Social outcomes contracts: Should we be making more use of them?  

Social outcomes contracts can deliver great results and should be deployed more, according to research from Big Society Capital which looks back at the first decade of these pioneering social investment vehicles

Social outcomes contracts (SOCs) were pioneered a decade or so ago, primarily in the UK, as a way of funding and implementing complex social problems that were best served by coordinated action across government departments and social support agencies.

However, they remain underutilised despite measurable benefits, according to a report recently published by social impact investor Big Society Capital. 

Under a SOC, a government pays for a successful outcome to a social project – such as a targeted cut in homelessness or improved family welfare – regardless of how it is funded, as long as the project reaches an agreed outcome.

Projects that choose to use external working capital in this way can offload some of the upfront financial risk to social investors, for example, via social impact bonds (SIBs). Those investors then make a return based on the payment received by the project on achieving the target.    

Not only does this provide an alternative to upfront spending by government, but it also encourages agencies to work together to get the best overall outcome rather than working within their own silos spending their own budgets.      

“There is always difficulty in corralling different government departmental budgets to work on particular issues. These co-payment mechanisms have really helped to bring different budgets together to enable a multidisciplinary approach,” Aman Johal, head of social outcomes, investment director at BSC and co-author of the report told Impact Investor. 

UK lead

The UK has launched 90 projects based on SOCs in just over ten years, involving over 220 social sector delivery partners, and benefitting over 55,000 people, BSC estimates. That’s the highest number of SOCs in the world and three times the number in the US, in second place, with 27 SOCs (though these add up to a higher combined monetary value than UK SOCs). Japan and the Netherlands follow with 17 SOCs each.     

As evidence of what can be achieved, BSC cites SOCs launched in 2018 by the UK housing ministry to tackle rough sleeping. The largest of these programmes, the Greater Manchester Homes Partnership housed over 90% more people than originally targeted at half the cost of similar interventions funded in other ways. The SOC model was used to expand homelessness support services for young people across local authority areas in the region. 

In Newcastle, north-east England, the Ways to Wellness programme has worked with over 6,000 adults with long-term health conditions to improve their wellbeing by introducing lifestyle improvements through non-medical interventions. Secondary care costs per individual, such as those accrued when a GP refers a patient to a specialist were 27% lower than a comparison group and there was a 14% reduction in GP consultations. 

Other areas where SOCs have been successfully deployed in the UK include end-of-life care, mental healthcare, children’s services, employment and education. 

Better outcomes, lower cost 

The report uses independent analysis carried out by ATQ Consultants on 72 of the 90 UK SOCs. This found outcomes from these projects have generated £1.418bn of value to date, while corresponding payments from commissioners on the related SOCs were £139m. That suggests every £1 spent by commissioners on SOCs has generated £10.20 of public value. 

One reason for this high benefit to cost ratio is the relatively high success rate across the SOCs. “A really interesting thing about the model is that there have been relatively few failures, because they are actively-managed and data driven, you have flexibility and you’re working towards an outcome,” says Johal. 

Despite the apparent benefits, 90 projects over ten years and £139m of pay-outs on 72 of them are small fry compared to overall social sector investment. So, with governments keen to find alternative sources of funding and a more effective bang for their buck, and a growing pool of social investors keen to target the sector, what’s holding back growth in SOCs? 

One set of obstacles are those that also create inefficiencies in public spending in general the world over: short-term political planning cycles, changing policies and the general churn of government personnel.  

“People in government have even asked us to share what has been done in the sector in the past because it’s quite difficult for departments to retain institutional memory,” she says. 

Back on the political radar 

Getting SOCs back on the political radar was one driving force behind publishing the report – Outcomes for All: 10 years of social outcomes contracts – which Johal co-wrote with Gabriel Ng, also of BSC. 

“We’re definitely seeing some interest from government departments, just off the back of the report,” Johal says.    

Investor interest is already growing, not least because SIBs that fund SOCs are one form of social investment that has clearly defined data-driven outcomes.  

“Investors are attracted because financial performance is totally linked to impact, as it’s all based on outcomes payments. In this asset space more than others, you can clearly articulate as an investor what your impact has been,” she says.     

Investing in SOCs in the UK usually means channelling money through funds developed by BSC, Bridges Fund Management and Big Issue Invest, which spread the risk across multiple investments. 

Those investors include trusts, foundations, local authority pension funds, and other financial institutions, including foreign organisations such as the Development Bank of Japan, which has invested in the UK SOC market to learn more about how it works.