Cuyahoga County Pay for Success Contract

Cuyahoga County Issues Social Impact Bond

For the past five months, Ohio’s Cuyahoga County has been evaluating whether the social impact bond (a k a pay-for-success contract) is an appropriate mechanism to fund its social programs. They have been helped in this investigation by Third Sector Capital Partners, with funding from the George Gund Foundation (source).

This evaluation seems to have produced a positive result: On October 29, Cuyahoga County issued a Request for Response for a pay-for-success program to addresses its human services and produces cashable savings for the County (source). The response deadline is December 14, 2012.

In this RFR, the County is proposing to contract with a “program intermediary” that conducts the following activities:

“1) enters into a Pay For Success contract with the County
2) is responsible for achieving the negotiated outcome(s) for the target population by contracting with service delivery providers,
3) has the flexibility to change or modify its service delivery methods and providers; and
4) collects and shares data with the County to fulfill the grant agreement” (RFR p. 4).

Investors and independent program evaluators are encouraged to submit support letters as part of this RFR.  Third Sector’s role will be to “support the County in the review of response proposals and discussions of potential structuring of projects.  Third Sector will also assist the County with the identification of potential local and national funders that have interest in supporting a Pay for Success project in Cuyahoga” (RFR p. 4).

Comparison to Other Pay for Success Contracts in the U.S.

The process that Cuyahoga County is using to create its social impact bond program differs from the processes being used elsewhere in the U.S. In examples described below, states issued separate requests for service providers and intermediaries, contracted with the service provider directly, or asked the intermediary and a smaller government to apply jointly. Cuyahoga County, however, is issuing one contract to which intermediaries or service providers can respond.

Of all pay-for-success contracts being designed in the U.S., Massachusetts, New York City, and the U.S. Department of Labor are the furthest along. In the Massachusetts process, the government issued RFRs for two pay-for-success programs: one to address recidivism and another to address chronic homelessness. For both programs, the government initiated procurement by issuing one RFR for intermediaries and another RFR for service providers. The policy rationale for this somewhat-confusing process was to ensure that an otherwise-successful intermediary doesn’t enter into an exclusive contract with a subpar service provider, or vice versa. The Commonwealth of Massachusetts then selected (and is currently in negotiations with) Third Sector Capital Partners to be financial advisor for the homelessness program and to be both program manager and financial advisor for the recidivism program. In this model, the intermediary and the service provider either apply independently or hold informal partnership discussions during the procurement process.

In the New York process, the government has eschewed a financial intermediary and contracted directly with a service provider. This service provider, MDRC, will work with two other providers and receive up-front financing from Goldman Sachs to deliver services to juveniles leavings the Rikers Island prison facility.

Finally, in the U.S. DOL process, the Department is asking municipal or state governments to apply for pay-for-success funding jointly with an intermediary that will provide financial and/or program-related advisory services.

Cuyahoga County’s process differs from the ones outlined above. The County is asking intermediaries and service providers to respond to one RFP. An intermediary may respond alone, then subcontract service providers to execute a proposed program model. Alternatively, a service provider may respond without an intermediary. Or an intermediary may partner with a service provider for a joint response. As the RFR says, “a single organization [may] play the role of both investor and intermediary, or both intermediary and service provider” (RFR p. 5).

In this RFR, a partnership between a provider and an intermediary has the greatest chance to offer a strong application. Providers alone may have insufficient know-how or simply lack the capacity to respond to this contract, whereas intermediaries alone are left proposing a program model without the certainty that they can execute the model they describe.

Another difference in this contract is around investors. Because Cuyahoga County did not specify a particular focus area, such as prevention of recidivism or reduction of homelessness, the RFR proposes that once a program is selected, “the County and its partners will propose the projects to local and national funders” (RFR p. 3).