David Hunter, consultant, Bates Wells & Braithwaite LLP:
The purpose behind social impact bonds, in many ways, is to try something different.
Whilst this is primarily about the difference in the what (that is, the commissioning of outcomes, rather than a service), a new approach to the how is also integral to the prospect of success.
The purpose behind social impact bonds, in many ways, is to try something different.
Whilst this is primarily about the difference in the what (that is, the commissioning of outcomes, rather than a service), a new approach to the how is also integral to the prospect of success.
This is relevant both to the approach taken to contracting and, particularly, to how these projects are commissioned.
The Service Agreements that describe what a public authority is commissioning and the basis upon which it will pay for it consist of three distinct, yet closely related elements:
- The specification of what the commissioner is buying.
- The payment mechanism, setting out the criteria against which the provider will be measured and when payments may be made.
- The contract containing the remainder of the terms and conditions governing the relationship between the parties.
So far, so familiar. However, there are some differences in terms of the content of these documents, and in how they relate to one another, that need to be noted.
The template contract for Social Impact Bonds
The work BWB have been doing with the Cabinet Office to develop a template contract for social impact bonds means that there are now standard provisions that may be adopted in relation to the last of these. The contract, generally, contains terms that will be familiar to public authority lawyers used to negotiating commercial arrangements. The new aspects – and the parts that will make it interesting for the lawyers – are:
- A move towards a more collaborative approach to working with the contract during its term, encouraging innovation, and enabling the parties to learn and improve as they go; and
- The relationship between those contract terms and the other elements mentioned above.
In relation to the latter, whereas on other occasions – dealing with PFI contracts for example – it may have been possible to leave the specification to the technical advisors and the payment mechanism to the finance people and just concentrate on the contract in isolation, here all three elements are deeply connected.
This need not fill public authority lawyers with trepidation. The specification will be much more straightforward than they may be accustomed to seeing. It is possible it will be no more than a page, stating simply the outcomes that the authority expects to be achieved.
The payment mechanism too is unlikely to run to pages and pages, or to consist of complicated formulae as, again, there is a focus on simplicity and ease of use.
In both cases, however, it may be that simplicity is difficult to achieve, not least as the client groups that are the end users of the service can often have complex problems. A lot of thought will need to go into distilling down the content of those two documents, so that they work effectively to drive the behaviours and the outcomes that the public authority wishes to see.
Similarly, there will need to be consistency between the position reached in those documents and the terms and conditions contained in the contract. Most obviously, there is little point developing a specification that focuses solely on the outcomes sought, if the contract is then full of provisions allowing the authority to prescribe how the service is to be performed.
What this all means is that it will be much more desirable for the public authority lawyers to be part of the commissioner’s core team from the outset of a project looking to use social impact bonds. They should be participating in the discussions around the what and the how long before anyone thinks about putting anything in the Official Journal. This may then enable the procurement to be a seamless process from commissioning through to contracting, with the documents used at each stage informed by the contribution the whole team has made to those discussions and with a coherence that supports the overall aim of the project.
David Hunter will be speaking at a free Seminar on Commissioning for Outcomes and Social Impact Bonds held by BWB and Practical Law on 4 July 2013.