GUIDELINE FOR EXPRESSIONS OF INTEREST
1.1 Intro to outcome based contracts and Social Impact Bonds
Outcome based commissioning is an evolving method of commissioning that dictates the desired outcomes of a service
and in many circumstances ties part or all of the contract payment to the achievement of those outcomes. Social Impact
Bonds (SIBs) are a form of outcome based contract where social investment is used to finance delivery and take the risk of
outcome success. Similar to other outcome based contracts, the commissioner only pays for the intervention if
successful. Investors provide upfront working capital for services and are only repaid if outcomes are achieved.
Social Impact Bond - Product Description
Average Term
3-7 Years
Investment Size
£100,000 - £1,500,000
Structure
Investments into a Social Impact Bond can be made into a
Special Purpose Vehicle (SPV)
which contracts a
service delivery body to
provider services or in some
instances, directly into a
charity or social enterprise
There are other non SIB forms of outcome based contracts that social investment could support, particularly in the areas
of health redesign and larger public service outsourcing programmes.
Outcome based commissioning
i.e. Incorporation of outcomes into commissioning cycles
Payment by Results
i.e. Part or all of the payment linked to performance
( achievement of outputs and outcomes)
e.g.
Transforming
Rehabilitation,
Work
Programme
Social Impact Bonds
e.g. Third party/social investor involved in financial
risk sharing around performance
Payment contingent on outcomes
There are 32 SIBs in the UK tackling a range of issues including homelessness, youth unemployment, children in or at the
edge of care and many others. The commissioners or outcome payers have included central government through
departments such as the Department for Work and Pensions and Department for Communities and Local Government,
local authorities such as Essex County Council and Manchester City Council and Clinical Commissioning Groups. As the
market grows, there is increasing interest from new types of commissioners from both the public and private sector.
GUIDELINE FOR EXPRESSIONS OF INTEREST
1.2 Pipeline in the next few years
Locally commissioned outcome based contracts are being catalysed by the funding from the Commissioning Better
Outcomes Fund (CBOF) and in the future could be driven by the local areas that have received devolution deals with a
remit over public service reform: CBOF has approved more than 50 development grants to commissioners and to social
ventures to further develop their SIB Proposals. It is expected up to 5 will launch by June 2016 with a further 10-15 to
launch by end 2016. Additionally, areas such as Manchester, London, Sheffield and West Midlands have included public
service reform and outcome based commissioning in their devolution bids. These could potentially lead to outcome based
contracts at scale.
In the 2015 Spending Review, £105m was allocated to the development of Social Impact Bonds with a focus on youth
unemployment, mental health and homelessness. The majority of this funding will be targeting locally commissioned
schemes and therefore will catalyse further outcomes contracts. Other national developments that could lead to demand
for outcomes finance include Big Society Capital efforts to advocate for use of payment-by-results in Higher Education
Access funding and creation of the Whitehall Social Investment Group of senior departmental representatives in charge of
using social investment as a tool to achieve departmental objectives.
To further drive outcome based commissioning, the Cabinet Office has been working to design a partnership with a
university to (1) support local commissioners in developing Social Impact Bonds and other outcome based contracts and
(2) hold the repository of knowledge for Social Impact bonds.
1.3 Investor landscape and current gaps
In 2012 Big Society Capital launched a call for funds to invest in Payment by Results programmes and Bridges Ventures set
up a Social Impact Bond Fund. The value the Bridges SIB Fund contributed to the investments it has made as well as the
development of the market has been significant. Further information on their fund is provided below:
Case Study - Bridges Ventures SIB Fund
In 2012 Big Society Capital launched a Request for Proposals for funds that would make investments into payment by
results contracts and Social Impact Bonds. Following an assessment process, Bridges Ventures received an investment
from Big Society Capital, Panaphur and Omidyar Foundation for its first close. It further raised capital from European
Investment Fund, a number of pension funds and foundations for a final fund size of £25m. Bridges has now invested in
14 Social Impact Bonds, supported public sector bodies in commissioning for outcomes and significantly contributed to
thought leadership with reports such as “Choosing Social Impact Bonds”.
There are other investors in outcome based contracts including the Care and Wellbeing Fund and Big Issue Invest but Big
Society Capital believes that demand for specialised capital will outstrip supply in the coming years. We would also like to
see a greater diversity in the market of fund managers that charities and social enterprises can access finance from.
To build on the market development efforts of the Bridges SIB fund and to test a different approach, the 2nd Outcomes
Fund could incorporate some or all of the below elements:
•
•
•
•
Engagement of High Net Worth investors and use of Social Investment Tax Relief (SITR)
Systems in place to gather continuous feedback from providers on ensuring their views are represented in how the market is developing
Local focus and presence, in line with the devolution agenda
Focus on simplification of SIB transactions to encourage public sector bodies to commission for outcomes
We will be reviewing proposals in light of these objectives but are open to a range of different proposals including those
with a focus on a specific sector or a wider international focus.
GUIDELINE FOR EXPRESSION OF INTERESTS
1.4 Fund Set up and Delivery
Big Society Capital will be examining the fund’s approach to set up and delivery as well as assessing the governance,
people and track record of the organisations involved.
1.5 Proposals sought and partnerships
As Big Society Capital recognises that many organisations have strengths across the different areas the fund will need to
work, we encourage proposals from partnerships, where a number of organisations bring different strengths to the final
proposal.
Through initial conversations we have come across a range of potential proposal types:
•
•
•
Social investment fund manager setting up a fund with a range of institutional investors potentially including
foundations or financial institutions. Such a fund could have a social issue or geographic focus.
Traditional fund managers including EIS/VCT managers, setting up the fund in partnership with social
investment fund managers to supplement/ build their core knowledge
Fund managers involved in making social investments outside of the UK partnering with UK based
organisations to develop a proposal
These are just some of the proposal types we might see but we would like to encourage as many different models and
credible proposals to come forward.
1.6 Big Society Capital offer and requirements
Big Society Capital:
• Has up to £15m available to invest subject to certain conditions
• Is able to provide further information on the SIB market in the UK
• Could provide further information on the setup and delivery of such a fund
Some of the minimum criteria around our capital include:
• Match to our initial investment, though this would not be necessary at the launch of fund and could be
sequenced
• Commitments to transparency and data sharing
• Focus on impact in the UK, however we are able to be part of a fund with a wider geographical focus if there were
clear benefits for the UK
GUIDELINE FOR EXPRESSIONS OF INTEREST
1.7 Process
We have now launched an Expression of Interest form which will close on April 19th, 2016. We will be meeting with
interested individuals in between now and April. We will also hold an informal briefing event on March 14th with any
interested parties in running or contributing to such a fund. Please register your interest at
[email protected]
An advisory group of charities and social enterprises will support our Investment Committee in shortlisting the EOIs.
Following the selection of shortlisted applicants, Big Society Capital will then work with one or more organisations to
develop the full proposal.