When should you engage external, critical thinking in responding to a tender and when can you manage it in-house?  We think you should answer two key questions to determine this:

• How complex or novel does our approach need to be?; and
• How competitive will the tender be?

​Where funders are looking for the most efficient and cost-effective way to deliver well-established services, you need a sharp focus on your operating model and being able to scale and/or replicate that with fidelity and at lowest cost. You will have a clear understanding of the costs to deliver and a target margin. In short, you need to deliver maximum services.

Strategic tender support is not likely to be a good investment in this case.

Where tenders are looking for novel approaches (for example, a collective or ‘alliancing’ approach to governance), or where there is added complexity (for example, where a sizeable proportion of the funding can be distributed flexibly) you really do need to think more deeply, strategically and innovatively about how you will respond. The traditional approach won’t maximise your chances in this case

​For Latitude Network, 2022 has been a year of growth, new challenges, and the rewards of seeing efforts come to fruition. We’re glad you’ve been with us on the journey, as partners, supporters or simply interested friends. Here are some of the highlights from our year.

1. Building multi-provider operating models across sectors can be done as long as there is a single and shared operating system and a commitment to collecting and analysing data on activities and impact.
2. Aligning data collection across agencies within a sector is a powerful way to improve service quality and target innovation, both for providers individually as well as for entire sectors, and for the clients using these services.
3. Legacy data systems do not have to get in the way of cheap, efficient and effective data-collection and analysis tools. Don’t let your clunky old system stop you from investing in small, positive improvements to what you do.

To the network of people with whom we work - those who are dedicated to improving social systems and social outcomes - we are deeply grateful to be collaborating with you on this important but difficult work. We look forward to connecting with more people in this movement for high performance and outcomes focus in 2023.

Read about four important projects we undertook this year - 

​Toward Home Alliance (THA) is a network of six housing services along with the South Australian Housing Authority, working together across South Australia to address homelessness in a single service system. In 2022, we conducted a detailed review of the Alliance’s operations and governance structure. As a trusted advisor for THA, we’ve worked with them for a number of years, and this next step allowed them to develop a new cross-agency operations manual. 

This truly is a ‘systems change’ project as it allows a single entity (the Alliance) to manage every part of the homelessness service system. The new operations manual was built to enable more than 100 staff working across five agencies plus multiple service partners to work to a common, integrated service model. This allows all agencies to provide more tailored, appropriate support but also to work across the usual silos of the sector.

In 2023, we’ll work with THA on a ‘Continuous Quality Improvement’ process embedded in everyday operations. The aim is to continually update and improve service delivery, guided by the Ops Manual and by the data being collected by all services. 

Hello Sunday Morning (HSM) is a digital platform operating on mobile and desktop, established in 2009 to support people to reduce alcohol consumption and alcohol harm. Their Daybreak app enables and facilitates peer-to-peer support, generating over six million data points that HSM engaged Latitude Network to analyse.

The project helped the team interpret and segment the data and understand the stories it was telling about their clients, how they were using the app, and how to use the data to better support and engage clients. We provided detailed segmentation of the App users, provided insights about who is using the online service, for how long, how intensively, and how long they stay in contact. This allowed HSM to develop strategies to maintain connection with those likely to disengage.

In 2023, we will use ‘machine learning’ tools to develop predictive models for the client to create an ongoing learning loop. This will then provide a range of early-warning data for HSM on factors such as likely client disengagement and drop-out rates and impact data. Using innovative new ways to track and measure data is crucial for services such as Hello Sunday Morning, and we’re excited to see how the service will evolve with increasingly rich and detailed data to support their development. You can read more about this project here.

As we foreshadowed in our recent newsletter to you, the Victorian Dept of Treasury & Finance is now underway with its Partnerships Addressing Disadvantage (PAD) funding program. The PAD program was announced in this year's State Budget. A few key points:

• There is up to $33 million in funding;
• It is outcomes-based - that means that service organisations will be funded on the basis of longer-term outcomes achieved, not on inputs, outputs or program activities;
• The policy area of focus is on those who have had interactions with the justice and the homelessness systems; 
• The funding is designed for intensive, wrap-around/integrated services for complex cohorts of service users, typically for multiple years of support.

PADs are highly-technical in many respects and so we encourage you to respond to DTF's 'Statement of Intent' process as detailed below.

As you consider your own programs, have a look at 5 elements that are key to social impact bonds.
You may also be interested in an article about what you need to be successful in developing a social impact bond.

​One client reflected on the ‘innovation’ aspect of PADs/SIBs suggesting that learning or borrowing from other models is a good way to augment your proposed solution. While PADs give us a chance to trial new approaches ‘...that doesn't mean reinventing the wheel necessarily - look around for what is being done in another place or with a similar cohort and talk to the organisations delivering the program.’
 
Perhaps one of the most powerful aspects of an outcomes contract is the need for us to zero-in on lived experience. One client reflected that ‘when including people from the front line, or those with lived experience, prepare and encourage them to bring their experience and knowledge to the table…’
 
Indeed, the process may be uncomfortable for staff, ‘...they may feel outside their comfort zone [but should be encouraged] to think about how they go about their work in a different way.’ 

At the heart of a PAD is ‘being clear on your cohort and outcomes. Make sure you confirm this in the initial part of the project because you don’t want to get 6 months in and find you're not 100% clear on who and what.’
 
There is a flip-side to this outcome journey in all PADs and that is the service system journey for clients currently - what we can loosely call the ‘counterfactual’. ‘Make sure you understand the extent to which your clients currently use the service system and ideally understand how much this reduces through your program financially - savings are critical to government.’

One organisation suggested that ‘patience and a flexible approach is probably the most important’ thing in outcomes contracting. ‘Don’t expect it to be quick or straightforward.’ Another said to ‘be prepared for discomfort as you grapple with an intense and unfamiliar process, lots of workshopping, many unknowns and wondering how it will all come together.’ ​

​This excellent phrase was shared by one of our clients and nicely captures the way that PADS are trying to harness the relative strengths of each of the parties involved. ‘Don’t be afraid to tell the Government they are wrong. It's BAU for them to be conservative, NGOs should own the innovation space in front of Governments and be persistent’.
 
PADs really do alter the dynamics between Government and service provider. One of our clients put it this way: ‘You’ll need a thick skin and a strong commitment to what you know works. The Government’s needs aren’t necessarily your or the program’s needs and so you need to know what is non-negotiable.’
 
PADs also highlight the value of complementary skillsets. ‘You will be negotiating with numbers people… brilliant numbers people who have a limited understanding about the client group or how to do community development. They are great at what they do but so are you so don’t let them have it all their way!’
 
One of the benefits of an outcomes focus is that everyone is, effectively, a problem-solver. While Treasury officials are focused on the value-for-money challenges, officials from the line agencies will bring a practice-based focus: ‘Get other departments in the room. The line agencies will better know the sector people and programs - let them fight some of the programmatic battles for you.’

​The outcomes contracting process is nothing if not intensive. It needs resourcing internally. One client advised that you will ‘need to have at least one person dedicated to developing this. Most NGOs will fund this internally, however, this should be seen as a valuable investment, even if you don’t get the program up.’
 
As for the mix of the team engaged in the process, you will need ‘a mixture of ideas people and do-ers who can buckle down and progress the hard yards of research, seeking out answers and project management.’

​Some of the elements of an outcomes-based contract are highly-technical and specialised. One of our clients suggested that you will need ‘bloody good guides who have been there before and who can tell you when you are focusing on the wrong question’.

The process of negotiating a PAD, while intensive, can bring enormous benefits to the organisation itself. Becoming literate with data and how it can be used to check and adjust performance was seen as critical.
 
“Start with data… get literate about how numbers and data work because, at times, the process will become about the numbers ... Become an expert at it really fast and get your team used to measuring and counting at least something.’  
 
Creating a culture of measurement and the gathering and use of evidence is seen as key to success: ‘Having a culture of using measurement and evaluation to improve the services you provide to clients really helps with structuring and implementing a SIB/PAD/SII’. And even where data might be scarce, start with a hypothesis and ‘...use external sources including public data sets (ABS, AIHW etc), research and evaluations …’ to try to confirm your hypothesis.
 
The journey of negotiating an outcomes-based contract can be revolutionary for an organisation, giving it the tools, confidence, funding and time to re-imagine the way that services are delivered for a specific cohort of people. 

First published in Pro Bono News

The Living Learning program is important, writes Dale Renner, not just because of its social impact on young people, but also because of the way the impact investment is structured. It provides a new way to partner for the delivery of social outcomes.

The Living Learning program was launched last week at the Hester Hornbrook Academy (HHA) in Sunshine in Melbourne’s west. HHA is an independent school run by Melbourne City Mission for young people disengaged from the traditional school system. The program is funded as an impact investment under the Victorian government’s $30 million Partnerships Addressing Disadvantage (or PAD) program (also known as social impact bonds, or SIBs). 

The service innovation which will be tested through the program is a more integrated mental health and flexible secondary school education program for young people whose educational and long-term employment prospects are being affected by ongoing mental health challenges.

The program is important not just because of the social impact on young people, but also because of the way this impact investment is structured. We have worked on a variety of social impact investments in the last few years and have encountered a range of barriers to a wider takeup of social financing mechanisms such as SIBs. They are complex to negotiate given the three parties involved (government, social organisation and investors) and their need to balance a range of risks as well as target measurable financial and social outcomes. SIBs were originally designed to allow socially-minded investors to help fund the upfront costs of social programs where their investment was “at risk”, meaning they would lose some of their investment if the program did not deliver the target outcomes. They were specifically designed with private investors, not philanthropic trusts, in mind.  

Philanthropic trusts operate differently to a traditional impact investor. 
Philanthropic trusts and foundations usually have a corpus of funds built from an original or historic donation invested in “safe” market investments so that the interest earned on those investments can be given away as grants. For an overly simplified example, if your corpus is $10 million and you earn 5 per cent per annum from your investments, you can give away $500,000 (less expenses) per year and keep the trust going “in perpetuity”’. A more modern way of thinking about the granting side is that, it too is an investment but the return is in social outcomes rather than in financial returns. This means each alternative use of grant money should be compared to the level of outcome it achieves compared with the next best use of that money.

As a result, the amount of money that philanthropic trusts and foundations give away each year is tiny compared with the amount that is locked away in their corpus. People in the social impact space have been thinking for years about how to unlock this corpus for investing in impact directly. The social finance innovation that enables the Living Learning project represents one way we can now unlock that corpus to be used for specific types of social impact investment projects. This is a “philanthropic impact investment” (PII) model, as distinct from the more common impact investing model which tends to focus on investors that may not be philanthropic trusts.

Why is it difficult for some philanthropic trusts to use the corpus for social impact investing? 
The problem is that social investments are competing against asset classes that are very well known – whether listed companies, property or, increasingly, renewable energy investments. Social impact investments are newer and far more variable (a SIB service model and program logic is usually an innovation that is unique or new to the sector), so it is harder for an investor to assess the risk of an investment in such a project compared to those in well-known assets. As a result, the understandably conservative investment strategies employed by trusts and foundations mean these newer and more complex social investments are passed over. 

The new PII approach developed for the Living Learning program enables a trust or foundation to combine both its corpus and its grant funding in the same investment through a “split tranche” structure. The investment generates a return if the project achieves its social outcome goals while the grant portion is called upon to cover the loss if the program fails to achieve the target social outcomes.

Latitude Network with Social Enterprise Finance Australia (Sefa) and Melbourne City Mission worked together with the Victorian government to ensure this model suited the program and complied with all legal and government requirements. This approach has the potential to make it easier for social service organisations to develop high impact social programs that attract impact investment from their philanthropic partners.

Benefits of the new split tranche structure 
One of the benefits of this new structure is that it leverages and deepens the natural relationship between philanthropy and the social sector and allows philanthropists to use part of their large capital base to help unlock funding from the government for worthy programs. Philanthropic trusts can use their dual ability to invest capital, but also to provide grants that enable them to reduce the internal risk of these investments and provide the working capital that outcomes based contracts require. 

This is useful because outcomes-based contracts are powerful tools to drive higher accountability for social impact. One of the core public benefits that we at Latitude Network have witnessed in organisations that undertake outcomes contracts (such as SIBs or PII projects) is that the focus on outcomes and the rigour of the contracting and financial structure create strong incentives to achieve social outcomes. This in turn leads to stronger use of data and performance systems that drive continuous improvement in programs. Well-designed outcomes contracts align financial and mission-based incentives to deliver high performing social programs.

While SIBs have been important vehicles for helping the social sector develop new tools and skills for achieving outcomes, they are very complex to develop and negotiate and are not suitable for all forms of social service funding. Government, philanthropy and the social sector need to continue to find new and lower-cost ways of contracting for the delivery of social outcomes. The PII structure developed for Living Learning is an example of a new way to partner for delivery of social outcomes.

Latitude Network congratulates Melbourne City Mission (MCM) on the announcement of its Partnership Addressing Disadvantage (PAD) contract with the Victorian State Government known as the ‘Living Learning’ program. 
 
Latitude Network supported MCM in its initial PAD application and throughout the negotiation with Government, providing advice and technical assistance across service design, financial model, negotiation and data use. We are now working with MCM to develop a live data and performance system set up to help them achieve their outcomes targets.
 
‘Living Learning’ is a new, targeted program which addresses barriers for young people who are disengaged from school and living with mental illness. MCM developed the program using its expertise in re-engaging with, and supporting, young people through their independent school, the Hester Hornbrook Academy. 
 
As lead advisors to MCM throughout the journey, we are excited to see the program announced and young people able to start entering the program from today.
 
Latitude Network was also pleased to work with leading Australian social finance experts, Sefa, who provided advice on blended capital structuring options, targeting foundation investors using their corpus and granting arm.

We can’t yet share the details of the innovative financial structure behind Living Learning. Sign up to our newsletter so we can let you know those details as soon as they are available. 
 
At a future date we will also be running a Webinar with Sefa in collaboration with Pro Bono News to talk through the details of the investment structure. Keep an eye out for the invitation.

Key program elements include - 

• ​144 participants aged 15 to 21 across Melbourne;
• Three-year program through MCM's independent school, the Hester Hornbrook Academy which has specialised campuses across Melbourne;
• Education and support for young people who are disengaged from employment, education and training and who have a mental health condition; and
• Part of the State Government's Partnerships Addressing Disadvantage social impact investment program.

​See the Victorian Government's Press Release here.