New partnership opportunities

• We understand that there are differences in outcomes based on place of birth and form of migration. We welcome proposals that aim to support sub-cohorts with different needs.

• This includes proposals targeting those who identify as part of the CALD community but were not themselves born in a non-English speaking country, e.g. parents born overseas, if data shows there are barriers to employment.

We are not being prescriptive and expect it will differ across proposals, however a few things to note from our prior experience:

• Small cohorts raise difficulties for statistical significance and outliers with resulting volatility in performance payments.

• It will partially depend on how vulnerable the cohort is, and the cost of service delivery per person, as well as the evidence on the effectiveness of the program.

• To deliver avoided costs, the program could be delivered to more people who are less vulnerable, or less people who are more vulnerable.

• The more vulnerable cohorts often use more services – if the program is effective, there is a larger opportunity for positive outcomes and reduced acute service use in future.
• The same avoided costs could be achieved with a larger cohort and a smaller change.

Previous PADs have supported at least 140 people.

• This will be an iterative process. For the response to the RFP, we suggest proponents use their knowledge of the cohort and the program and publicly available or internal data to estimate expected service use reduction. This can then be used with the unit cost data provided in the SOI Appendix C, which were derived from publicly available sources.

• During the Joint Development Phase with the selected proponent, DTF’s avoided cost modelling expertise will be used to refine the expected avoided costs.

In the Client Pathways report, we used the Government’s de-identified linked data to understand actual historic government service usage, not assumptions, of:

• all the young people living in the 8 LGAs

• the 3,172 young people who first sought AOD treatment and support in 2019.

While this is not the ‘individual’ person’s needs, it gives insight into common needs and service use for these 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.

• We are seeking a partnership between the Victorian Government, a service provider, and investors.

• In future, a partnership with the Commonwealth could be a good opportunity, given the expected shared benefits.

• Consider factors like changes to employment and/or welfare. If the person is moving to employment, they are likely to have a personal financial benefit, and the Commonwealth will pay less in welfare and receive more in income tax.

• The aim is to get a holistic understanding of the benefits of a program, however benefits to the Commonwealth will not count as avoided costs to the Victorian Government.

• More PAD program participants have been based in urban areas in line with where most Victorians live, though COMPASS and Side by Side delivered services in both urban and regional areas.

• We are not prescriptive on LGAs. The eight metro LGAs in the Client Pathways report were selected based on a combination of the number of young multicultural people living in those LGAs, socioeconomic disadvantage, and higher youth unemployment, indicating both a need and an adequate number of recipients.

• Appendix B.3 contains information regarding evaluation criteria for the proposals, including the experience, capability, and capacity of the members of your team.

• The PAD aims to complement existing programs and services, for people who could benefit from the intervention.

• The PAD funding is not intended to be a substitute for funding provided by the Victorian Government, or other tiers of government. PADs could involve trialling a new innovative approach, which may have evidence from elsewhere, or could involve building on an existing program that is achieving positive results.

• The PADs are intended to provide innovative solutions to complex social issues. A core part of PADs is understanding what works and the transparency provided by PADs gives government good insight into this.

• Evidence of program impact has enabled previous PADs a pathway to continue beyond the life of the PAD contract, through additional funding as part of the State Government budget process. It is important to note that there is no guarantee this will be the case for future PADs.

• Even where this doesn’t occur, there have been important program learnings to help inform government on best practice. Evaluations of past PADs can be found on the Current PADs(opens in a new window) page.

• Each of these PADs has also provided learning opportunities to improve the contractual arrangements of future PADs, including the variables which become outcome payments, the calculations used to measure success, who they are measured against (the counterfactual), and building triggers into the contract that provide a review mechanism that allow for contractual adjustments.

• The Joint Development Phase supports the creation of a program and payment model that delivers positive outcomes for program participants and works for the Government and investors.

FAQs from the Partnering with Investors for PADs information session

Alongside DTF, Social Ventures Australia (SVA) presented at this session, providing practical insights from their prior experience working on PADs.

Q: How did you frame the social problem and define it in terms that resonated with both government and investors?

• 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.

Q: What types of investors have been most interested (institutional, philanthropic, high-net-worth individuals)?

• 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.

Q: Is there a typical size of organisation for this type of opportunity?

• 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.

Q: How does this approach differ from public-private partnership (PPP)? How are risks distributed among the partners/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.

Q: Is there any further context of why these initiatives have been called PADs rather than SIBs?

• 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.

Q: How are returns generated?

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.