The management contract for water andsanitation services in the Venezuelan state of Monagas,awarded in early 1997 to a Spanish firm, is one of very fewsigned and active management contracts in the water sector.Management contracts pose design challenges. Their built-inincentives do not include equity at risk, so surrogateincentives must be designed, such as a performance bonus.Deciding how to award these contracts is also a challenge,because they lie somewhere between technical assistance(which should be awarded on the basis of skill andexperience) and a lease (which should be awarded on thebasis of price). It is too early to say whether managementcontracts can evolve into a more high-powered form ofprivate participation like a concession. But the earlyoperational results are very positive, and the experiencesheds light on when a management contract is the rightchoice, how it should be designed to introduce the rightincentives for the contractor and the publicrepresentatives, and what steps to take in awarding it.
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