Using case-study material of contracting for clinical and ancillary services in the health care sector of developing countries, this article examines the capacities required for successful contracting and the main constraints which developing country governments face in developing and implementing contractual arrangements. Required capacities differ according to the type of service being contracted and the nature of the contractor. Contracting for clinical as opposed to ancillary services poses considerably greater challenges in terms of the information required for monitoring and contract design. Yet, in some of the case-studies examined, problems arose owing to government's limited capacity to perform even very basic functions such as paying contractors in a timely manner and keeping records of contracts negotiated. The external environment within which contracting takes place is also critical; in particular, the case-studies indicate that contracts embedded in slow-moving, rule-ridden bureaucracies will face substantial constraints to successful implementation. The article suggests that governments need to assess required capacities on a service-by-service basis. For any successful contracting, basic administrative systems must be functioning. In addition, there should be development of guidelines for contracting, clear lines of communication between all agents involved in the contracting process, and regular evaluations of contractual arrangements. Finally, in cases where government has weak capacity, direct service provision may be a lowerrisk delivery strategy. O 1998 John Wiley & Sons, Ltd.Using case-study material of contracting for clinical and ancillary services in the health care sector of developing countries, this article examines the capacities required for successful contracting and the main constraints which developing country governments face in developing and implementing contractual arrangements. Required capacities differ according to the type of service being contracted and the nature of the contractor. Contracting for clinical as opposed to ancillary services poses considerably greater challenges in terms of the information required for monitoring and contract design. Yet, in some of the case-studies examined, problems arose owing to government's limited capacity to perform even very basic functions such as paying contractors in a timely manner and keeping records of contracts negotiated. The external environment within which contracting takes place is also critical; in particular, the case-studies indicate that contracts embedded in slow-moving, rule-ridden bureaucracies will face substantial constraints to successful implementation. The article suggests that governments need to assess required capacities on a service-by-service basis. For any successful contracting, basic administrative systems must be functioning. In addition, there should be development of guidelines for contracting, clear lines of communication between all agents involved in the contracting process, and regular evaluations of contractual arrangements. Finally, in cases where government has weak capacity, direct service provision may be a lower-risk delivery strategy. (C) 1998 John Wiley & Sons, Ltd.
