On May 3, 2002, following a nine-month international bidding process (the "Bidding Process"), the Puerto Rico Aqueduct and Sewer Authority (PRASA) entered into a ten-year service contract with Ondeo de Puerto Rico, Inc., an affiliate of the French company Suez, for the operation and management of the Puerto Rico water and wastewater system. The approximately U.S.$4 billion contract represents the largest operation and management contract ever awarded for water and wastewater services. Although the outcome was successful, the result was not always certain. The environment in which the Bidding Process took place was a challenging one. At the time of the bidding, PRASA faced serious and escalating financial difficulties. The assets comprising the Puerto Rico water and wastewater system were in need of significant capital improvement. The assets were also the subject of hundreds of administrative consent orders from various U.S. federal regulatory agencies. Bidders complained that they had not had an adequate opportunity to inspect and assess the system's facilities, which numbered in the thousands. The existing private operator of the system had less than a year left under its existing contract and relations between PRASA and this operator had badly deteriorated. The heavily unionized workforce and the general public were vehemently opposed to future private sector participation in the water and wastewater sector. Not surprisingly, participants in the Bidding Process focused early on the risks that they would be asked to assume under the service contract to be entered into by PRASA and the winning bidder (the "Service Contract"). One of the principal reasons that the process was successful was because PRASA was able to identify and prioritize at the outset the risks that it would accept and those that it would not. Ultimately, PRASA was able to structure the Service Contract in a manner that achieved its objectives but also addressed the concerns of most of the bidders. This article addresses the manner in which the risks associated with the longterm operation and management of the Puerto Rico water and wastewater system were allocated. The article first describes the objectives that PRASA sought to achieve through the Bidding Process and briefly outlines the manner in which the Bidding Process was conducted. The article then discusses the principal risks that bidders were asked to assume under the Service Contract, their reaction to such risks and how these risks were effectively allocated between PRASA and the operator of the system.