379 Projects and Counting
The scale and structure of Japan's PFS landscape. SIBs remain at 5%, with a significant gap between awareness and implementation
Japan's PFS projects (end of FY2025)
379 projects
SIBs with private investor capital
19 projects
Municipalities aware of PFS/SIB
80%
Municipalities with implementation experience
<10%
As part of the expansion and diversification of PPP/PFI, the adoption of Pay for Success (PFS) — outcome-linked private-sector commissioning — has been accelerating across Japan. Japan's PFS projects reached 379 by the end of FY2025, 42 more than a year earlier, far exceeding the "PFS Action Plan (FY2023–2025)" three-year target of 90 new projects with an actual 132 new projects (147% achievement rate).
Yet structural gaps lie beneath these figures. Of the 379 projects, only 19 are Social Impact Bonds (SIBs) utilizing private investor capital — approximately 5% of the total. The FY2023 fact-finding survey found that while approximately 80% of municipalities recognize PFS/SIB, only 17.0% understand its mechanisms in detail, and fewer than 10% have implementation experience.
In the three priority fields promoted by the Cabinet Office — healthcare, elderly care, and recidivism prevention — projects such as Hachioji City's colorectal cancer screening SIB, Kobe City's diabetic nephropathy prevention SIB, and Toyota City's eldercare prevention PFS "Zutto Genki! Project" have begun producing results. The critical question, however, is: what happens to these programs after they prove results?
PFS/SIB as a Proof-of-Concept Phase
Using guidelines and Brookings research as evidence, demonstrating that outcome-linking is fundamentally an evidence-building mechanism, not a permanent scheme
PFS/SIB was not designed as a permanent scheme. The Cabinet Office Common Guidelines (revised February 2024) explicitly state that after PFS project completion, "it is important to conduct follow-up surveys, evaluate goal achievement, and create new evidence." PFS is fundamentally an evidence-building phase — a mechanism for verifying, through outcome-linked structures, whether a given intervention is effective.
Brookings Institution takes a similar view, positioning PFS financing as part of "a sequential strategy to achieve reform by starting projects with PFS financing, then scaling services that work with direct government funding." Outcome-linking is not the end goal — it is the means.
Post-proof trajectories diverge into three routes:
| Route | Description | Representative Case |
|---|---|---|
| Transition to fixed-fee commissioning | Continuing as standard government program after proof | Okayama City "Zoku! Okayama Kenko Daisakusen" |
| Continuation under PFS | Maintaining outcome-linked scheme across multiple years | Toyota City "Zutto Genki! Project" (5 years) |
| Termination with evidence retention | Program ends; evidence feeds next policy design | Kobe City SIB, Hachioji City SIB |
Okayama City's "Okayama Kenko Daisakusen" operated as a SIB with a total contract value of ¥370,388 thousand over five years before transitioning to "Zoku! Okayama Kenko Daisakusen" as a standard program. Meanwhile, Kobe City's SIB concluded after failing to reach its final target, and Hachioji City's SIB published a three-year results report as reference material for successor programs. In all patterns, the transition process remains non-institutionalized and subject to ad hoc decision-making.
International Post-SIB Trajectories
Comparing three cases: Peterborough (forced policy-change termination), Aspire (grant transition), HIV SIB (government-led national rollout)
Internationally, several transition patterns have been observed after SIBs complete their proof-of-concept phase.
Peterborough SIB (UK, 2010–2015)
The world's first SIB targeted recidivism prevention among prisoners released from HMP Peterborough. The bond raised £5 million from trusts and foundations and cut reoffending among short-sentenced offenders by 9% overall, against the 7.5% target set by the Ministry of Justice. Investors received an amount equivalent to just over 3% per annum for the period of investment.
However, this SIB did not transition to fixed-fee commissioning because of proven results. In July 2015, the UK government's "Transforming Rehabilitation" reform restructured the entire probation system, and the third cohort was implemented under a Fee For Service model rather than the SIB structure. The lesson: pilot SIBs are vulnerable to policy priority changes and can terminate unexpectedly.
Aspire SIB (Australia, 2017–2024)
The Aspire SIB deployed a Housing First approach for chronically homeless individuals in South Australia. Over seven years, 575 people received support, with 81% securing housing and 85% maintaining tenancy. Investor returns reached 14.1% annually, far exceeding the 8.5% target scenario.
The post-SIB transition is particularly noteworthy. Following SIB completion in June 2024, the South Australian government chose to continue the program through grants (standard subsidies). "A proven solution for countering chronic homelessness, Aspire will live on beyond the SIB." The transition destination was not "fixed-fee commissioning" but "grants" — illustrating how public service procurement conventions shape transition formats.
HIV SIB (UK, London Borough of Lambeth, 2018–2021)
Lambeth's HIV SIB expanded HIV testing in emergency departments, linking over 460 people to HIV treatment (209 newly diagnosed, 256 re-engaged). Estimated lifetime healthcare cost savings exceeded £90 million.
This SIB's transition process is recognized as a model case. Independent cost-effectiveness analysis built a robust evidence base, which was integrated into national strategy through the HIV Commission report, leading the government to commit £20 million for nationwide emergency department HIV testing rollout in December 2021. It is one of the few cases where the "SIB pilot → evidence building → government-led national scaling" pathway has been fully realized.
Structural Challenges for Transition in Japan
Analyzing four challenges: budget securing, WTP rigidity, cream-skimming, and competitive tendering
As international cases demonstrate, transition after proving results does not happen automatically. Japan faces four institution-specific barriers.
The budget securing wall. PFS projects enable multi-year contracts through "debt obligation commitments" (requiring local legislature approval under the Local Autonomy Act). However, transitioning to fixed-fee commissioning after PFS completion requires fresh budget appropriations. Proven results do not automatically guarantee continuation funding.
The WTP rigidity trap. The 2024 revised Guidelines introduced the WTP (Willingness To Pay) concept — "the maximum amount the government judges acceptable to achieve target outcomes." When the WTP established during PFS becomes the basis for unit-price calculation in fixed-fee commissioning, outcome indicators risk becoming rigid and inflexible.
Institutionalized cream-skimming. Prioritizing outcome indicator achievement creates a risk of favoring easier-to-serve participants while leaving the most vulnerable unserved. Hevenstone (2023, Public Administration Review) argues that "SIB contracts institutionalized the unintended 'creaming' found in Pay for Results literature."
Continuity disruption through competitive tendering. SIBs are assembled as packages of investors, intermediaries, and service providers. Transitioning to fixed-fee commissioning requires fresh competitive tendering, potentially excluding proven providers. Institutional mechanisms for ensuring continuity remain undeveloped.
Critical Perspectives on SIBs
Introducing critical research on transaction costs, formalization of outcome-linking, and investor return design difficulties
The Weight of Transaction Costs
Oxford GoLab (Blavatnik School of Government) research identifies the costs of SIB "design, negotiation, implementation, and monitoring" as the primary barrier to replication and scaling. In Japan, intermediary organizations (consulting firms) handle everything from project formation to ongoing support, with these costs layered onto project budgets. The Cabinet Office has introduced "project assembly packs" (standardized frameworks for multiple municipalities) to reduce formation costs, but a fundamental solution remains elusive.
Formalization of Outcome-Linking
A persistent criticism holds that "outcome-linking" has become formalized in practice. Multiple studies suggest that outcome indicators are set at levels achievable through existing services, failing to function as the intended "incentive for innovative service delivery." Hachioji City's SIB has also drawn commentary noting "challenges in outcome indicator design."
The Difficulty of Investor Return Design
Peterborough SIB's investor return was approximately 3% annually (low return), with most SIBs designed around social investors. Aspire SIB's 14.1% annual return is an exceptional case. That SIBs number only 19 in Japan (5% of all PFS) reflects the fundamental difficulty of designing appropriate returns for capital providers.
Connecting Beyond Outcome-Linking
Prospects for EBPM and logic model integration, claims data utilization, and preventive municipal governance
How can the evidence accumulated through 379 PFS projects be connected to structural government reform? Two pathways emerge.
Institutional Connection with EBPM
The Cabinet Office's "EBPM Action Plan 2024" (December 2024) promotes administrative data utilization through digital technology and logic model construction. PFS "outcome indicator design" directly corresponds to EBPM logic models, creating potential for institutional integration.
Specifically, digital resident registration, tax, and social security data utilization can reduce outcome measurement costs. Claims data (medical expense records) enables precise measurement of healthcare cost reduction effects — already practiced in the Kobe City and Hachioji City SIBs.
Toward Preventive Municipal Governance
PFS functions most effectively in the domain of prevention. Toyota City's "Zutto Genki! Project" runs for five years from July 2021 to June 2026 on a budget of about ¥500 million. The mid-term evaluation estimated that cumulative eldercare benefit costs over six years for the 4,188 participants could come to about ¥370 million less than for non-participants. The accumulated PFS evidence in diabetic nephropathy prevention, eldercare prevention, and recidivism prevention can serve as the foundation for prevention-oriented municipal governance.
However, measuring "prevention effects" is inherently difficult. It requires answering counterfactual questions (what would have happened without the intervention), and control group establishment carries high costs. This remains a structural barrier to PFS adoption, with the combination of digital administrative data becoming the key to cost reduction.
Conclusion
PFS/SIB functions as a laboratory. The question is not whether the experiment succeeds, but who uses the results and how. The next challenge is designing institutional frameworks that channel the evidence produced by 379 projects into fixed-fee transition design, EBPM integration, and preventive municipal governance foundations.
International cases make clear that transition does not occur automatically. Peterborough was disrupted by policy change. Aspire required seven years of evidence before moving to grants. The HIV SIB succeeded because evidence quality and policy connection made transition viable. Japan's 379 projects, too, need "exit design" built in from the outset.
Risk Allocation Design in PPP
Learning from failures: who bears which risk
Public Facility Management Guide
What to do after the comprehensive management plan
Small Concession Finance
Financial design for small-scale PPP/PFI projects
What to do next
In the order you can act on them, within the week you read this.
| # | What to do | Where | Rough effort |
|---|---|---|---|
| 1 | Ask the operator directly why they are leaving or why bids fell short: the fee, the term, repairs, or staffing | Meeting with the manager | One hour |
| 2 | Pull the basis for the current management fee and check its staffing assumptions against today's minimum wage | Your own department | Half a day |
| 3 | Count repair requests over five years, and how many were actually funded | Facilities and budget teams | A day |
| 4 | With 1–3 in hand, decide: direct management, non-competitive designation, revised re-solicitation, or a new scheme | Departmental decision | — |
| 5 | If you re-solicit, fix three things first: an indexation clause, the designation period, and who pays for repairs | Drafting | 1–2 months |
Skip step 1 and re-solicit on the same terms, and you get zero applicants again.
References
Pay for Success (PFS) Common Guidelines — Cabinet Office, Outcome-Based Commissioning Promotion Office (2024)
FY2023 PFS/SIB Fact-Finding Survey — Mitsubishi UFJ Research & Consulting (2024)
Problem to Program to Public Policy: How Outcomes-Based Financing Strengthened England's Health System — Brookings Institution (2023)
Mainstreaming Social Impact Bonds: Creaming and Parking in Pay-for-Results Contracts — Sally Hevenstone (2023)
