Russ Wood, long-term co-worker at MIC Northcote, is currently on a business tour in the U.S. With scheduled meetings in Los Angeles, New York, and Boston, he and his business partner are taking their clients to learn more about a new approach to delivering social and health service outcomes.

Russ and his business partner Dale run Latitude Network, a consulting firm that advises on performance-based contracts between service providers and government. We recently sat down with Russ to better understand what this means.

“At the moment,” Russ explained, “our social and health service system is contracted on an activity and output basis. Mental health, family violence, hospital funding and so on. Contracts are based on providing numbers—office opening hours, crisis accommodation occupancy rates, hours of mental health appointments delivered—not long-term change.”

Essentially, our service contracts are reactive. Latitude Network is pushing for a more preventative system.

“Here, and right across the world, there aren’t organisations that are contracted to stop a person who might be at the point of disengaging from school, for instance, from disengaging and ending up in an emergency room or prison.”

Russ provided the sobering example of 150 young people that, if not supported better over the next 20 years, are going to cost the government $100 million. This verified figure highlights the lifetime cost of high-risk individuals. Instead of output-based support, the government has now asked service providers how much they need to keep those individuals in schools, out of ED and out of prison. The service provider has calculated it at $12 million over three years, and the government approved it.

What’s the next step?

Latitude Network are assisting in the contract negotiation. “We’re acting as a middleman between service providers that want a different way of delivering change and governments who are starting to calculate the lifetime costs of individuals.”

The challenge is that it’s all very new. Neither the government or service providers understand what a proposal needs to look like, let alone how to negotiate a contract, or deliver on it. Due to this, and the fact that performance-based contracts are complex, Russ assists both parties through the thinking phase. How can they switch from an output-based contract to performance-based? What kind of dashboards do they need? How can they measure when these 150 individuals are going off the rails and how can they intervene?

“We set them up with that,” Russ said. “We then look at the risk return profile. What kind of risk does the service provider want to take on financially? How much will the government front up as a base cost, not factoring in performance, and how much will be contingent on performance? If there’s a gap, it goes to investors. We’re actually raising capital for social providers to fund some of these services so that they can hit a target.”

In Victoria, only two performance-based contracts have been negotiated. These are only just commencing, and only another two are being negotiated now.

“That’s why we’re going to the U.S.,” Russ explained. “They’ve been contracting these for about six years. Their governments are exploring ways to put a performance-based contract together without the 12 months of negotiations.”

The goal of the trip is to return with the information to demonstrate that America is forging ahead with these contracts. It’s a market building exercise. Russ and Dale not only want to become better at delivering these services but anticipate market shifts.

“We’ll meet with service providers that are further down the path than our clients. We’ll meet with governments that have done more and different contracting than our governments here. And we’ll meet with funders and investors, like the Rockefeller Foundation, that are investing differently.”

Russ likens Latitude Network to a startup—doing something new, unprecedented, with a currently tiny market. Firmly believing this is a better and smarter way to deliver services, he is determined to educate and expand that market, forging change into the future.

Coworking at MIC Northcote enables Russ to be surrounded by people facing that same startup challenge. “It’s good to know that the people here share the commonalities of the entrepreneurial journey.”

We wish Russ and his business partner a successful trip to the United States!