<p>This study aimed to investigate whether the cost reduction effect outweighs the cost-increasing effect in public–private partnership (PPP) management contracts, considering the time-course lock-in effect. We also identify the optimal contract design to minimise the lock-in effect and critical factors in the introduction of PPP management contracts. Using data from 2002 to 2019 on comprehensive outsourcing contracts (COCs), a form of management contract employed in the Japanese sewerage industry, we utilised a panel difference-in-differences model to analyse the net effect of COCs on service costs. To address potential endogeneity issues in the adoption of COCs, we created a matched sample of municipalities that have introduced COCs and those that have not. This matching was achieved through propensity score matching, accounting for variations in characteristics of municipalities. The following results are obtained from the analysis. First, while the cost reduction effect of COCs outweighs the cost-increasing effect in total, the lock-in problem occurs in a long-term relationship, especially in the third contract renewal. Second, outsourcing of multiple business functions leads to lower unit costs, while long contracts tend to increase costs. Third, demand environment (e.g. potential profitability) and management environment (e.g. cost structure) are more important in the introduction of COCs than are transaction cost factors such as asset specificity and uncertainty. Overall, our results suggest that management contracts have greater benefits for municipalities in cost reduction than do service contracts, perhaps because both the contractor and contractee make efforts to maintain the relationship, leading to few transaction-related problems.</p>