The Use of Performance-Based Contracts for Nonrevenue Water Reduction

Abstract

This operational manual describes the process for planning and implementing performance-based contracts (PBCs) for nonrevenue water (NRW) reduction. An NRW-PBC is a contract for outsourcing technical, commercial, and construction activities related to NRW reduction, while providing the contractor with incentives to achieve the desired results. Unlike conventional NRW reduction contracts in which contractors are paid based on inputs (for example, number of connections replaced), NRW-PBCs pay the contractor for outputs, such as amount of water saved, number of illegal connections detected, or number of customers receiving 24/7 service. NRW-PBCs differ from management contracts, concessions, leases, or other forms of private sector participation, in that the utility retains control of utility operations and assets. The PBC allows the utility to take advantage of the expertise and incentivized performance of specialized private sector firms to reduce NRW. NRW-PBCs do not entail privatization of management, operations, or assets. This manual can be read in its entirety for general knowledge of NRW-PBCs and the NRW-PBC preparation process. Practitioners can also reference individual sections of the guide during the NRW-PBC preparation process. The primary users of this manual are those involved in assessing, preparing, and implementing NRW-PBCs. This includes governments, water utilities, regulators, consultants, contractors, and international finance institutions.