Outcomes-based commissioning has come to stay

Recent disruptive events such as the COVID-19 pandemic, the outbreak of wars, crises in the food and energy sectors, and climate change add complexity to social and environmental challenges. According to the World Economic Forum, the world is facing both wholly new and eerily familiar risks, triggering problems that decades of progress had sought to solve.

Alternative financing sources are needed to achieve the Sustainable Development Goals (SDGs). The Organization for Economic Cooperation and Development (OECD) recently estimated that the SDG financing gap for developing countries alone is between USD 3.9 trillion and 4.3 trillion annually. The IFC sees the private sector’s participation as an opportunity to close that gap.

Addressing such challenges requires equally new and familiar approaches built on previous relevant experience while adaptable to cutting-edge scenarios.

OBC as a solution

Outcomes-based commissioning (OBC) emerges as a viable solution for addressing social and environmental issues. OBC is a contractual mechanism that ties service provider payments to achieving specific social and environmental outcomes, shifting the focus from activities to results.

An outcome is what changes for an individual due to a service or intervention (e.g., entering the job market). In contrast, an activity is what is done to achieve the outcome (e.g., providing professional training to the unemployed).

In an outcomes contract, funders and providers are exclusively focused on the outcomes defined, regardless of the specific activities that led to it. When able to focus solely on results instead of delivering pre-agreed activities, providers can innovate their social response and have the incentives to measure outcomes and improve their performance. This evidence-based approach brings the assessment of the effectiveness of the intervention to solve or mitigate the social or environmental problem concerned to the centre of attention. OBC contributes to effectively allocating (scarce) public resources as it ensures they are assigned to sustain responses that address social and environmental issues.

Differently, traditional financing models, such as grants, link contract obligations and payments to delivering outputs or activities, leaving service providers limited to providing pre-defined activities and stifling innovation. With no incentive to measure outcomes, traditional financing models often fail to gather evidence of the intervention’s effectiveness in achieving the desired results.

Example

An organisation working in employment locked into an activity-based contract must ensure it delivers the pre-defined activities, such as the 2-hour training sessions, with little ability to change the intervention to include other activities that could help a beneficiary enter the job market. Alternatively, an organisation locked in an outcomes-based contract focusing on job market entrances has the autonomy to define how it will reach the outcome and improve the intervention. For instance, it can start with providing 2-hour training sessions and then realising that mock interviews or mentoring can be more effective responses to achieve the outcome.

How the world has responded to OBC

The benefits of OBC have attracted many, including multilateral and bilateral organisations, governments, other public entities, and private companies to participate in OBC. The World Bank has disbursed over US$22 billion through various outcomes-based mechanisms.

The numbers on impact bonds—one of the most mediatic types of OBC tools—are also encouraging: 292 impact bonds have been launched in 38 countries across all continents, amounting to USD 764 million and targeting 2.5 million users. For more on impact bonds, read here.

OBC at maze

With a mission of offering financial and non-financial tools to everyone committed to delivering social and environmental outcomes, OBC is a tool in maze’s toolbox.

Portugal has been at the forefront of OBC, ranking third globally with the most social impact bonds launched. From the outset, maze has promoted it nationally by structuring and managing the first five social impact bonds in Portugal and closely collaborating with ecosystem players. Recently, maze took on the challenge of bringing the benefits of OBC beyond borders.

The Monami Project

In the past few months, in partnership with Appy People, the Calouste Gulbenkian Foundation, and the Maternity Hospital Lucrécia Paim, maze’s team has been conducting feasibility work on funding a maternal health intervention in Angola - Monami - through outcomes-based financing. [ii]

The alarming number of preventable maternal deaths worldwide, which amount to 800 per day, led global leaders to set target 3.1 of the SDGs — to reduce the global maternal mortality ratio to less than 70 per 100,000 live births by 2030. [iii] Angola is among the countries off track to achieving these targets, and the increase in maternal health literacy of pregnant and postpartum women can help to get Angola on track.

Monami is a free mobile-based maternal health literacy intervention targeting pregnant and postpartum women in Angola. It is designed to promote female education on maternal health topics and empower women to make informed health decisions during pregnancy and early postpartum by providing regular educational content on maternal and neonatal healthcare. This intervention model has been implemented in Luanda since 2022, reaching more than 29,000 pregnant women, and has the potential to scale nationwide.

An outcomes-linked contract would allow adding new features to the intervention and scaling Monami to reach 100,000 pregnant and postpartum women in Angola over four years. This project would provide solid evidence on increasing literacy through mobile-based intervention and promoting outcome-based practices across new territories while tackling global health problems in Angola and ensuring it meets its international commitments.

Looking ahead

Looking into the future, we see OBC playing a crucial role in tackling social and environmental problems, as its adaptive nature can deliver better responses over time to increasingly complex challenges.

The eagerness of current players in the ecosystem to improve and institutionalise OBC practices sustains this vision. Conferences and summits around OBC and OBF, such as the Social Outcomes Conference  and the Outcomes Finance Alliance Summit, are crucial platforms for experience-sharing and advancing this agenda. We expect to see the OBC international ecosystem exploring the power of collaboration and partnerships on accountability, transparency, and trust, and shaping the next generation of OBC instruments.

As a result, we can only be sure OBC is here to stay, as is maze's role in promoting it, whether in new or familiar contexts.

Notes:

[i] Strongly related to and often used interchangeably with terms such as payment by results (PBR) or results based finance (RBF).

[ii] This project is supported by the Outcomes Accelerator, a multi-donor initiative, as part of its first cohort of outcomes-based financing projects.

[iii] SGD target 3.1: By 2030, reduce the global maternal mortality ratio to less than 70 per 100,000 live births.

Sources:

GPRBA, An Introduction to Outcome-based Financing GPRBA’s Outcomes Fund MDTF, World Bank.

International Finance Corporation, 2019, Fresh Ideas About Business in Encompass Emerging Markets, Note 73.

Organization for Economic Co-operation and Development, 2023, Bottlenecks for Access SDG Finance for Developing Countries, OECD, Paris.

World Economic Forum, 2023, Global Risks Report 2023.

https://golab.bsg.ox.ac.uk/knowledge-bank/glossary/

https://golab.bsg.ox.ac.uk/the-basics/outcomes-based-contracting/.

https://golab.bsg.ox.ac.uk/knowledge-bank/indigo/impact-bond-dataset-v2/.

https://www.who.int/news-room/fact-sheets/detail/maternal-mortality.