The role of government in outcomes funds

Published: 12 January 2022

A person writing in a notebook with a pencil.
Part two of our Lessons from Colombia series. 

This blog is part of a series on the experience of Global Affairs Canada in structuring an outcomes fund – the CAD $30–50 million Outcomes Fund for Education Results (OFFER) – in Colombia. Upon launch, the fund will aim to ensure students have equitable access to education and opportunities for retention and achievement. We’re pleased to share the lessons learned around the role of the governments, donors, and non-state actors to support the development of Outcomes Funds and how these vehicles could contribute to systemic change.

Also in this series:

The role of non-state actors
The catalytic role of donors
Outcomes funds as drivers for ecosystem building
Designing an outcomes fund for education results

Outcomes funds have emerged as new financing mechanisms to procure and implement several payment-by-results projects in parallel. Given their focus on lasting social outcomes, these vehicles offer national and local governments the opportunity to innovate, to partner with multiple stakeholders to tackle social issues, and to generate learnings that can be mainstreamed into social policy. The government’s participation, in turn, is essential to achieve the scale and sustainability of impact promised by outcomes-based funding. Public authorities are responsible for devising and implementing social policy and are accountable for achieving better social outcomes for the whole population. This mandate gives them the ability to mobilise financial and non-financial resources to develop payment-by-results schemes at a larger and more meaningful scale than other actors in the ecosystem.

Governments can be involved in outcomes funds under different roles:

  • As outcome payor, taking on the responsibility of paying for the achieved outcomes within specific projects. This role is akin to the role played by the public sector already when it procures interventions targeted at serving the population in relation to different social issues. 
  • As learning partners to the Outcomes Fund, offering guidance and data to help identify the most pressing social needs and affected populations and highlighting the type of evidence and learnings that would be most useful to strengthen public policy and practice.
  • An enabling role in advancing these innovative finance mechanisms by promoting the system-wide transformations required to facilitate their use, such as a legal framework conducive to procuring outcomes or fiscal incentives to encourage philanthropic investment in these instruments.

The Outcomes Fund for Educations Results (OFFER) in Colombia is a leading example of how the public sector can be successfully engaged in the design, and future implementation, of an Outcomes Fund. OFFER is led by Global Affairs Canada (GAD), in partnership with a group of local foundations with extensive experience in the education sector. Over the past couple of years, the OFFER partners have deliberately involved the Ministry of Education in defining the fund’s strategic, technical and operational features, seeking to facilitate the government’s engagement and, ultimately, its appropriation of the fund.

The journey hasn’t been straightforward. Like many public sector bodies across the world, the Colombian government faces significant obstacles to embedding payment-by-results mechanisms into its regular procurement practices – from a lack of budgetary flexibility to pay for long term outcomes and the absence of a legal framework that endorses the use of these innovative instruments, to the high turnover of public servants.

Based on the OFFER’s experience, it is possible to identify a few elements that may encourage the active involvement of public authorities in an outcomes fund:

Building transparent, collaborative relationships

Spending time and effort to build trust and understanding of mutual goals and mandates among the partners can facilitate government participation in an innovative initiative such as an Outcomes Fund. In the OFFER case, GAC initiated conversations with the Ministry of Education years before the design started. Multiple consultative workshops were used to explore the partners’ motivations, constraints, and areas of common purpose throughout this process. 

Acknowledging the obstacles faced by government

A shared understanding of the government’s constraints among the partners is the starting point to identify feasible alternative designs that can work for all parties in the long run. From the outset of the OFFER design, partners were aware of the government’s restrictions to participate as outcome payor, especially the budgetary and legal constraints that the Ministry of Education needed to address to contribute funding. The government’s experience in previous social impact bonds in the country was essential to identify those barriers and design a strategy to engage the government. 

Avoiding dependency on government resources to kickstart the fund

Leveraging financial resources from international donor agencies or private foundations can accelerate the launch of the fund and enable a faster demonstration of its potential to generate outcomes, thereby paving the way for deeper government engagement in the future. GAC and three partners will pay for outcomes and fund the operations and system change strategies during the OFFER’s initial phases with the ambition that, in the medium to long term, the government and other partners will contribute financial resources.

Designing a fund structure that allows the government to participate wearing different hats

Creating a structure where the government can assume multiple roles (e.g. outcome payor, learning partner, enabler) can help public officials ease their way into the fund and increase their commitment over time as their comfort with the idea grows. Although the Ministry of Education will not participate as an outcome funder from the outset of the OFFER, they will have a non-voting representative on the board and committees to provide input and learn from the OFFER’s activity.

Thinking about potential routes to sustainability from the outset

Drawing a medium- to long-term route map for the fund, and spelling out the evolution of roles for each partner organisation within it, can provide an additional layer of certainty to facilitate an increase in government ownership over time. In the case of the OFFER, GAC and the founding partners are willing to explore how the government, or any other non-state organisation, could take ownership of the fund as it evolves during the implementation.

Thanks to these lessons, and to the fact that the Colombian National Development Plan encouraged public authorities to use payment-by-results mechanisms as innovation tools, the OFFER has received continuous and active support from the Ministry, who allocated a senior technical team to contribute their insight to the initiative. This group of champions has played a fundamental role during design, sharing the public sector views on critical needs and priorities for the Colombian education sector with their private-sector partners. Their engagement has also allowed them to better understand the potential value of payment-by-results mechanisms to improve educational policy and practice, and they have since helped disseminate the initiative’s strategic importance within the Ministry of Education. It is likely that this intense level of government participation will underpin an impactful and sustainable future OFFER over time.

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