As Social Impact Bonds and payment-by-results pilots develop, commissioners are increasingly asking us ‘How should I procure such a service?’.
Compared to traditional procurement processes, choosing a Social Impact Bond provider can seem daunting. Assessing the price to be paid for an outcome may require new skills. Engaging social investors in a procurement process may be unfamiliar. The temptation could be to simply avoid establishing Social Impact Bonds.
We think that such a response would be a mistake. With support from PricewaterhouseCoopers, Social Finance has put together a technical guide for commissioners. As we have set out in the guide, there are already a range of promising approaches being developed to the commissioning and procurement of Social Impact Bonds. Much is common sense. Commissioners are also able to draw on emerging experience from peers and from specialist advisers.
Although each circumstance will vary, six ‘do’s’ of good commissioning of Social Impact Bonds particularly stand out:
- Do invest in a feasibility study. Better outcomes and value for money should ensue if the commissioner has defined, in advance, the social outcome and gap in services, the target population, and the potential for cashable savings, investor interest and the key features of a contract.
- Do ensure that there is a dialogue with potential providers and investors through the process. Engagement can be prior to procurement and/or with a small number of bidders after an initial qualification process.
- Do establish a procurement process that has low costs for bidders. As Social Impact Bonds are needed in new, undercapitalised markets, there are unlikely to be players with deep pockets able to afford long and complex bidding programme (neither social sector providers nor social investors). So it is even more important than usual for commissioners to establish simple processes and define their criteria in a way that ensures the process quickly focuses on one or a small number of providers.
- Do ask bidders to demonstrate that they have secured, or have a good prospects of securing, both providers and investors. This process will eliminate speculative applications because investors will only back credible providers.
- Do consider collaborating with others in order to establish a Framework or to co-commission Social Impact Bonds. This will help build the market and enable investment to be raised at sufficient scale.
- Do seek to introduce processes, such as open book accounting, good contract management arrangements and independent evaluations, so that individual commissioners and the market can learn from the development of Social Impact Bonds.
This won’t be the last word on commissioning Social Impact Bonds. On 12th December we are hosting a webinar to share experiences. Practice should advance over time. But by following these suggestions and the other approaches set out in the paper, we are confident that many Social Impact Bonds can be successfully commissioned in the coming years.
By Ben Jupp, Director at Social Finance