Social Impact Bonds (SIBs) require government champions who are committed to preventive interventions and collaboration with nonprofits. While SIBs appear to lend themselves to state-level projects where much of the spending for safety-net services takes place, SIBs at the city- and federal-government levels can also work. SIBs have bipartisan appeal as they shift financial risk to private investors, impose market discipline, and encourage cross-sector collaboration, as well as the efficient use of government funds.
Governments play a key role in developing the SIB contract. Contrary to traditional government contracts, in which taxpayers fund operations, SIB contracts require more collaborative approaches to develop an arrangement that promotes the achievement of long-term outcomes. The process of contracting for a SIB can take different forms. Whether it is a competitive procurement process or direct negotiation between an intermediary and government agency, it will be imperative for SIB contracts to carefully lay out the parties’ shared expectations about the objectives and the means of achieving them. Once a contract is in place, or as it nears its final form, the parties need to work together to secure legislative authorization of multi-year contracts that provides investors with confidence in repayment and lessens the political appropriation risk.