Industrial water pollution is one of the major environmental problems in Sri Lanka, which has attracted public attention over the past few decades.  Despite new laws and regulations requiring industries to treat their wastewater many industries in Sri Lanka are unable to comply due to lack of effective enforcement. It is often financially and technically not feasible to individually treat their waste water. Centralized wastewater treatment for a group of industries located in Industrial Estates (IEs) can be a practical and economically sound solution. The main objective of this study was to examine the environmental performance of the industries in and outside the industrial estates with reference to the different contractual arrangements between the client and the environmental service provider in order to enhance private sector participation in providing common effluent treatment facilities. Environmental performance of firms, located in and outside Industrial Estates having different ownerships together with the provision of common effluent treatment facilities was assessed through a detailed survey at firm level by using an appropriate environmental performance indicator.