Pay for Success Impact Investments

By: Andrew Luu | August 13, 2015

Source:  Third Sector Capital Partners
Source: Third Sector Capital Partners

Innovating Government Procurement of Social Service Contracts

Santa Clara County announced Project Welcome Home, a Pay for Success (PFS) project that aims to reduce homelessness in the County of Santa Clara. In partnership with Abode Services, a nonprofit agency that implements innovative housing programs to alleviate homelessness, and Third Sector Capital, acting as an intermediary, Project Welcome Home represents one of the first PFS impact investments in California and one of the frontier PFS projects in the United States.

What is the Pay For Success?

PFS is a funding model that leverages private and philanthropic capital to drive public funding to service providers, innovating government procurement of social service contracts. Within the PFS model, service providers, private funders, and Federal, state, or local government entities enter into an agreement that specifically identifies a population to be served, an outcome to be achieved, a timeframe and a metric to measure progress of impact achieved.

Private funders, leveraging both philanthropic dollars and private investment capital, provide initial financing to the service provider through an intermediary in order to achieve the designated outcome. Once the agreed upon timeframe is completed, the government entity pays a return to the private funder(s) if, and only if, the agreed upon outcome is achieved. This return is usually from the net savings the government entity realises by implementing a PFS project in place of the status quo.

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