2Center or American Progress | What Are Social Impact Bonds?
While Social Impac Bonds are sill in heir inancy, he concep has enormous poenialin areas o social policy such as homelessness, juvenile delinquency, prevenive healhcare, and workorce developmen. In paricular, SIBs could become a key vehicle orunding prevenion iniiaives designed o save governmen money over he long erm.
Early inervenions o reduce homelessness or smoking, or example, could lead o con-siderable reducions in Medicare and Medicaid spending—no hrough program cus bu hrough lower hospializaion raes.
There are lots o reerences to “Pay or Success” arrangements and “SocialImpact Bonds.”
Sometimes people use the terms interchangeably tomean the same thing, and sometimes they mean dierent things. It canget very conusing or the lay reader.In this issue brie, we use the term Social Impact Bonds rather than Payor Success to avoid this conusion. By SIB, we are reerring to a relativelynarrow and truly innovative concept where payment rom governmentis tied solely to outcomes and where government places ew controls onthe external organization.When the term Pay or Success was rst used in the United States in Feb-ruary 2011 it was synonymous with Social Impact Bonds.
But over timeit has been used in looser ways to describe a variety o situations wheregovernment payments are in some manner dependent on successuloutcomes, including traditional perormance contracting where bonuspayments might be available to contractors. But those arrangements arenot new—and so we think it’s important to separate out the SIB conceptas the truly innovative idea it is.
What’s the difference between Pay for Success and Social Impact Bonds?
A definition of Social Impact Bonds
Beore we delve deeper ino he concep, le’s sar wih a simple deniion o SocialImpac Bonds:
An arrangemen beween one or more governmen agencies and an exernal organizaionwhere he governmen species an oucome (or oucomes) and promises o pay he exer-nal organizaion a pre-agreed sum (or sums) i i is able o accomplish he oucome(s).
In addiion, SIBs require:
Governmen o place ew, i any, conrols on he way ha he exernal organizaionaccomplishes he oucome
Governmen o cooperae wih he exernal organizaion so ha i is able o akehe acions necessary o achieve he oucome—or example, by ensuring access orelevan daa
A clearly dened populaion and clariy on wha a “successul oucome” would be