Saskatchewan Social Impact Bond contract sets dangerous precedent

Making sure children aren’t hungry, making sure they can see properly in school, and making sure they get help if they lose a loved one shouldn’t depend on where wealthy individuals or corporations decide to invest.

Ottawa (18 Sept. 2018) — Provisions in the agreement for a social impact bond project at Mother Teresa Middle School in Regina set a dangerous precedent for future social impact bond projects. The agreement was obtained by researchers with the Saskatchewan Government and General Employees' Union (SGEU/NUPGE) through a freedom of information act request.

SGEU/NUPGE researchers found a number of potential problems with the agreement. In this agreement, it’s the service provider rather than the investor that is expected to cover cost overruns. The service provider is also expected to cover many of the administrative costs, including record keeping.

At the same time, the investor has considerable power over how services are provided. This includes investors having access to the school and hosting presentations to the students.

Service providers will face even more restrictions when investors are concerned about profit

The investor in the Mother Teresa Middle School social impact bond, The Mosaic Company Foundation, appears to regard the money it put into the project as an extension of its charitable activities. Should the project meet its targets, the interest paid to the foundation will be a fraction of what most investors in social impact bonds expect.

For organizations thinking of providing services for social impact bonds, the risks the service provider is assuming in the Mother Teresa Middle School social impact bond should be very worrying. If the service provider is expected to assume this level of risk when the investor doesn’t appear overly concerned about making a profit, what risk and restrictions will be added to contracts when profit is a priority for investors?

New concerns about how results of social impact bond projects are measured

Whether the investors in the Mother Teresa Middle School social impact bond make a profit is determined by how many former Mother Teresa Middle School students graduate from high school.

Even without what’s in the agreement, there are plenty of reasons to be concerned about how the results of the project are being measured. There are plenty of things that determine whether a child graduates from high school that have nothing to do with what happens to them in middle school. Without a way of comparing how similar children who didn’t receive the support provided by the social impact bond project did, it’s impossible to say whether the services provided through social impact bond project made a difference.

There were already concerns that the choice of school for the social impact bond project excluded children who were likely to have a harder time completing high school. Because Mother Teresa Middle School is a fee-paying school that can’t accommodate students with special needs, the project is only be helping the students most likely to reach the target.

But what’s in the agreement manages to raise even more questions about whether there is any connection between social impact bond projects and the results used to determine payouts to investors.

The payout to investors is based on the percentage of 85 former Mother Teresa Middle School students who graduate from high school. However, 50 of those students — or almost 60 per cent — had graduated from Mother Teresa Middle School by the time the contract was signed on August 1, 2016. In other words, the way success is being measured depends largely on how students who left middle school before the social impact bond started.

As usual, secrecy in social impact bond agreements is a problem

Like all forms of privatization, key information is kept from the public — even though it’s the public that is paying. In this case, the information being kept from the public includes the entire schedule of potential payment adjustments and parts of the appendix dealing with desired outcomes.

Problem with social impact bonds is only the lucky few get the help all children deserve

The most disturbing part of this social impact bond agreement was that it made it clear how badly many children in Saskatchewan are being let down by their provincial government. The supports mentioned in the agreement include things like nutrition, counselling for trauma and bereavement, and eye glasses.