Newpin: the successes and challenges of social impact bonds

Continuing our exploration of social impact bonds, David Donaldson of The Mandarin (@davidadonaldson) considers what the early results for NSW's Newpin bonds mean for the future of SIBs in Australia.

The experience of the Newpin program so far demonstrates the potential for social impact bonds in Australia, but also offers lessons for future efforts.

Sustainable financial returns are demonstrating for an Australian audience the feasibility of SIBs as an investment, while (admittedly early) qualitative research suggests the increased focus on rigorous evaluation is having positive results for work practice.

The Newpin bond, created in 2013, is a seven-year, $7 million pilot program run by UnitingCare Burnside to test the use of social impact bonds in Australia, aims to restore children to their families from out-of-home care, or prevent them from entering care in the first place, by creating safe family environments.

It does this by funding an intensive 12- to 18-month course for parents of children aged five years or under, with strong outcome targets and performance measures guiding returns to investors in the program. As with other social impact bonds — known as social benefit bonds in NSW — investors are paid based on results. For more detail about what SIBs are, see Helen Dickinson's post Social Impact Bonds: The best of all worlds?

The world’s first SIB was implemented in the United Kingdom in 2010, and there are now 44 in place across several developed countries and one in India.

NSW is working on two new SIBs, which aim to help vulnerable people, particularly care leavers, to transition to independence, and support offenders on parole to reduce reoffending and re-incarceration. A second request for proposals is planned for the end of the year or early 2016 and is likely to target chronic health conditions and mental health hospitalisations.

Earlier this month then-Social Services Minister Scott Morrison indicated he was interested in looking at SIBs, arguing they "harness the knowledge and initiative of those who work directly with vulnerable people–those who know best what works and what doesn’t". South Australia recently announced it would fund a $9 million SIB to address homelessness.

In July, Queensland Treasurer Curtis Pitt announced $2 million for a two year pilot, plus $1 million for a ‘Social Benefit Bonds Readiness Fund’ “to assist shortlisted service providers in the co-design phase of the initiative.”

Though they are still in their relative infancy, SIBs are gaining in popularity as a tool for tackling wicked problems. Yet despite the hype from some that SIBs will solve all the world's problems, they are relatively expensive and for this reason are likely to remain limited to tackling certain expensive issues that are measurable in ways conducive to contracting, such as recidivism, foster care and homelessness.

Good results
So far Newpin has shown it is working mostly as planned.

During its second year of operation, Australia’s first social benefit bond helped return 66 children in care to their families, resulting in a 8.9% per annum return to investors. This built on a first-year financial return to investors of 7.5%.

One of the touted advantages of social impact bonds is that, because payment is contingent on results, they create greater incentives for thorough evaluation and a stronger focus on achieving outcomes. This gives a better idea of what works and what doesn't. The increased rigour needed for SIB evaluation appears to have had a positive impact on Newpin. According to the September 2014 implementation report,

"the formalisation of family assessments, planning and reporting processes has created a more structured and transparent basis for action, and for tracking progress for families over time – which is energising and motivating for both staff and, reportedly, some parents. ...The introduction of greater data capture and reporting is forming a stronger basis for staff reflecting on and improving practice, and adding to the evidence base for future program enhancement: it is also a valuable source of information to inform the evaluation of Newpin."

This reflects international results. A recent report by the Brookings Institution studying 38 bonds argued that, consistent with common wisdom, SIBs do “lead to a shift in focus to outcomes”:

"We find that the existing SIBs have truly transformed the conversation among participating government stakeholders about procurement of social services and the transparency and accountability that go along with that. In essence, instead of paying for services, government pays for outcomes. At the same time, SIBs push service providers to deliver on these outcomes."

Likewise, SIBs bring a “private sector mentality into the provision of services”, driving more efficient and effective services through better performance management, and in the cases examined has stimulated collaboration.

The report continues: “if larger systematic change, such as development of strong monitoring and evaluation systems, continues to happen with impact bond deals, that in itself would be an enormous contribution toward improving many people’s lives."

It also indicated this outcomes-focus could help foster the type of longer-term focus many social policy wonks have been advocating for, arguing that "impact bonds can shift the focus of government away from curative or remedial services and toward preventive services. This could have huge economic implications for government and society."

But the pilots so far haven't been all puppies and rainbows -- and they doesn't necessarily need to be to test the SIB concept. Given that the sorts of issues SIBs are suitable for addressing - wicked problems for which nothing previously attempted has helped solve - there will likely be challenges and, indeed, some failures along the way.

Although failure to meet targets is obviously bad for clients as well as investors, it offers learning opportunities. As Gabriela D'Souza notes, the tendency in government to hide failures (for some pretty good reasons, not least of which is the way the media tend to react) means that under normal circumstances we end up with a positive bias in the evidence base.

This makes it difficult to learn from previous endeavours, potentially dooming policy makers to repeat the mistakes of the past. But the payment for results aspect of SIBs requires a higher level of transparency, which will hopefully help build the evidence base.

Newpin's experience with needing to change one of its metrics 'mid-flight' has provided a learning opportunity, as Emma Tomkinson outlines. The problem was that "when developing the metrics, the breakdown of restorations where children would return to foster care (“reversals”) was discussed, but failed to be written into the contracts. The intention of the metrics is to reward social outcomes with financial return, which means that while restorations should result in payments, reversals should not."

When several reversals occurred, the stakeholders agreed that payments should not be made for success where success was not occurring. A key lesson from this experience, says Tomkinson, is that "when contracting for outcomes, enormous attention has to be paid to thinking through all potential scenarios, however unlikely, to ensure the intended social outcomes are reflected in the legal terms."

Renegotiating contracts in response to new information is inevitably difficult but often necessary to ensure the ongoing viability of the program, so it's important to design programs to allow for such changes.

Though making grand pronouncements off the back of a single example would be unwise, early indicators suggest social impact bonds have the potential to significantly improve approaches to delivering services to some of the most vulnerable people and intractable problems in society. It will be exciting to see what we learn as the volume of data rolling in increases with the spread of SIBs.

Posted by Sophie Yates (@MsSophieRae).