Governmental-contracting of non-governmental organizations (NGOs) is a central strategy of neoliberal health reforms in Central America. More than improving the equity, efficiency, and quality of health services, contracting presents a potential mechanism to redefine antagonistic relationships between the state and civil society, particularly in countries ravaged by political violence. In this paper I examine the process of heath reform in Guatemala through the implementation of the Sistema Integral de Atención en Salud (SIAS) in the municipality of San Martín Jilotepeque. Mandated in the 1996 Peace Accords, SIAS potentially facilitates decentralization and civil participation through governmental-contracting of NGOs to provide health services to underserved populations. Drawing on ethnographic interviews with NGO representatives, Ministry of Health (MOH) workers, and community health workers and midwives, I examine the contracting process and then address issues of equity, efficiency, and quality of services, as well as the process of decentralization. I argue that contracted NGOs are largely restricted to serve as administrators, removed from the delivery of services, and are heavily dependent upon the traditional MOH structure, which limits the ability of SIAS to improve health services or foster the processes of decentralization and democratization.