NZ Council of Social Services – Social Bonds

The Ministry of Health and Treasury have been investigating if Social Bonds can be used in New Zealand.  They are being used in limited ways in England, Australia and the USA.

What are Social Bonds?

Along with other initiatives like social lending, and microlending, social bonds are a way to access funding for the NGO sector outside of government. Government guarantees the investor a return on their investment if a pre-determined set of social outcomes are achieved.

The pure form of working with social bonds is as follows; ( the final idea maybe a hybrid of bonds and government funding)

• The provider wishes to provide services and will work with a government agency to decide outcomes and the payment that will be made if outcomes successfully achieved. The agreed amount should cover both the cost of service plus an agreed reward for achieving the desired outcomes.
•  The provider then finds an investor(s) who will fund the cost of the service.  Eg: a corporate, or a philanthropic organisation.
•  At the term of the contract, if the outcomes have been met, government will then pay the amount agreed to the provider and/or investor.

Points to understand:

Government does NOT pay upfront.  Government will contract for results and pay after an agreed period if the service outcomes have been achieved.  If, for example, the service contract is for 3-5 years, the payment from government will not occur until that contract has been concluded and outcomes met

Possible Benefits:(from seminar in Wellington with representatives of Health and Treasury)

• Providers will not be required to explain to government how they achieve outcomes.  This will give more opportunity to deliver the best way rather than the required way.
•  There should be less paperwork from government.
•  There should be greater flexibility with resources from external sources, money could be paid immediately rather than drip fed over time, and organisations could have longer term contracts to enable outcomes to be achieved.
•  Organisations receiving funding from external sources would not be tied to political terms and ministerial imperatives.

Possible Risks and questions:

• May not be able to agree to outcomes.
•  May not be able to prove outcomes.
•  What if you fail to provide outcomes, yet owe an external funder back the upfront investment plus interest?
•  What are the mechanisms that will enable payment from government?
•  If philanthropic organisations spend their grant monies on these projects, what happens to other applicants who are not involved with social bonds who normally receive funding from these sources?
•  How do organisations make sure that the external providers of funding are appropriate?  Eg: gun manufacturers etc

This is clearly a shift of risk from government to the NGOs and to finance providers in the marketplace.  Those working on the Social Bonds Project are asking these questions.

• What would the risks, costs and benefits be?
• What outcomes could services aim for?
• How would success in achieving outcomes be measured?
• When and how would groups be paid?

The scoping project will run to June 2013 when a paper will be ready for cabinet to consider whether a social bond pilot should take place in New Zealand.  Please ensure you attend any seminars near you to get fuller information on this alternative procurement route being considered.