‘Outcome Buying’ is a Positive Way Governments can Fund Social Enterprises

Jeff Cyr | Stephen Huddart Policy Options November 7, 2019 Social Finance, social innovation

Here’s a way for governments to buy positive outcomes.

In a little-known practice called “outcomes purchasing” generate solutions to social, economic and environmental challenges? We believe the answer is yes. Through a form of outcomes purchasing we call community-driven outcomes contracts (C-DOCs), governments, communities, investors and the charitable sector can collaborate in transforming seemingly intractable problems into opportunities for inclusive growth. Moreover, the soon-to-be-launched $755-million federal Social Finance Fund presents Canada’s social sector with a powerful new tool for financing such work.

First, let’s consider the status quo. Governments provide grants and contracts to social-purpose organizations (social enterprises, nonprofits and charities) to deliver programs that are closely tracked on the basis of activities or outputs: how many homeless people sheltered, how many people enrolled in addictions treatment programs and so on. However, short-term fixes that alleviate suffering do little to address the conditions that create such problems. At worst, they foster dependency.

In contrast, C-DOCs set targets that social-purpose organizations are then funded to deliver. They provide an incentive to innovate: to iteratively test, evaluate, adapt and scale evidence-based approaches. Whether the issue is homelessness, chronic disease or greenhouse gas emissions, providing financing in a way that rewards results can accelerate systemic shifts.

C-DOCs are similar to social impact bonds (SIBs), in that investors provide upfront capital to a social-purpose organization to implement a new approach to a problem. If successful, an outcomes purchaser — usually a government — pays back the investors. However, C-DOCs have several important differences from SIBs. First, community priorities inform and drive the projects, and thus accountability is not just to investors and outcomes buyers but also to community stakeholders. Second, C-DOCs might include, and indeed require, a community engagement and development phase supported by grants, as well as the seconding of technical expertise to social-purpose coalitions.