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The following blog post was written by America Forward Government Affairs Director Nicole Truhe and Third Sector Capital Partners Senior Associate Joshua Reed-Diawuoh.

With the launch of the Social Innovation Fund’s Pay for Success (SIF PFS) program, new funding was available to resource both feasibility assessment and project construction support activities (for more information on PFS feasibility, construction, and launch engagements, click here.)  When the first eight organizations were chosen as SIF PFS grantees, and subsequently launched their competitions to identify subrecipients in 2014, the overwhelming majority of respondents were government jurisdictions; however, among the subrecipients chosen by Third Sector Capital Partners, Inc. (Third Sector) in its first cohort was a private, nonprofit service provider.

Year Up, a nonprofit organization whose mission is to close the opportunity divide by providing urban young adults with the skills, experience, and support that will empower them to reach their potential through professional careers and higher education, raised their hand to receive support through Third Sector’s SIF PFS competition. They indicated they were motivated to explore if—and how—PFS could be used to scale one of their interventions and improve their evidence base.

The findings and insights from the feasibility assessment conducted by Third Sector have important implications for Year Up’s work and its ultimate engagement in a PFS contract. The lessons are also applicable to other providers and raise important considerations as they explore PFS as an approach for scaling and evaluating their programs.

Establish a Value Proposition

Providers and government stakeholders sometimes are not aligned on topics such as: which populations are underserved and to what degree, ways to address the needs of those populations, and if—and where—the resources are available to provide the interventions to improve outcomes for these individuals.

To make a PFS contract successful, service providers must have a clear and compelling value proposition that includes both the financial and broader social benefits of their intervention. A service provider’s value proposition in PFS engagements may focus on cost-savings in the form of decreased utilization of public assistance, new sales and income tax revenues from participants’ gains in employment, and decreased justice system costs from reductions in crime and recidivism, among others.

Disconnect between any parties involved, particularly the provider and government, with regards to the goals, outcomes, and fiscal incentives of the PFS approach, can delay or derail a potential project.

Focus on Outcomes and Data

PFS is an approach to contracting that aligns payment with the achievement of outcomes based on independent evaluations. As a result, it is critical for providers interested in exploring PFS to have some established evidence base associated with the program it is interested in engaging in a PFS arrangement.

Providers must also balance the opportunities and challenges that come with different evaluation approaches. For example, randomized controlled trial (RCT) evaluations used in many PFS projects require a large group of eligible individuals and long observation periods to be statistically meaningful. RCTs can offer rigorous evaluations of program impact, but also introduce a great deal of complexity to PFS projects. Other simplified evaluation approaches without live control groups can dramatically simplify PFS evaluations, but still measure program success against historical baselines or negotiated targets.

Data also plays a key role in PFS, particularly in relation to the evaluation. During feasibility assessments, parties must access relevant databases for baseline data on their target population. These data determine outcome metrics and realistic performance goals for PFS projects. Many providers, however, identify accessing administrative data as a critical barrier that impedes their ability to adequately evaluate their program and pursue PFS arrangements.

Engage and Align with Government Stakeholders

Government stakeholders are critical to engage at the outset of a discussion about developing a PFS contract. Government is the most likely source of outcome payments, and thus, having their buy-in on the financial and social benefits upfront can help in securing the resources to fund the positive achievement of the outcomes determined by all parties. In addition, key government stakeholders are typically the ones who can overcome data access barriers. Building relationships with political leaders and generating excitement about the potential benefits associated with PFS can result in stronger contracts with more impactful outcomes. It can also set up the opportunity for engagement in other PFS contracts and create the opportunity for long-term change in the overall contracting environment for providers.

These insights are important for service providers to consider as they go through a similar process as Year Up to test the application of Pay for Success. Each individual effort to develop and execute a PFS contract is unique, but these lessons are cross-cutting and will help service providers be more successful in their efforts to engage in PFS contracting whether it is in order to scale one of their interventions, improve their evidence base, or for some other organizational goal.