This paper reports on the process and outcomes of contracting for health services in New Zealand between 1993 and 2000 when a purchaser-provider split was in place. Key factors that shaped the contracting environment were the legal framework, funding constraints, and the cultural and professional norms of contracting personnel. A lack of good information-especially on costs, volumes and quality-increased the costs of contracting and made monitoring and accountability difficult. Over time, however, the contracting process became simpler and less costly. Overall, the introduction of contracting generally improved the focus of providers on costs and volumes; led to greater clarity through specification of services; encouraged providers to focus on methods to improve quality; and enabled new styles of service provision from providers that had not traditionally received public funds for health services. Good relationships between purchasers and providers were seen as the key to successful contracting.