A government can choose between several legal mechanisms to privatize its water sector. The choice will depend on the government's objectives as well as its ability to overcome the objections previously mentioned. The level of participation will also determine the type of bidder interested in the transaction, and the capital investment the private sector will have to bring to the project. At one end of the privatization spectrum are alternatives such as the management and service contracts which are being used in Colombia, Mexico and Trinidad and Tobago. These require little private investment and impose little risk, since the government retains ownership of the water sector assets and responsibility for capital expenditures.
Management contracts are often a first step in privatizing water and sanitation systems.
By permitting limited private sector participation, governments hope to attain improved efficiency in water utility operations while minimizing stakeholder objections and resolving issues like low tariffs, inadequate information or legislative confusion. However, in addition to leaving governments with the commercial risk and fiscal obligations, management and service contracts may make it difficult to attract potential investors for future privatization efforts. The prospective investors may feel that current private managers have an information advantage over rival bidders. A government concession grants the participant the right to use the existing water utility's assets, usually for 20-30 years, if it assumes responsibility for the utility's operation as well as any investment needed. At the end of the concession period, the assets revert to state ownership.