In many cases, Pay for Success programs will not only achieve positive social outcomes, but also create fiscal savings for government. This double-benefit makes Pay for Success politically attractive to multiple stakeholders. For example, $250 million of investments towards preventative programs that reduce recidivism might eventually make it possible to close prisons that cost taxpayers $1 billion per year to run.
- Government funds “what works”.
- Focus on social outcomes that change lives.
- Reposition government spending to cost-effective preventative programs.
- Attract new forms of capital to the social, educational and healthcare sectors.
- Independent evaluation creates transparency for all parties.
- Shift risk of nonperformance from government to private investors.
Pay for Success initiatives do come with a variety of risks. All stakeholders must be aware of the possible risks inherent in these initiatives as well as risk mitigation and management strategies. As Pay for Success develops, it will become easier to reduce risk for all parties involved.
- Lead contractor or service provider non-performance
- Lack of clarity and/or ability to measure social outcomes
- Non-rigorous evaluation methodologies
- Government data unavailable for cost effective evaluations
- Insufficient rate of return for funders and providers