The Social Investment Agency (the Agency) became a standalone central agency on 1 July of this year, reflecting the Government's renewed focus on social investment. While social investment has been a focus for a number of agencies in recent years, the establishment of the new Agency reflects that there will be a greater emphasis and expectation on commissioners and funders across government to apply a 'social investment approach' to funding decisions. The Agency's functions include working with agencies to apply the social investment approach, and setting standards for social investment practice.
While the idea of social investment is not new, it is a concept that is not always well understood. In our experience, there is also uncertainty about how to best contract and fund for outcomes – a critical element of the social investment approach.
This article discusses what is meant by 'social investment', proposes some key questions for commissioners to ask when looking to apply a social investment approach to funding services, and sets out some of the key elements of a contract for outcomes.
What is social investment?
A recent Cabinet paper from the Minister for Social Investment, Hon Nicola Willis, observes that "Social investment is a systematic way of using data, evidence and modern analytics to invest in earlier and better intervention that can effectively break cycles of dependence, inter-generational poverty and disadvantage. It provides the framework for how we understand who we need to invest in and what works for those people, as well as how we can measure progress to ensure that what we are doing is working."
Broadly speaking, social investment is about using information and technology to better understand the people who use public services, and what services achieve the best outcomes for those people. The approach focuses heavily on intervening early in peoples' lives (particularly in the lives of those who rely most heavily on public services), to achieve better long-term outcomes for them. It also reflects an intention to encourage more innovation in the way in which social services are delivered.
Social investment is viewed by some as a way of helping reduce overall taxpayer spend on social services; however, Minister Willis' Cabinet paper noted that "While [social investment] may have long-term fiscal benefits for the state, equally as important is measuring the improvement in individuals' lives and improvements brought to families and communities."
What questions do commissioners need to ask when considering a social investment approach?
While the concept of achieving better outcomes through good investment sounds relatively straightforward, applying it in practice is likely to be anything but. The Agency has indicated that agencies will need to apply a framework to understand who to invest in, what works for that group of people, and how to measure progress to ensure that the investment is working as intended.
Accordingly, the Agency has identified some key questions for commissioners to ask at the outset when looking to implement a social investment approach:
- What outcome(s) are we, as an agency, seeking? This is different to identifying the 'problem' to be solved, which can be a feature of more traditional commissioning approaches. The key question to ask is "what is the opportunity to do better?"
- For whom, and where, should we focus our effort (and our investment)? Using the data and analysis available to us, can we identify who is not achieving the outcome that we want to achieve? For example, an analysis of data held by government agencies might show that there are some characteristics (indicators) that are common to people who receive certain services, and that those should be the focus of the investment.
- What is the current approach (or what have previous approaches been) to achieving this outcome? From the data and analysis available, what can we say about what has worked and what hasn't worked? What impact have previous investments had? What else is being done to achieve the desired outcome for the identified group (in particular, from within government)?
- How can services be delivered (and funded) differently in order to improve the impact of our investment and achieve the desired outcome? For example, can services be delivered in a more holistic way, or in a way that allows services to be more tailored to individual and family/whānau needs, or in partnership with communities? Are there multiple funding contracts and/or funding from more than one agency (and could these be integrated)?
- How will we know if our investment is helping achieve the desired outcome? What information will we need to understand this, and when will we need that information? Do we need to build flexibility into our contracting arrangements so that we can make changes to our investment (if reporting shows us that changes are needed)?
Contracting for outcomes – a key element of the social investment approach
We can see from the above that a critical part of the social investment approach is identifying the outcomes that an agency wants to achieve through its investment, and measuring whether the investment is actually resulting in progress being made towards achieving those outcomes.
We expect that, to support the social investment approach, there will be more emphasis on agencies looking for opportunities to 'contract for outcomes' as an alternative to traditional contracting approaches. The obvious question is – what's different about contracting for outcomes?
Simply put, the difference between an outcomes contract and a more traditional contract is that, under an outcomes contract, the provider's success and performance in delivering the contract is determined by the outcomes that the relevant service achieves. That means that outcomes contracts are heavily reliant on how those outcomes are identified from the outset, and getting the information needed to enable the funder to know whether those outcomes have been achieved for the target population, ie have the services provided been effective?
By contrast, a traditional contract usually measures a provider's success and performance by whether the provider has delivered required outputs. It is common for contracts through which social services are funded to refer to broad outcomes and objectives. However, payments under such contracts are often made on the basis of the outputs delivered, rather than whether a specific outcome has been achieved.
For example, a traditional contract could require that a specified number of people receive a specific service in a set timeframe, eg 100 families attend an advice and support session every month (ie the output). In contrast, an outcomes contract would clearly describe a desired outcome for those families, how that outcome will be measured over time, and link at least some of the payments for the services to the achievement of that outcome for those families.
Below, we have described some key considerations when designing an effective outcomes contract to implement a social investment approach, as well as some challenges presented by 'contracting for outcomes' approaches.
What, exactly, are the outcomes the agency wants to achieve through this contract?
The desired outcome must be specified unequivocally in the contract. An example of an outcome being contracted for might be Year 9 students in an identified region achieving better school attendance rates. We expect that the process of developing outcomes will be iterative, and involve working, and engagement, with relevant stakeholders (including service providers and NGOs working with the relevant communities). An important part of identifying outcomes will be assessing whether the available data supports a correlation between the proposed outcome and improved social outcomes. In the example above, this might be a correlation between good school attendance rates in Year 9 and positive social outcomes later in life.
Contracts must also include outcome measures and outcome targets. Outcome measures are the specific ways in which the commissioner will determine whether the outcome has been achieved. In the example above, the outcome measure might be attendance numbers for all Year 9 students as reported by schools in the relevant area. An outcome target is a specific value relating to the outcome measure, that is used for determining whether satisfactory performance has been achieved. For example, a target that reported attendance rates for Year 9 students improve by 10% over a six-month period.
There will be a number of challenges for agencies here. Being able to clearly specify the desired outcome, as well as measures and targets is a challenge in itself. Additionally, agencies will also need to make decisions as to how best to target their investment. For example, should the investment be aimed at all Year 9 students in a region, or a subset of Year 9 students who might benefit more from a targeted investment?
How will the agency measure whether the outcomes are being achieved?
Outcomes contracts must include mechanisms that enable the commissioner to regularly measure progress. Those mechanisms should include short-term feedback loops during the term of the contract to tell the commissioner whether the services being purchased are having the anticipated outcomes – ie don't wait three years before doing an evaluation. Therefore, commissioners will need to ensure that the management of such contracts is sufficiently resourced.
Agencies need to ensure that the contract provides for sufficient data collection and reporting of that data, and that the data collection is appropriate for the outcomes that the commissioner is seeking to achieve. Things agencies should consider include:
- Sufficient reporting and feedback loops (which could be either informal or formal – eg building in regular catch-ups in addition to formal reports)
- What data the commissioner needs to be able to measure progress towards (and ultimately achievement of) the specified outcomes
- Is the data already available (or being gathered elsewhere)
- What data do service providers need to collect and does collecting this information raise any issues (for example, how resource-intensive will that data collection be and does it raise privacy concerns)
- To what extent can the data show whether progress can be attributed to the specific investment.
A contract should also be sufficiently flexible to allow changes to be made to the services or the specified outcomes sought, if reporting indicates that this is necessary or desirable (ie because the services are not contributing towards achieving the expected outcomes).
Of course, whether certain social outcomes are achieved can depend on a huge variety of social and economic factors, many of which will be outside of the control of those delivering the services. This highlights the importance of contracting for specific outcomes, clearly identifying how progress towards, and achievement of, those outcomes will be measured, and building appropriate flexibility into the contract.
Will payments be made on the basis of achieving outcomes?
Agencies will need to determine whether payments can be structured on the achievement of specified outcomes. If payments are to be made on that basis, it is also essential that careful thought is given to the data that a service provider is required to provide under the contract, and the extent to which the data could be skewed or distorted.
The delivery of social services comes at a cost, and service providers need to be funded for the activities that they carry out. Additionally, even if the investment is the right one for the outcome, it may take some time for the data to show that the outcomes are being achieved. Contracts could, for example, provide for some level of payments to meet the cost of service delivery, and additional payments for achievement of outcomes.
What is an appropriate term for the contract?
The term (length) of the contract will need to take into account when the specified outcomes are expected to be achieved; the described outcomes should be reasonably achievable within the term of the contract.
Does the contract include clear, but appropriate, accountability mechanisms?
While outcome agreements may need greater flexibility than traditional contracts, it is essential that the contract provides for what will occur if the anticipated outcomes are not being achieved, or there are clear issues with the way in which the provider is delivering the service. A failure to build in clear accountability mechanisms into a contract can result in substantial issues for a commissioner at a later date.
However, the sorts of accountability mechanisms seen in traditional contracts may not be entirely appropriate. For example, if an outcome is not achieved it may not be appropriate to deal with that failure as a breach of contract, if the provider is otherwise providing services as agreed and set out in the contract. Instead, other contractual mechanisms may be needed to provide for changes to how services are delivered during the contract term, and/or to enable resources to be directed elsewhere if the outcomes are not being achieved.
What flexibility should be built into the contract?
There can be more uncertainty in contracting for outcomes rather than contracting for and funding outputs. This reflects that appropriately defining and measuring outcomes, and whether an investment is contributing to those outcomes, can be challenging for the reasons noted in this article. For longer term contracts (in particular) it is important that how to build in flexibility is considered so that changes can be made relatively easily if the investment is not achieving the intended purpose. There would need to be honest and open engagement between funders and providers about any such changes. However, the contract will need to clearly set out how such changes can be put in place, and not rely on an assumption that the parties will be able to easily agree to any such changes.
Standards to be set by the Social Investment Agency
One of the Agency's new functions is to set the standard for social investment practice to ensure there is consistency across government agencies and contracted providers. We also understand that the Agency is working to develop documents (including templates), which agencies will be able to use (and build on). It will be important for agencies to keep up-to-date with any guidance issued by the Agency, and to comply with standards as required.
How we can help you
Buddle Findlay has a wealth of experience assisting clients across the public and private sector to put in place innovative commissioning approaches, and navigate challenging contracting scenarios, including by drafting contracts that enable our clients to achieve their desired outcomes. Please contact one of the authors of this article if you would like to discuss social investment and outcomes contracting.
