This post is written by Ruth Dixon, Tanyah Hameed, Franziska Rosenbach and James Ruairi Macdonald from the Government Outcomes Lab at The University of Oxford, and Clare FitzGerald from King’s Business School at King’s College London.

  • The problem: Social Impact Bonds (SIBs) – investor-backed payment-by-results programmes – are designed for financial and operational resilience, but what happened when they were tested in the Covid-19 crisis?

  • Why it matters: Governments around the world are promoting the SIB model. We need to know whether such programmes work in crisis situations.

  • The solution: Understanding how SIBs fared in the Covid-19 crisis will enable governments to put them to best use in the future.

Social impact bonds during the pandemic

Social Impact Bonds (SIBs) were pioneered in the UK in the early 2010s and have since been launched in over 30 countries around the world (see the INDIGO database). A SIB is a type of investor-backed payment-by-results contract. Investors provide up-front funding to the service provider and are repaid by the commissioner if outcomes are achieved. The Covid crisis was the first global crisis that such projects have had to face.

In a study published (open access) in Public Management Review, we explored how a group of recently commissioned SIBs demonstrated resilience in response to Covid-19. In this article, we summarise our findings.

In the study, we asked: how resilient is the SIB contractual model in practice?

By design, SIBs should be both financially and operationally resilient. Financially resilient because the investor is meant to take on the financial risk and continue to fund service provision even if outcomes prove difficult or impossible to achieve. Operationally resilient because service providers are generally given autonomy to adapt services to changing conditions.

How we evaluated the Life Chances Fund SIB projects

Cases and methods

Thirty-one SIBs were co-commissioned by the UK Department for Digital, Culture, Media, and Sport (DCMS) and local government commissioners between 2017 and 2020 (link to https://www.gov.uk/government/publications/life-chances-fund). A central government fund known as the Life Chances Fund (LCF) managed by the National Lottery Community Fund will contribute about one-third of the eventual outcome payments, the rest being funded by local commissioners. The LCF SIBs operate in a variety of service areas, namely child and family welfare, health and wellbeing, education and early years, employment, homelessness, and criminal justice. As part of the Government Outcomes Lab’s wider evaluation of these projects, we analysed the Covid-19 plans contributed by the SIBs to LCF funding officers, as well as background information obtained directly from the SIBs and from the DCMS data portal.

The pandemic resulted in a worldwide shock experienced simultaneously by all public and private organisations. Public services required a resilient response in highly uncertain conditions. Organisational resilience has many facets, with previous academic studies on the ‘what’, ‘when’, ‘who’ and ‘how’ of resilience guiding our research.

What we found out about the what, when, who and how of resilience

‘What’ resilience?

The LCF SIBs displayed considerable resilience during 2020. Almost all of the operational SIBs maintained their services, and many introduced new services specific to the crisis. Just one project temporarily ceased services and another reduced its services to a basic level. Several SIBs even launched for the first time during the spring and summer of 2020.

A significant factor in the SIBs’ decision-making was government-wide guidance in March 2020 to temporarily fund payment-by-results contracts on the basis of ‘expected’ rather than ‘achieved’ results. DCMS offered something akin to this to LCF SIBs, even though investors might be expected to continue funding during the crisis. In the event, ten SIBs continued (or launched) on an outcomes (payment-by-results) basis, 14 chose to switch to or launched with grant funding based on expected annual performance, and seven delayed their launch. Of the delayed projects, four launched later in 2020 but two withdrew from the LCF process altogether.

Resilience ‘when’?

From the start of the crisis, service providers rapidly adapted to virtual formats. Staff well-being was supported, and clients were surveyed to understand their changing needs. Considerable efforts were made to maintain services:

“The books and toys which are an integral part of the programme are being delivered to families […]. Microsoft Teams is being used to conduct video conferences […] promoting positive parent-child interaction during these challenging circumstances.” - Project plan documentation.

Phone counselling sessions were sometimes conducted from outside the homes of vulnerable clients so that visual contact could be made, and distanced face-to-face meetings were arranged when safeguarding was an issue.

"Although we found that the SIBs were operationally resilient in the short term, we cannot predict the longer-term effects of these adaptations on the pre-agreed social outcomes on which future payments depend."

At the start of the pandemic, project staff found evidence of considerable need among their clients. Crisis-specific services were therefore introduced such as making referrals to food banks and delivering household necessities and prescription medicines. One project engaged in fundraising to pay for the additional services. For clients who were at risk of loneliness and isolation, online social events such as virtual bingo and yoga sessions were arranged.

Some outcomes (such as employment placements) were found to be unachievable during the crisis, and providers prioritised client engagement and well-being:

“…overall, preventing regression in wellbeing and attainment during the Covid period will be as big a success as enabling progression from pre-Covid period baselines.” - Project plan documentation.

Looking to the future, projects found that some types of virtual engagement brought unexpected benefits and would be retained after the pandemic. Virtual meetings cut staff travel times and gave case-workers more time to spend with clients. Online interactions proved unexpectedly popular with some clients. Young people, in particular, were often more willing to engage with case-workers online. Virtual family conferences could include parents who were living or working elsewhere. Nevertheless, we should not paint too rosy a picture, as projects also described the challenges faced by vulnerable people trying to maintain internet or phone contact, and the severe difficulties faced by clients with mental health needs.

Although we found that the SIBs were operationally resilient in the short term, we cannot predict the longer-term effects of these adaptations on the pre-agreed social outcomes on which future payments depend. It may be that LCF projects will enter periods of contractual renegotiation as the impacts of their recent adaptations become known.

Resilience for ‘whom’?

Our findings indicated that service providers took a major role in adapting services both to the government-imposed rules and to the changing needs of service users. In this respect, therefore, the SIBs worked as intended, granting the service providers flexibility and autonomy to maintain and even extend services despite the substantial challenges and difficulties that they faced. Nevertheless, a few projects paused or scaled down their services or failed to launch.

The priority for commissioners was to maintain the funding stream to service providers either through grants (which were only partly funded by DCMS) or by continued funding from investors. Local commissioners had to consider the trade-off between increasing financial support during the pandemic or risking that the service ceased altogether with potentially additional costs of alternative services.

Arguably, the offer of grant-funding was generous to investors given that the SIB model implies that investors are meant to bear the financial risk of services not working. Nevertheless, this concession ensured that no investor withdrew altogether, and most projects returned to ‘payment-by-results’ by early 2021. Given the scale and unprecedented nature of Covid-19, it could be argued that the pandemic represented a wholly unexpected risk that no investor could be expected to bear and that central and local government commissioners were correct to step in with temporary support.

‘How’ is resilience achieved?

Academic research points to a variety of factors that promote organisational resilience, which can be classed as ‘governance’, ‘resources’ and ‘human’ factors.

The multi-centric governance structure of SIBs requires cooperation between public, private, and third-sector stakeholders. Supportive relationships between, for example, LCF funding officers and SIB project managers seem to have been important in maintaining resilience. The contractual structure also enabled service providers to adapt their services to the pandemic without incurring immediate administrative hurdles - all while taking a longer-term view on the eventual outcomes.

In terms of resources, the government provided a safety net in the form of temporary grant-funding. This option was taken up particularly by projects that focused on employment outcomes which were severely affected by the pandemic.

Human factors were also key. As well as relationships between stakeholders mentioned above, leadership within service organisations ensured that the health and wellbeing of front-line staff were supported and creativity in adapting service provision was encouraged.

What did we learn?

Almost all of the 31 LCF SIB projects displayed operational resilience, launching or continuing to provide services to disadvantaged people during the pandemic. In many cases, projects expanded their services to meet crisis-specific needs. Several projects found unexpected advantages through engaging clients online, though others had difficulty supporting their clients by virtual means.

Features of SIBs that aided resilience were:

  • Cooperative, multicentric governance which provided expertise and support across organisations.
  • The contractual focus on ‘outcomes’ which allowed service provision to be tailored to the crisis.
  • Flexible resources in the form of temporary grant-funding which allowed many of the projects to survive the uncertainty of 2020.

Some of these factors are also relevant to ‘non-SIB’ services. We suggest that all public service organisations can benefit from cooperation and communication between commissioner and service provider, a degree of autonomy in adapting service provision, and appropriate resourcing when circumstances change.

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