Social Impact Bonds (outcome based payments contracts)

Contract implementation and Regulatory aspects

Yvette VerleisdonkEvelyne Maes

31 May 2016

Contract implementation(based on publicly available data on SIB Duo for a Job)

2Presentation Curia 31 May 2016

Actiris(Brussels authority

for employme

nt)

Duo for a Jobprovides coaching

by seniors in finding a job (3h

per week during 6 months)

Brussels Observatory of

EmploymentEvaluator

Young migrants job seekers in Brussels

Instruction

InvestorsLoan

output

Start: summer 2015Duration: 2 years, possible extension by 1 yearAmount: Eur 234,000

Outcome/ return:Repayment of principal if Duo for a Job is 10% more efficient than ActirisPayment of principal plus 6% ROI if Duo for a Job is 60% more efficient than Actiris

Cost of coaching: Eur 2,000 per personCost of government: Eur 35,000 per person

Contract implementation (2)

• The seven golden rules for SIB contracts

1. Use separate contracts2. State the mutual goals and relationship of trust3. Focus on the social return4. Agree on the allocation methodology5. Agree on the methodology for measuring social return6. Agree on the working relationship and an escalation procedure7. Agree on the termination events

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Contract implementation (2)

• Instruction agreement government authority – social service provider

– Description of social program – shared aims – trust - partnership

– Services of service provider (minimalist, but realistic approach – flexibility for service provider – focus on output)

– Duration: preparation – performance – monitoring period

– Information rights (privacy law!), review meetings, monitoring rights

– Limited control rights for authority (reputational damages/ other costs)

– Insurances for service provider (professional indemnity, third party liability)?

– Service failures (breach of contract, unsatisfactory outcomes): remedial plan to be agreed upon

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– Termination events for both parties, eg unremedied breach of contract

– Termination events for authority: eg insolvency, withdrawal of license

– Right of voluntary termination for either party (after x months, with x notice period) – compensation payable by authority?

– Payment obligation of authority to service provider in case of success: definition program group and comparison group, outcome measurement, provision of data, amounts, timing.

Note: bankruptcy risk on social service provider

– Force majeure, assignment, subcontracting, boiler plate provisions

– To be disclosed to investors

Contract implementation (3) – instruction agreement (continued)

Presentation Curia 31 May 2016

Contract implementation (4)

• Loan agreement investors – social service provider – Amount of loan (min Eur 700,000?) and duration (3-7 years)

– To be disclosed to/ approved by authority

– Use of loan: only for performance social program

– Description of social program and outcome

– (Only) information rights of investors (during/ after program)

– Events of default: early repayment by service provider

– Repayment of loan by social service provider during and at end of program, based on objective and measured outcome

if outcome [x] – no repayment

If outcome [y] - repayment of principal only

If outcome [z] - repayment of principal and ROI6Presentation Curia

31 May 2016

Contract implementation (5)

• Service agreement Evaluator – Social Service Provider - Authority

– Appoints external, objective evaluator

– Process of measurement (report on each date, draft report for comments prior to final report)

– Who provides data? Privacy law issues?

– Evaluator determines whether outcomes have been achieved and level of payment due

– Dispute resolution: arbiter?

– Replacement of evaluator

– To be disclosed to/ approved by Investors

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Contract for social services: European rules

• ≥ 750 000 euro: particular procurement regime (articles 4, d and 74 Dir. 2014/24)

• European rules:1. publication of intention of awarding :

− by means of a contract notice (Annex V Part H) or− by means of a prior information notice, which shall be published

continuously (Annex V Part I). (incl. types of services, award without further publication and invitation of interested economic operators to express their interest).

2. publication of a contract award notice (Annex V Part J): can be done on a quarterly basis.

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National rules for contracts ≥ 750 000

• “non-discrimination, equal treatment and transparency”1. ensure the principles of transparency and equal treatment of economic

operators and take into account the specificities of the services in question.

2. take into account the need to ensure – quality, continuity, accessibility, affordability, availability and

comprehensiveness of the services, – the specific needs of different categories of users, including

disadvantaged and vulnerable groups, – the involvement and empowerment of users and – innovation. – best price-quality ratio, taking into account quality and sustainability

criteria for social services.

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Exclusive right to participate

• Exclusive right for organisations to participate in these procurement procedures, if contract no longer than 3 years

• Conditions for organisations:– its objective: the pursuit of a public service mission linked to the

delivery of the social services;– profits are reinvested with a view to achieving the organisation’s

objective. Where profits are distributed or redistributed, this should be based on participatory considerations;

– the structures of management or ownership of the organisation performing the contract are based on employee ownership or participatory principles, or require the active participation of employees, users or stakeholders; and

– the organisation has not been awarded a contract for the services concerned by the contracting authority concerned pursuant to this Article within the past three years.

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• A single stage procurement in which bidders are assessed against a clear set of criteria to select a preferred provider;

• A two stage procurement involving expressions of interest and subsequent selection of a short list of providers for more detailed dialogue;

• Engagement with a third party (in the form of a Joint Venture, partner or concessioner) to deliver some or all of the services required for the implementation of an outcomes-based service.

Possible procurement approaches

Presentation Curia 31 May 2016

European budget rules

• European System of Accounts 2010 (implementation since 2014)

• No explicit rule on social impact bonds

• By analogy: principles of PPP’s,… (risks-assessment)

– Hypothesis: public sector no control over SSP

o If payment (amount and time) is certain: budgeting

o If payment (amount or time) is uncertain: provision

• Only public debt in the year the payments are budgeted or provisioned

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