This article looks at policy failure in systems that rely on highly autonomous organizations to deliver the services promised in the policy programs. We argue that in order to better understand success and failure in such systems, the existing categories of policy failure and organizational failure do not suffice. Therefore, we look at the ability of agents assigned to that task to effectively act in the relation in-between the system level and the level of individual organizations. This brings to the fore another type of failure – governance failure – the inability of a policy system to timely detect and asses looming failure in individual parts. It is helpful to apply a lens of interactive complexity to these systems and to look at causal loops rather than causal lines. We apply this perspective to a case of the Inspectorate of Education, to study how it dealt with three cases of looming failure in schools. The perspective of causal loops helped the Inspectorate to understand in hindsight how two schools collapsed, and it was then used proactively to intervene in a third school. The paper helps practitioners to better deal with failure in layered policy and sets an agenda for further research into the use of circular dynamics for policy analysis and intervention.