Social Impact Bonds - How should you prepare?

Heather Black
Heather Black

Last year the Chancellor announced an additional £80m over the next four years to be invested in social impact bonds (SIBs). The money will be used to help tackle issues including homelessness, mental health and youth unemployment.

SIBs require investors to pay up-front for projects that help tackle social problems, and then receive payments based on the results achieved.

SIBs can be a complicated and costly tender process as you need to tender twice – firstly to social investors, and secondly to the commissioners. It’s therefore extremely important to prepare in advance, ensuring you have effectively assessed your suitability to SIB contracts and can be ready to apply when the opportunities arise. This requires internal capacity and operational readiness in order to succeed. We would strongly suggest applying for grant funding to enable you to undertake some of the steps below.

  • Review current SIB projects, outcomes and organisations, to assess if you’re likely to meet required expectations as a prime contractor or sub-contractor.

  • Review your Theory of Change model and start to collect and analyse your monitoring data to ensure it’s aligned and can demonstrate evidence against achieving likely outcomes expected in SIB tenders.

  • SIB providers have previously looked for innovative projects that fill a gap, so it’s important to understand and evidence market need and demand for your service.

  • Build your internal contract readiness capacity, through implementing a robust Client Management System (CRM) that meets data compliance requirements for storing client data. This needs to provide a robust monitoring system of outputs and outcomes, so that your stats are readily available. Economic Change specialise in implementing systems for organisations that hold commissioned contracts. 

  • Start building partnerships with credible organisations that complement your provision to build a holistic service. The service should enable clients to get from A-to-Z on their journey, allowing you to track outcomes effectively. You might be the prime contractor or the sub-contractor within this arrangement.

  • SIBs are often focussed on expanding and scaling-up of services. Consider if the proposition and delivery structure is scalable to support a larger number of people across a specific area.

  • Understand the full cost recovery of your service and the minimum cost per beneficiary that moves through your service at different stages. SIB projects will provide a price per outcome achieved, but previously bids have been scored based on the discount provided per outcome. It is therefore important to have a detailed and robust, financial model worked up, to ensure your service is viable and competitive. A social investor may be looking at a typical 9% margin on top of this cost price, alongside the costs of setting up a special purpose vehicle for managing the project, which also entails annual costs.

  • Can you leverage any match funding, local contributions or sponsorship? This area has been scored within previous SIB bids.

  • When you are ready to pursue SIBs, we would suggest liaising with social investors. Provide them with a briefing note of your project and begin to understand their approach and model.

Heather Black is managing director at Economic Change CIC

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