Social Bonds – New Zealand Pilot

The Government has given the green light to piloting social bonds in New Zealand. Social bonds are an innovative way for private and not-for-profit organisations to partner in delivering better social outcomes – and be rewarded by Government. The Ministry of Health is leading cross-government work to pilot social bonds in New Zealand.

Update: Now that the two social bond pilots have been established, the pilot programme has wrapped up. See Progress to date for more information.

Social Bonds

Social bonds are an innovative way for Government to contract for social outcomes. Social bonds see private and not-for-profit organisations partner to fund and deliver services to improve social outcomes. If they achieve agreed results Government will pay the investors back their investment plus a return. Investor returns depend on the level of results, up to an agreed maximum.

Organisations have one or more key roles:

  • Service providers: deliver services
  • Investors: provide upfront funding to deliver services
  • Intermediary: assists with raising funding and driving service performance
  • Independent assessors: review and verify results.

New Zealand is one of the first countries piloting and actively exploring Social Bonds. This follows Ministry of Health led cross-Government work in 2012/2013 that explored the potential for using Social Bonds in New Zealand. Social Bonds are currently underway in the United Kingdom, United States, South America, Holland, South Africa, Belgium and Australia, and are being actively explored in Canada, Ireland and Israel.

What is the Government looking for the Pilot to do?

The Government is looking for the Pilot to do a number of things:

  • test the concept within the New Zealand context to see whether this is an effective and efficient way for government to reduce social problems
  • develop the conditions to use social bonds more widely in the future: including growing the social-investor market and building capabilities of service providers, government agencies and Intermediaries
  • learn lessons that could be applied to other forms of payments-for-results and/or outcomes-based contracting
  • enable Government to make more informed decisions on whether to use payments-for-results and outcomes based contracting more widely.

What is the process?

This graphic highlights 5 phases in the procurement process: Phase 1: ROI for Service Outcome & Provider, Phase2: ROI for intermediaries, Phase 3: Solution Establishment Phase, Phase 4: Contract negotiation, Phase 5: Pilot establishment. The first 2 phases have been completed.Read a description of this image.

Where are we at?

We are currently completing the Solution Establishment phase (Phase 3) of the procurement process. Four submissions have been selected to form a preliminary short list for further consideration.

We have completed the Evaluation Process to confirm a shortlist – each of the potential initiatives within the shortlist have been reviewed for their ‘doability’ and the extent to which they meet the Pilot factors. The topics have been prioritised with two being actively developed.

What happens next?

Partnerships may then pass through to the following phases (or be held for reconsideration at a later date).

  • Phase 3 (Parts 4–6) Solution Design, Specification and Final Selection – via a short Competitive Dialogue process, where each proposed Bond will be further refined (detailed designing and specifying of the solution) and evaluated for consideration as a Pilot.
  • Phase 4: Contract Negotiation – Government will require a contract with the Intermediary regarding performance and payment.
  • Phase 5: Pilot Establishment – there are two parts to this Phase: raising capital and implementation. Government will work with all parties where required during this phase.

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