What limits the spread of SIBs? (Emma Tomkinson Blog)

I once played a game with a fellow SIB colleague where we challenged each other to ‘SIB this!’; to come up with a theoretical SIB contract for random government services. If you get really creative, it’s hard to think of something a government couldn’t purchase using a SIB. But the major difference between this game and the reality of government is that a landscape of services already exist. SIBs so far have only been implemented in service gaps. And this is one of the limitations of the SIB expansion – it’s hard to find service gaps to insert a whole new service into, and then define it cleanly enough to satisfy the parties to a SIB.

Why do we use SIBs for service gaps?

  • SIBs have largely been new prevention or early intervention services. They attempt to prevent or reduce people’s need for expensive existing services down the line. This is also the economic justification for SIBs – spend earlier to save later and help participants avoid worsening outcomes. So SIBs have been new services that try to reduce the need for existing services.
  • For SIBs that measure improvement, the comparison is ‘no service’. (When I say ‘no service, I don’t mean that all other services are withheld, most participants will still engage in a range of services.)

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Could SIBs spread to replace existing contracts?

Let’s examine this questions by splitting SIBs into two types (see the diagram above). The first is the type that pay for things that happen, without requiring evidence of improvement. For example per graduation, per job commencement, per child placed with a family. SIBs that look like this have been contracted by UK Department of Work and Pensions Innovation Fund for disadvantaged young people; It’s All About Me for adoption; Manchester City for children in care; Granite School District for early childhood education; Saskatchewan for single mothers.

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So could a pay-per-participant-outcome SIB replace an existing contract?

The second type of SIB pays for improvement against what might have happened without the service (a comparison or counterfactual). It seems that when people say ‘Pay for Success’ in the US, this is what they are referring to. The first SIBs in the UK and US, Peterborough and Massachusetts, were set up like this. These SIBs allow people to say that if there is no improvement in outcomes, then government does not need to pay. And Rikers Island is a good example of this happening.

Theoretically yes. And it seems that most governments are looking to replace at least some of their existing contracts with outcome-based contracts. And this looks like the direction that those involved in SIBs are heading. The Harvard SIB Lab is now called the Government Performance Lab. The Centre for Social Impact Bonds is partnering with Oxford University to create the Government Outcomes Lab. But would these contracts include the social investment that would make them SIBs? In a SIB, investment is usually sought to cover the working capital gap until outcome payments are made. But if government is paying per participant outcome, there isn’t much of a working capital gap, so there isn’t much need for investment.

Could a pay-per-improvement SIB replace an existing contract?

Again, the answer on theoretical grounds is yes. But payments in this model are made when the SIB improves on a comparison. And where this comparison is ‘no service’ in SIBs so far, now the SIB is going to have to improve on an existing service. And I don’t think you’d find an investor willing to bet that the ‘business rigour’ they bring to the table is going to measurably improve on the services delivered by that 150 yr-old charity down the road.

Summary

I don’t think we’re going to see SIBs spread to take over existing service contracts (please let me know if I’m wrong)! So we’ll continue to see each commissioner/government limited to a few only. But what will spread is the learning – what we have seen in Australia is that lessons from SIBs in a service gap changed the way billions of dollars of existing services were procured.