||REQUEST FOR INFORMATION
For State of Colorado, Governor’s Office of Policy & Research
Since taking office, Governor John W. Hickenlooper has prioritized the efficient and effective use of taxpayer dollars to meet important social goals in the State of Colorado. This effort has included engaging the private sector, piloting new ideas, and collecting and acting on reliable data. The State is issuing this Request for Information as a part of its continued efforts to partner with entrepreneurs from the nonprofit and private sectors to increase the efficiency of government-funded service delivery, reduce costs to taxpayers, and accelerate innovation in ameliorating social problems.
The Office of the Governor is seeking information from providers, intermediaries, and investors on a new way of financing social programs, called “pay-for-success” contracts. We are soliciting information from potential partners as well as from interested citizens about areas of government activity where success-based contracting strategies have the potential to improve outcomes and reduce costs. If the State decides to go forward with this approach, the information obtained from this RFI will be used to develop a Request for Proposals that is targeted at the most promising applications of the pay-for-success strategy.
Pay-for-success contracts, also referred to as “social impact bonds,” are an innovative approach to improving outcomes and reducing costs for contracted government services. Pay-for-success contracts are contracts in which a substantial portion of the payment is conditioned on the achievement of specific outcomes based on defined performance targets. Unlike typical pay-for- performance contracts, pay-for-success contracts often ask contracted parties to raise upfront capital and only reimburse such upfront capital expenses if an independent evaluator determines that performance targets have been achieved. If outcomes are achieved, the initial investors are reimbursed for the entire cost of the program plus risk premium payments. Ideally, these payments are made when government and/or societal savings are realized due to the program’s effectiveness. Programs in which potential governmental savings are larger than the cost of the program are strong candidates for the social impact bond model.
While there are many different structures that satisfy the principles of pay-for-success contracts, the common characteristics include:
Rigorous measurement of desired goals and outcomes, validated by an outside party; Performance-based payments made by the government, only if outcomes are met; and Private-sector financing.
Since the initiation of the first pay-for-success program in Peterborough, England in 2010, several American cities and states have initiated studies or pilot programs involving this financing model. Additionally, the United States federal government has signaled its interest in
￼exploring pay-for-success programs. In its fiscal year 2014 budget request, the Obama Administration is requesting nearly $500 million to support pay-for-success programs, including a $300 million fund to be administered by the Treasury Department incentivizing the development of social impact bonds by state and local governments.
The Office of the Governor of Colorado has been offered and accepted pro bono technical assistance from the Harvard Kennedy School of Government Social Impact Bond Lab, supported by a grant from the Rockefeller Foundation, to help the Office conduct analysis and coordinate the pay-for-success policy process over the next 12 months.
Additional information on the pay-for-success model can be found at http://hks-siblab.org/.