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23 February 2022

COVID was an extreme test of the social impact bond model

Dr Clare FitzGerald led evaluation of the Departure of Culture, Media and Sport's Life Chances fund

Woman in hijab and man both wearing masks serving food. Photo by Julia M Cameron from Pexels
Photo by Julia M Cameron from Pexels.

Dr Clare FitzGerald, Lecturer in Management & Organization at King’s Business School has conducted the first of three reports making an initial evaluation of the Departure of Culture Media and Sport Life Chances Fund. The Life Chances Fund was set up in 2018 to develop locally commissioned Social Impact Bonds. Dr FitzGerald’s report highlights the problem of ensuring that projects funded through Social Impact Bonds are flexible enough to cope with change, while still delivering the transfer of financial risk from the public to private sectors that they are designed to achieve.

Social Impact Bonds (SIBs) are a tool used to fund projects that deliver socially desirable outcomes, for example supporting people into employment. Private investors invest in a project and only receive public payment if the project delivers specified outcomes. It is hoped that this model will encourage greater innovation in providing social services, and a sharper focus on outcomes. Dr FitzGerald’s study looked at the £80 million Life Chances Fund to understand the experience of projects applying to the Fund, and how the 31 projects that were ultimately successful were affected by the impact of the COVID lockdowns.

Key findings and recommendations

  • Many of the applicants found the local authority procurement procedures required for launching SIBS both time consuming and costly. This is an area where more support is needed to ensure that SIBs are not prohibitively expensive for applicants.
  • Some standard contractual terms designed for dealing with emergencies like ‘force majeure’ (common to public contracts) were found to be unhelpful at the onset of the COVID crisis because they focussed on terminating projects rather than adapting them. Future contracts could clarify governance mechanisms for project decision-making, helping to outline the negotiation process for making changes to projects during delivery, including alterations to payment mechanisms.
  • In some instances, lockdowns and social distancing meant that the projects rapidly changed the delivery of services, causing anxiety over the appropriateness of and their ability to deliver the outcomes specified in their contracts. In the future, there may need to be a mechanism to allow for the transparent reprofiling of a project to allow it to continue if circumstances change

To be ‘worth’ it, SIBs need to offer something that’s meaningfully different from both public funding and philanthropy. That means getting the balance right between risk and reward as determined by defined outcomes and flexibility. COVID was an extreme test of SIBs and it has given us important insight into which elements of the model work well under stress and which don’t.

Dr Clare FitzGerald

In this story

Clare J FitzGerald

Lecturer in Management & Organisation