We analyze the contract-based relationship between a local community and a private operator in charge of a water utility. An important feature of the regulation model is the existence of water network losses that may reduce the operator's cost. We derive solutions to the optimal contract both under complete information and with hidden private information. Asymmetric information solutions are simulated after calibration by estimated technology and demand parameters from a panel of French water utilities. We show that private operators can be allowed higher water loss rates as a way to reduce information rents.