This is a critical moment for the public sector to design new finance mechanisms that can deliver outcomes. Over the last decade, there has been a global movement to develop innovative mechanisms, such as pay for success or social impact bonds, which have mainly focused on improving social service delivery programs. While these models are important, the Beeck Center and John Laing Group wanted to assess how other finance mechanisms have been structured to improve social outcomes through government-contracted, public-private partnerships that can have social impact. The global need for critical infrastructure provides an important opportunity to re-assess and re-define public-private partnerships to both deliver social outcomes and be “bankable” for the private sector. Governments have an opportunity to challenge traditional finance models and develop innovative financing mechanisms to solve for infrastructure and achieve societal outcomes.
What does it mean to finance public infrastructure for outcomes?
To answer this question, and to illustrate how one government approached this challenge, we decided to study one of the leading global examples of outcomes-contracting for infrastructure: the public-private partnership at the Auckland South Corrections Facility at Wiri in New Zealand (ASCF). We wanted to better understand how a government in search of solutions to improve infrastructure and social service delivery was experimenting with new approaches to maximize private capital and leverage policy innovation to produce greater social impact. Is it possible for government to build and finance infrastructure projects—such as prisons, roads, schools, water, and hospitals—that are designed to not only operate efficiently, but to also deliver improved social services? How can the public sector incent the private sector to build and operate quality infrastructure that improves lives? What would compel the private sector to direct its capital, in all of its forms, toward such a project? What would the metrics be and how would payments be structured? These are the questions we asked of the New Zealand government, private sector partners including the John Laing Group (a financier that forms part of the consortium created for the ASCF contract), and the community in New Zealand.
Our goal in presenting this innovation spotlight is to share policy insights with a particular emphasis on understanding the government’s innovative approach to public-private partnerships and the role of the private sector to deliver on outcomes. In developing the spotlight, the Beeck Center was able to observe and assess the social investment policy on the ground in New Zealand, particularly focusing on the Fifth National Government’s Public-Private Partnership policy at ASCF. We surveyed approximately thirty key stakeholders across sectors in Auckland, Wellington, South Island, and the United States. The John Laing Group, which partially funded this research, also provided interviews regarding private sector motivation to bid for the PPP at ASCF and risk assessment. We sought to learn about and document this innovative finance mechanism from a policy lens, with the aim of communicating its benefits and challenges to a global audience of government and private sector leaders.
We learned that a true outcomes-based approach can tackle multiple problems at the same time. The innovation spotlight provides insights on how the previous New Zealand government evolved its role from simply contracting for a prison to changing the procurement process and the mindset to address a significant social problem, to quantify outcomes, and to structure a regime to pay for performance. Hence, the payment to the consortium that financed and operates the facility is contingent upon the measurable achievement of social outcomes. The report offers some lessons from New Zealand that can be iterated upon and applied in the delivery of social infrastructure needs in other sectors and countries.