New partnership opportunities

• Yes, agencies are free to submit multiple proposals, relating to either or both cohorts.

• We will select one proposal through the RFP process. There is potential for unsuccessful proposals to reapply, or for a different cohort to be selected for a future PAD.

• Government is responsible for defining the social problem and has shared some analysis on the potential cohorts for the PAD - see the Client Pathways reports. This shapes how it is communicated to investors. For example, with the Arc Social Impact Bond, the Department of Treasury and Finance sought proposals to support people who were exiting prison at risk of homelessness.

• There is a growing interest from a range of different types of investors to explore investing in projects that deliver both financial and social returns.
• Interest from different investors can depend on the type of investment structure. For Living Learning, each investor provided a philanthropic grant plus investment capital. This type of blended finance approach can work, however some investor types are unable to make grants, so would be unable to invest in those types of structures. Knowledge of the investors is required.

• Rather than being a particular size, there are capability requirements for being a part of a PAD. It is important to have the capability in the organisation to get across the financial and commercial arrangements involved in a PAD. It is important that the organisation can engage in and own this process. Larger organisations may have increased capacity and capacity to manage this on their own, whereas smaller organisations may prefer to procure capability externally. Some intermediaries can provide support to engage with potential investors.

• PPPs are often used to bring in private sector innovation, technology, expertise and capital to bring a project online more efficiently than government working alone. They are usually a two-way partnership to deliver an infrastructure project. PADs are different in that they are three-way partnerships between government, investors and service providers, who might be already providing services to similar cohorts, but funded on an activity or grant basis. PADs pay for outcomes, allowing service providers to innovate and requiring investors to partially fund service delivery until program results generate outcome payments from government.
• PADs allow the Victorian Government to share risk with investors and to ensure financial risk sits with the party best placed to mitigate it, which will vary depending on the issue. This is generally worked through in the Joint Development Phase.
• Investors are not expected to take on all financial risk of program failure. A transfer of financial risk to the Government may take the form of a standing charge of up to 50 per cent of program delivery costs, or a capital guarantee of up to 50 per cent of the program delivery costs.
• Proposals must clearly set out the financial risk return profile for each participant of the commercial arrangement.

• The first couple of investments that Victoria made were originally called social impact bonds, similar to other states. The change of the name to Partnerships Addressing Disadvantage reflects the emphasis on the partnership element of the initiatives, and that the financial and commercial arrangements can vary. This shows the flexibility of different types of instruments that could be considered.

Government pays when agreed outcomes are achieved. The steps involved include defining

1. The cohort receiving the program and the counterfactual - who they will be measured against - and how they will be found in datasets to be measured.
2. The payable outcomes and the calculations for determining the difference in performance of those receiving the program and those who are not. Payable outcomes must be quantifiable with available data and supported by evidence to provide confidence that the targets are achievable.
3. Performance tiers: There will be multiple performance tiers with varying returns. For example, there will be a return for meeting the target performance, and a higher return for exceeding performance. There is unlikely to be a return in an under-perform scenario.

• Intermediaries can provide expertise in this area. Government does not have a preferred intermediary; any are welcome, and a list of over 70 intermediaries can be found on Impact Investing Australia’s website.

• PADs aim to deliver benefits to people’s lives, broader social benefits, as well as benefits to government services.
• If expected positive outcomes are achieved, the person’s use of acute government services will reduce, resulting in future avoided costs for Government.
• The value of future reduction in service usage by the client group attributable to the intervention will be modelled by DTF.
• Non-payable outcomes proposed by bidders will be used to complement the avoided costs in understanding broader program impacts, and both will be used in evaluating proposals.
• Government is seeking programs where avoided costs exceed Government investment. Areas with the most potential for high avoided costs are high-cost services including justice (police, courts and corrections), and any admitted health services.
• Positive outcomes, reduced acute service need and avoided costs can support a strong financial case for continued/scaled-up funding via the budget in the future (including via the Early Intervention Investment Framework).

• Counterfactuals support performance measurement, as understanding what would have happened in the absence of the program is important to understand the value-add of the PAD program. Agreeing and developing the counterfactual methodology is a complex process negotiated and co-developed during the JDP (not the RFP stage).
• If the bidder proposes to undertake an RCT, the Government will fund the RCT component within the existing funding envelope. If you already have an RCT partner, please include details in your proposal, including costing if available. Note that an RCT is a desirable but not essential component of the forthcoming PAD, and there is no requirement to already have an RCT partner.

• Government will contribute a payment to the successful bidder (referred to as the Invitee) upon entering into the Joint Development Phase.

• The degree of granularity will depend on the metric. Outcome metrics should be quantifiable and measurable so that supported persons’ outcomes and avoided costs can be calculated and the program’s impact/effectiveness can be sufficiently evaluated. It should be clear that the outcomes can be attributed to the success of your program and are not too vague or volatile.
• Outcome metrics and outcome payment calculation rules are also key matters for negotiation during the JDP. Please refer to the example metrics once the Request For Proposal documents are released.
• The Arc PAD’s outcome metrics were included as an example in the presentation:
  1. Justice: Awarded Sentences in respect of offences committed in the two-year period after an individual is released from prison.
  2. Housing: the number of periods presenting to homelessness services over the three-year period after an individual is released from prison.
  3. Health: the number of Emergency Department presentations over the two-year period after an individual is released from prison.
• Read more program details in the Arc Social Impact Bond Information Memorandum.

• No, it is not required to have investors secured for the RFP. Capital raising begins after the Implementation Agreement is developed through the JDP, when the details of investment required to operate the PAD program are fully known and agreed between the parties.
• Understanding investor expectations/preferences and potential approaches to raising capital from investors can be useful at this stage.
• Although the terms and conditions of the investment are confidential until the Implementation Agreement is finalised and information for investors is released, the financial model can be designed with the preferences of investors in mind. The successful bidder is encouraged to start speaking to potential investors early to understand investor appetite and keep investors updated on timeframes.
• DTF’s information session on Partnering with Investors includes more details, as well as the guidance papers written by DTF, Social Ventures Australia and Anglicare.

• The Government does not contract directly with investors. The service provider, either as a standalone partner to the PAD or consortium/Special Purpose Vehicle (SPV), will contract with investors and be responsible for making the payments to investors.
• While the exact model for each PAD to date has been different, they often involve some sort of payment to investors before participant outcomes can be measured, and performance payments once outcomes can be measured. ‘Return on top of performance payments’ are not necessarily separated, and if the program does not achieve the agreed outcomes, it is possible that investors will make a loss.
• For the performance payments, outcome calculations and expected payments are verified, then funds are released from the Government to the service provider/SPV to make payments to the investors.

• DTF does not have a preferred referral pathway, given that the exact cohort and what services they will have interacted with are unknown until supplied in tenders.
• Some programs may be well-suited to system or government referrals, such as DTF’s last PAD Arc, where the participants were prison leavers well known to the Government. In other instances, participants may have interactions with services better suited to a network approach.
• The key factors are that the referral pathway can generate enough participants.