest more heavily in the short-term to drive better long-term results. We’re already seeing this in essential areas like foster placement, homelessness support, careers education, and social care. So they’re not just useful for innovation or untested new interventions (which, realistically, will never be a priority in the current fiscal climate).

If outcomes contracts can indeed be applied more broadly, the potential market opportunity becomes much larger. The Government spends about £230bn a year on 'human services' like these, of which about a third is outsourced. Not all these contracts will suit an outcomes-based approach; but on the evidence we've seen so far, the right proportion is surely substantially higher than the current level.

In our view, the social sector should be playing a much more significant role in delivering these contracts.

Our experience to date shows that social sector organisations can compete successfully with the private sector here. For instance, when national charity Action for Children won an outcomes contract from Manchester City Council to move looked-after children out of residential care into stable foster families, it did so via an open procurement process that also involved private sector bidders. And it funded that programme via a social impact bond (which Bridges backed).

Action for Children activity day

So for charities and social enterprises looking to deliver outcomes contracts, SIBs can be a good source of both aligned capital and additional support. They also provide a useful mechanism to work with commissioners to create a contract that measures the right social outcomes in the right way.

The Government is eager for more social sector organisations to take on outcomes contracts (utilising SIBs where necessary) because it gives them access to a broader pool of mission-driven providers with expert insight. Given the likely scale of the market, and the potential for impact this creates, we would love to see more charities and social enterprises take advantage of that.

Bridges has just published ‘Better Outcomes, Better Value’, a new white paper examining the way forward for social impact bonds in the UK. You can download it HERE.

Photo credit: Action for Children