Evaluating the trial
Evaluation is a critical component of NSW’s social benefit bond trial. Principally, we want to know if the trial has achieved its objectives, which are outlined below:
- Increase funding for prevention and early intervention programs sustainably
- Improve accountability for the effectiveness of expenditure on social services
- Catalyse the development of the social finance sector
- Harness the innovation capacity of both investors and service providers
- Improve the evidence base for, and focus on measuring the impact of, social services.
In addition to assessing the trial, we will examine the services involved in each bond from development to implementation, including the social outcomes for families that are not measured as part of the bond structures. As a result, we will commission multiple evaluations across the life of the trial, the results of which will be available on this site.
Our approach to evaluating the NSW social benefit bond trial is to examine both the structure and the services of each bond in operation.
Evaluation reports for the NSW social benefit bond trial
Social Benefit Bond trial
The Newpin Bond
- Evaluation Framework for Newpin
- Evaluation of the Newpin SBB Program – Implementation Report
- Evaluation of the Newpin SBB Program – 2014 Annual Progress Report
The Benevolent Society Bond
- What is a social benefit bond?
- Are they used elsewhere?
- Why is the Government doing this?
- If this is such a good idea, what doesn't the Government just fund it directly? Is it more expensive to pay the private sector?
- Why is the Government supporting investors to profit from social programs?
- What are the potential benefits for the NSW Government?
- How does a social benefit bond differ from government grants/contribution schemes?
- How is a social benefit bond different to a Waratah Bond?
- What happens to a social benefit bond if the Government changes after an election?
- What is the status of the NSW social benefit bond pilots?
- How do the Newpin and Benevolent Society bonds fit with other Government services and programs?
- Why did it take so long to develop the pilot bonds?
- What financial or legal risk would our organisation face by participating in a social benefit bond?
- How will outcomes be measured? How can you be sure measurement is accurate?
- Where can I get more information about investing in social benefit bonds?
- Can you recommend further background material on social benefit bonds?
What is a social benefit bond?
A social benefit bond is a financial instrument that pays a return based on the achievement of agreed social outcomes. Private investors provide upfront capital to cover the cost of delivering a service to improve a particular social outcome. Achievement of this outcome should reduce the need for, and therefore government spending on, acute services. Part of the resulting public sector savings are then used to repay investors' principal investment and provide a financial return. The repayment of the principal and the level of return is performance-based, which means it depends on how much outcomes have improved.
Are they used elsewhere?
Yes. Social benefit bonds, or social impact bonds, were first developed in 2010 by Social Finance UK with the UK Ministry of Justice to rehabilitate offenders from Peterborough Prison. There are now 40 bonds in development or operation worldwide, with several more in the pipeline (source: Instiglio, as at 26 September 2014). Read more about social benefit bonds elsewhere.
The NSW trial is the first in Australia and one of the first in the world. There has also been interest in bonds elsewhere in Australia. They have been discussed in:
- the 2014 Financial System Inquiry's Interim Report
- the South Australian Government's discussion paper, which is featured on the YourSay website
- the Senate Economics References Committee Inquiry into Finance for the Not-for-Profit Sector in 2011.
Why is the Government doing this?
We're trialling social benefit bonds because we think they can help to:
- Shift the focus onto outcomes rather than outputs: When Government purchases services, it usually pays for outputs (e.g. the number of people using a service) rather than outcomes (e.g. the effect of the service on those using it). In contrast, bonds provide a direct financial incentive to focus on and improve the outcome in question. This should achieve better outcomes for individuals and families, ensure Government gets value for money, and encourage providers to focus on delivering services in a way that meets the needs of their clients.
- Direct additional resources towards early intervention: Funding prevention and early intervention can be hard when resources are usually directed at acute and crisis services. Bonds allow more investment in early intervention with the use of private capital. If successful, this reduces later demand for acute services and frees up Government funds, part of which can then be used to repay investors. Remaining funds can be re-directed to other services.
- Encourage innovation: Paying for results, rather than the delivery of a prescribed service, frees service providers and investors to explore different ways of achieving better results. Providers have more flexibility to change how they deliver a service or experiment with a number of approaches at the same time. Investors have an incentive to work with providers to drive performance; for example, by encouraging them to abandon approaches that are not achieving results and supporting them to find and try new approaches.
- Improve the evidence base: Investors are more likely to find social benefit bonds attractive if the services they finance are backed by evidence of their effectiveness. Further, the link between payments and results compels the robust measurement of outcomes. These features increase the collection of locally relevant evidence and data for future policy makers. By improving measurement in these areas, the Government believes that other social policy areas will benefit as well.
- Ensure accountability and transparency: The focus on measuring outcomes in bonds ensures there is clarity about what NSW Government funding is achieving.
If this is such a good idea, what doesn't the Government just fund it directly? Is it more expensive to pay the private sector?
When the Government compares different funding options, we consider cost effectiveness, not just direct cost. This means we consider the comparative benefits that can be 'purchased' for a sum of money. Social benefit bonds have an advantage over current funding models because our payments (in the form of principal repayments and reward payments) are linked to the benefits achieved.
Another benefit of this model is that by attracting private capital, we can fund services over and above what is available from public funds. If the funded intervention is successful, additional public funds are then freed up to repay the upfront expenditure by the private sector.
This is why the NSW Government is committed to supporting a social impact investment market. It provides a new source of funding for these much needed programs and outcomes.
Why is the Government supporting investors to profit from social programs?
We are hopeful that social benefit bonds can achieve better social outcomes and value for money for NSW taxpayers. The non-profit sector faces increasing demands for services. It is simply not possible for the NSW Government to fully fund every program. Through bonds, we can direct more investment into services to support individuals and families, and link our payments to the outcomes those services achieve.
Social impact investment challenges the traditional view that you can only 'do well' or 'do good.' It is based on a principle of 'blended value' – that private capital can deliver social good. Bonds direct private capital towards public benefit, and provide private returns linked to the public benefit achieved.
What are the potential benefits for the NSW Government?
The benefits for the NSW Government are the same as those for NSW taxpayers:
- Better outcomes by providing a direct financial incentive for a service provider to focus on and improve the outcome in question.
- More investment in early intervention, which, if effective, also reduces future demand for acute services and frees up public funds for other priorities.
- Limits the risk to Government of funding programs which are not effective.
- Improves the evidence base and availability of robust data for policy makers.
How does a social benefit bond differ from government grants/contribution schemes?
Most government grants and contribution schemes generally provide funding based on the inputs and outputs of social programs. As a result, they are largely commissioned on the basis of cost rather than on the value they provide or the outcomes they achieve. Grants and contribution schemes generally provide one-off or recurring cash payments to cover program costs.
A social benefit bond is generally based on funding outcomes, like reducing reoffending or the number of children in out-of-home care. They generally leverage private capital and cross-sector partnerships by aligning the interests of multiple stakeholders to achieve positive social outcomes. This encourages innovation and flexibility to provide services to better achieve outcomes. The need to measure outcomes ensures accountability and adds to the evidence base of policies and services that work.
How is a social benefit bond different to a Waratah Bond?
A social benefit bond is intended to save the Government money while improving social outcomes. Part of these savings will provide repayments to investors commensurate with the outcomes achieved. The remaining savings can be used to fund other services.
The NSW Waratah Bond Program offers low risk, stable income to investors. Money raised through issuing Waratah Bonds is used to fund investment in NSW infrastructure and other public sector activities.
What happens to a social benefit bond if the Government changes after an election?
The robust performance measures of a social benefit bond provide a true mechanism for governments to pay for results achieved and to save taxpayer money. They also increase the number of preventive interventions facilitated by the Government and offer a mechanism to scale up proven preventive programs without requiring government agencies to take on the upfront funding. Additionally, bonds provide incentives to make cost effective decisions to maximise outcomes. Given this, it is unlikely that a change in government would result in the termination of any bonds.
What is the status of the NSW social benefit bond pilots?
On 27 March 2013, the former NSW Treasurer Mike Baird and the former NSW Minister for Family and Community Services Pru Goward announced the NSW Government had signed Australia's first social benefit bond contract. The Newpin bond will fund UnitingCare Burnside's New Parent and Infant Network (Newpin) program that works intensively with struggling families to keep them safely together. On 4 June 2013, Social Ventures Australia announced they had successfully raised the required $7 million to finance the bond, one month before the scheduled close.
On 19 August 2014, NSW Treasurer Andrew Constance and NSW Minister for Family and Community Services Gabrielle Upton announced the Newpin bond delivered a 7.5% return to investors in its first year, while improving supports for parents of children in, or at risk of entering, out-of-home care. The $7 million in working capital from investors allowed UnitingCare Burnside to run intensive courses for parents, and to successfully restore 28 children to their families from out-of-home care in the first year of the bond.
Newpin's second year results have been similarly positive and were announced on 20 August 2015. Over the first 2 years of the program, Newpin restored 66 children to their families and prevented children in 35 families from entering out-of-home care. This result generated an 8.9% return to investors in the second year.
On 13 June 2013, the NSW Government signed the contract for the second bond pilot for a Resilient Families Service (RFS) provided by The Benevolent Society. The aim of the RFS is to strengthen family functioning and relationships, and ensure children's safety and wellbeing in order to prevent children entering into out-of-home-care. The $10 million bond was implemented in October 2013 and it is anticipated that the service will assist up to 400 families over the 5 year term.
How do the Newpin and Benevolent Society bonds fit with other Government services and programs?
The Newpin bond focuses on restoring children to families and preventing children from entering out-of-home care. The Benevolent Society bond will also work with vulnerable families and their children to keep them safely together. Children in out-of-home care often have poorer outcomes than their peers. These bonds are part of a broad range of reforms to improve services and lives for children and young people in out-of-home care.
Social benefit bonds are an exciting new way of building innovative partnerships with the non-government sector and investors to deliver measurable and outcomes-based services. They help raise money for important earlier intervention and intensive services that otherwise might not receive funding due to limited Government resources.
Why did it take so long to develop the pilot bonds?
Social benefit bonds are a new financial model, with many interrelated components to be understood. The government's commitment to social benefit extends to learning, sharing knowledge, and developing the capacity of all organisations involved in launching the bonds. The process to develop the two pilot bonds was thorough, and ensured that the Newpin and the Benevolent Society bonds are robust, transparent and financially well-structured.
The development of future bonds and other social impact investments will benefit from the knowledge built and care taken in developing these pilot bonds.
What financial or legal risk would our organisation face by participating in a social benefit bond?
It is envisaged that the financial risk associated with a social benefit bond is borne primarily by investors. The bond issuer (the organisation providing or overseeing provision of the services) may also choose to take on some financial risk and share in the financial return from a successful bond. The precise structure of each bond will be determined collaboratively during its development.
How will outcomes be measured? How can you be sure measurement is accurate?
Key performance indicators and corresponding Government payments for the current pilot bonds were agreed in the joint development phase and included in the agreements to establish the bonds. Independent certifiers have been commissioned to verify the measurement of performance against the agreed indicators and the payment that are due. Dispute resolution arrangements were also agreed before the start of each pilot.
A lot of work was needed to ensure the chosen indicators are an accurate reflection of the agreed outcome, that they cannot be 'gamed', and do not create perverse incentives. Specific arrangements depend on the bond.
Where can I get more information about investing in social benefit bonds?
The NSW Government has signed contracts for the implementation of two pilot social benefit bonds, the details of which are above. Information on any future bonds will be made available on this website. Investors and organisations interested in participating in a social benefit bond or other social impact investment should speak to their financial advisor or contact a social impact investment intermediaries.
Specialist Australian intermediaries include:
- Blue River Capital
- Foresters Community Finance
- Koda Capital
- National Australia Bank
- Social Enterprise Fund Australia (SEFA)
- Social innovation in Western Australia
- Social Outcomes
- Social Traders
- Social Ventures Australia (SVA)
There are also other intermediaries. The NSW Government does not endorse or recommend any of these organisations.
Can you recommend further background material on social benefit bonds?
Yes. Check out the Tools and resources section for more information.
Tools and resources
Sample documents and templates
A suite of sample standard form documents to help make the drafting of legal documents for transactions more efficient. These documents are based on those used for the social benefit bonds and may not be suitable in all circumstances. They have been developed by King & Wood Mallesons and the NSW Crown Solicitor's Office, in consultation with Trevor Danos AM.
Where indicated, a Creative Commons Licence has been granted in relation to the copyright in a document. The terms of this Creative Commons licence are in accordance with the relevant copyright notice specified for that document. Please refer to the relevant document.
A factsheet that:
- explains the legal arrangements between the parties involved in the NSW social benefit bonds
- summarises the sample standard form documents that will be made progressively available for use when developing and implementing bonds
- highlights some key considerations for proponents developing a proposal for a bond.
A sample agreement that proponents would make with the NSW Government if their proposal is selected for further development during the request for proposal (RFP) process.
A sample agreement that sets out contractual arrangements between the relevant government department and the proponent for providing services and issuing bonds.
A sample offering document provided to potential investors, which describes the proponent, the proposed services and the terms and conditions of the bonds.
A sample document that outlines the terms and conditions of the bonds (to be inserted into the information memorandum)
A sample agreement that creates the proponent's legal 'promise' to investors to perform its obligations under the bonds.
A sample agreement between the proponent and investors in relation to the issue and sale of bonds.
A sample document that creates a charitable trust, which can act as a special purpose entity and assume the role of the proponent in each of the above sample documents.
A sample agreement that provides the arrangements for how a special purpose entity is to be managed. This is only relevant for transactions where a special purpose entity created under a trust deed (above) is used.
Guidelines to assist in drafting a service subcontract, which is an agreement that provides for how the proposed services will be provided by the proponent. Please also refer to the implementation deed (above).
A sample agreement that creates direct legal arrangements between the proponent and the relevant department, where the implementation deed is between the department and a special purpose entity.
Sample agreements for instances where the proponent is providing security, if required by the NSW Government and/or investors (not required in all cases):
Introductory and background reading
UK Cabinet Office
The Centre supports the development of social impact bonds in the UK, with a repository of information and guidance on how to develop them. The toolkit is not directly applicable to NSW (or Australia), but the site clearly explains key concepts and outlines case studies (mostly from the UK).
Ann Griffiths and Christian Meinicke, Early Intervention Foundation, April 2014
A report that suggests social benefit bonds have potential to help fund early intervention services. It explains the structures, mechanics, advantages and disadvantages of social benefit bonds. The report also includes a decision tree to help commissioners work out whether a bond is appropriate for their situation and outlines the process to develop them. It includes case studies from the UK, US and Australia.
MaRS Centre for Impact Investment (Canada), November 2013
An in-depth explanation of social impact bonds, which includes a guide for developing them from idea to action.
Social Finance UK, January 2013
This guide clearly outlines each step in the social impact bond development process.
Social Impact Bond Technical Assistance Lab (US), June 2013
This publication provides a useful step-by-step guide for state and local governments on the development process for bonds.