Pay for Success (PFS), or Social Impact Bonds as they are referred to in the UK, is a contracting approach that ties payment for nonprofit service delivery to the achievement of measurable outcomes. It differs from traditional funding models where payment is typically provided based on the volume of services delivered (number of people served) or short-term outcomes (number of people finishing a program). In PFS, funding is provided only if longer-term outcomes are achieved.
In 2014, the James Irvine Foundation announced the California Pay for Success Initiative, a $5.6M time-limited effort to explore PFS in California. Managed by the Nonprofit Finance Fund (NFF), the Initiative held an explicit goal of launching two PFS contracts in the state. Irvine and NFF selected both local government agencies and nonprofits that were interested in launching PFS projects, and provided access to technical assistance and a learning cohort of other grantees. For over three years, LFA served as an evaluation and learning partner to the Irvine Foundation on the CA PFS Initiative. Early on, we used a developmental evaluation approach to provide the Irvine Foundation with rapid feedback on how the initiative supported projects and project leaders. We learned that the project leaders were deeply appreciative of the leader cohort created by Irvine and the support and resources they received from their peers in the field. The learning community co-created by Irvine, NFF, and the grantees provided a venue for project leaders to share the successes and challenges of their work and seek peer problem solving support.
The initiative recently wrapped up, and while it exceeded its goal by launching three PFS projects in California (with more in the pipeline), it also achieved some other successes which weren’t anticipated when the project launched. NFF has detailed these achievements, and also where the work did not fully realize all of its hopes in its Pay for Success Scorecard. LFA supported NFF in this work by conducting interviews with over 25 stakeholders representing government agencies, service providers, philanthropic organizations, and intermediaries. We sought to understand these individuals’ perspectives on PFS and their opinions about where the initiative realized its promises and what it was not able to achieve. The big wins for the Initiative are significant progress in the field on developing an outcomes orientation to funding and improved cross-sector collaboration. As NFF writes:
The Initiative has demonstrated how stakeholders can shift from traditional, siloed delivery of social services to collaborative, cross-sector methods that achieve measurable results. Continued and increased investment in infrastructure, capacity, policy, and change management from governments, service providers, and investors can meaningfully improve the results of social programs, transforming the lives of underserved individuals, families, and communities in California and beyond.
Please read the Scorecard for more detailed information on the extent to which each of the hopes of PFS were achieved: increased outcomes orientation, improved cross-sector collaboration, strengthening evaluation of social services, efficiency gains in PFS project development, and attraction of new capital.
For more information about Pay for Success please visit:
Have you seen an increased focus on outcomes-driven funding in your work? How is that affecting your nonprofit partners?