Performance Based Contracts for Reducing Non-Revenue Water: Selected Lessons from International Experience

This research paper by GreenCape examines the use of Performance-Based Contracts (PBCs) to reduce Non-Revenue Water (NRW), drawing on international experiences from countries such as Brazil, Malaysia, Thailand, and Ireland. It outlines the technical, financial, and managerial challenges of NRW reduction and provides guidance on scoping, risk-reward balancing, and ensuring the sustainability of water savings for public utilities, with a particular focus on the South African context.

• Performance-Based Contracts (PBCs) are used to reduce Non-Revenue Water (NRW) by harnessing private sector expertise and aligning incentives, where payment is linked to actual results. This approach allows utilities to access specialized technical know-how and can reduce transaction costs compared to issuing numerous small tenders.
• NRW reduction is a complex challenge that is not merely technical but also managerial and political. It is split between commercial losses (billing and collection) and physical losses (leaks), which often fall under different municipal departments, leading to internal disputes over the cause of water loss.
• Successful PBCs require precise scoping and a reliable baseline of data to measure performance. It is recommended that project areas have at least 10,000 connections and exhibit 'strong water isolation' to ensure the water balance can be accurately calculated.
• There is a critical distinction between 'target contracts' and 'true performance contracts'. Target contracts use pre-determined volumes with penalties or bonuses, which can be arbitrary; true performance contracts have no fixed target, and the fee is directly proportional to the amount of NRW reduced.
• In Brazil, a PBC in Sao Paolo focused on commercial losses by replacing 27,000 meters for large commercial and industrial customers, which increased revenues by US$72 million over three years.
• In South Africa, a performance-based WC-WDM contract in Sebokeng, installed in 2005, resulted in a saving of R150 million in bulk water costs over five years. The service provider earned R10 million after incurring R15 million in costs and being paid R25 million.
• Payment risk is a significant barrier for private contractors, especially when public utilities have low creditworthiness. One suggested mitigation strategy is the use of an escrow account with a fiduciary assignment of receivables as collateral.

APA

Schaub-Jones, D. (2013). Performance Based Contracts for Reducing Non-Revenue Water: Selected Lessons from International Experience. GreenCape. https://greencape.co.za/assets/Sector-files/water/Water-conservation-and-demand-management-WCDM/Schaub-Jones-Performance-based-contracts-for-reducing-non-revenue-water-selected-lessons-from-international-experience-2013.pdf

Chicago

Schaub-Jones, David. Performance Based Contracts for Reducing Non-Revenue Water: Selected Lessons from International Experience. GreenCape, 2013. https://greencape.co.za/assets/Sector-files/water/Water-conservation-and-demand-management-WCDM/Schaub-Jones-Performance-based-contracts-for-reducing-non-revenue-water-selected-lessons-from-international-experience-2013.pdf.

Wikipedia

{{cite report |last1=Schaub-Jones |first1=David |title=Performance Based Contracts for Reducing Non-Revenue Water: Selected Lessons from International Experience |publisher=GreenCape |date=December 2013 |url=https://greencape.co.za/assets/Sector-files/water/Water-conservation-and-demand-management-WCDM/Schaub-Jones-Performance-based-contracts-for-reducing-non-revenue-water-selected-lessons-from-international-experience-2013.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{schaubjones2013performance, author = {Schaub-Jones, David}, title = {{Performance Based Contracts for Reducing Non-Revenue Water: Selected Lessons from International Experience}}, institution = {GreenCape}, year = {2013}, month = dec, url = {https://greencape.co.za/assets/Sector-files/water/Water-conservation-and-demand-management-WCDM/Schaub-Jones-Performance-based-contracts-for-reducing-non-revenue-water-selected-lessons-from-international-experience-2013.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }