Association for Public Policy Analysis & Management

In the UK, the latest vogue for directing public services in situations where innovation and

efficiency are thought to be essential, but specifying service expectations and quality

standards remains challenging, is ‘outcomes-based commissioning’ (OBC). With an internal

logic that blends managerialism and marketisation, proponents contend that specifying and

steering public services on the basis of social outcomes is likely to deliver better outcomes

because financial incentives and policy goals are aligned. By explicitly linking payment to

the achievement of social outcomes without specifying intervention details, those paying for

outcomes can simultaneously provide strategic direction and operational flexibility to service

providers.

Albeit a deliciously straightforward idea to drive behavior, this outcomes-orientation

poses a particular conundrum when contractualized. Outcomes contracts by definition are

inevitably underspecified. Consequently, a perennial fear is that providers may still find

routes to prioritize profits over quality provision – through ‘cherry-picking’, ‘creaming’ and

‘parking’ – since a recurrent problem within OBC is incentivizing providers to support all

program participants effectively given their differing support costs and varied likelihoods of

realizing specified social outcomes and thus triggering payment.

We argue that the goal of an outcomes payor in this context should be to define a

‘requisite’ contract: one that minimizes the scope for opportunism by service providers whilst

balancing the costs associated with developing a more specified contract. We suggested three

essential criteria which, if not addressed in an outcomes-based contract, leave payors open to

opportunistic behavior on the part of providers. These include: a tight cohort definition,

alignment of payable outcomes to overarching policy intent, and accurate outcomes prices.

In this paper, we operationalize these criteria as they relate to a particular kind of

OBC tool, the social impact bond (SIB). SIBs leverage third-party social investment, usually

to cover the cost of service delivery, whereby investors are only reimbursed by outcomes

payors, usually government, if desired social outcomes are achieved. We use fuzzy set

qualitative comparative analysis in order to understand which contractual conditions within

SIB outcomes specifications, alone or in conjunction with others, protect against provider

opportunism. We include the full population of completed UK SIBs: 21 projects from 2010-

2018 in policy areas like homelessness, youth unemployment, children’s social care, and

prison rehabilitation. Data on each case comes from programmatic strategy documents and

press releases, invitations to tender and procurement documents, published rate cards, and in

some cases, performance data made accessible to the research team on a confidential basis.

Causal conditions were coded iteratively by the four-person team without prior knowledge of

the outcome variable for most cases.

Early results show that contract features which clearly define the treatment cohort

(e.g. referral number caps) and meaningfully align payable outcomes to overarching policy

objectives (e.g. outcome-specific payment caps) are particularly important for mitigating

opportunistic behavior as evidenced by outcomes payments below the maximum contracted

value. This article is a first-of-its-kind contribution as detailed work investigating alternative

specifications and contractual arrangements in OBC projects is rare internationally and

detailed, systematic comparative assessments are scarce.