Where next for SIBs? Lessons from the main investors

On October 31st ATQ and Ecorys hosted a breakfast briefing for the main investors involved in SIBs to date. The aim was to share the findings from our recent survey of investors and discuss the current and future landscape of SIBs. James Ronicle and Edward Hickman, who hosted the briefing, summarise key points, and highlight that more information needs to be shared to make SIBs quicker and cheaper.

There was broad agreement, both from our survey and in the discussion, that SIBs were overcoming the ‘hype cycle’ – investors did not consider SIBs as a panacea and applicable in all cases. The difficult work launching the first set of SIBs had been overcome, and investors were broadly happy with the current landscape. 

Our survey of investors shows that SIBs they invested in are generating their expected social and financial returns (publication forthcoming). Investors liked them because they provided the flexibility and incentives for service providers and investors to work more closely together than in other types of investment. The SIB contract enabled investors to work with providers and adapt the service as problems occurred, often in the first six months, thus improving the service and maximising outcomes. 

The focus of the discussion was therefore on ‘what next’? How do SIBs move from their relatively niche position to be more mainstream? And should they? Three big themes emerged from the discussion: scale, replication and transparency.

Scale

Since SIBs were launched, the size and proportion of investment put in has grown, helped by dedicated ‘top-up’ funding programmes such as the Life Chances Fund.  However, in the fund that preceded this, the Commissioning Better Outcomes Fund, a few SIBs have been notable for working at a smaller scale than market players expected. Some SIB investments were as little as £150k (such as the Be the Change). 

In 2014 we identified that scale was an issue for SIB viability, with investors stating they were reluctant to invest in SIBs below £1m due to the required organisation, transaction costs and on-going contract performance overheads. So why has this changed? In part this was necessary – SIB funds were launched and these were the only opportunities available. But it is also because small scale is now more possible. In some deals a lot of the work had already been done when developing previous projects, so the transaction costs were lower, justifying a smaller investment.

However, there was consensus amongst investors that in order for SIBs to be more mainstream they need to be more affordable for commissioners. The key to this is scale. But what does scale look like? It may include cross-SIB Funds that some local authorities are experimenting with. This is where investors invest in one large pot and this is distributed across a range of projects. 

However, investors were wary of “blind pots” – i.e. putting their investment into one pot that the commissioner can distribute across projects as they saw fit. They still wanted to test each project and monitor performance. Indeed our SIB evaluations have found that one of the main benefits of a SIB is the external scrutiny from investors during delivery stage, thus removing this would be a disadvantage. 

Replication

Replicating SIB structures that already exist in policy areas can also make them simpler and cheaper. Investors reported that it often takes 18 months to design the SIB with the commissioner and provider. It’s rare for an investor to spend such a long time preparing for a deal unless it’s really large. 

The investors (and outcomes funders in the room) reported that replication is happening. A number of SIBs are building on previous designs, making them cheaper to develop and quicker to launch. However, caution was cited that just because a particular SIB model works in one place, doesn’t mean it will apply on an identical basis in another contract. It was important that lessons learnt from previous SIBs were applied, and SIB structures adapted accordingly. 

Transparency

Whilst replication is a positive thing, investors felt it was hindered because commissioners lacked detailed information on previous SIBs. The investors reported the need for more information on contracts, outcomes, and payment levels for outcomes. Whilst a good learning structure around SIBs exists (with multiple evaluations being conducted and research institutions exploring them), the investors felt that this focus did not foster replication.

Investors felt the current focus is on establishing whether a SIB model adds value above and beyond other commissioning models. Whilst valuable, they wanted to see greater focus on gathering information others could use, such as contracts, outcome metrics and payment levels for outcomes. They felt this information should be more widely available (though one could argue that the same point could be made about actual rates of return generated).

As well as these main points, the group also discussed where SIBs seem to work best. There was a general consensus among the investors currently active in the market, that SIBs work best when operating in a relatively ‘closed system’. In other words, where the intervention funded through the SIB is the main factor in the ‘system’ around the subject which is driving the outcomes, and therefore is the legitimate focus of performance monitoring and related payments. When SIBs operate in a very complex system, where multiple factors are impacting on the outcome, it’s hard to be sure any outcomes can be attributed back to the intervention.  

With all these points considered, the true test of whether SIBs will become a mainstream commissioning tool lies in the SIBs about to be launched through the Life Chances Fund. Can these new SIBs be scaled up? Are they designed in a transparent way? Does this transparency enable replication? Time will tell…