But then who are the criminals and ‘bad’ people if not those that have rejected the contract? Life is never all or nothing, so there will be times when someone will abide by the contract, for whatever reason, and times when they wont. This discussion centres on the times that they don’t and assumes that is the option taken the majority of the time.

True, a society does demand sacrifice of free will, however it can be argued that there can never be 100% free will even if you’re a hermit in a cave 100s of miles from another human. E.g. “I want to stay in my cave all day today, but I can’t because I’ve run out of food.” Hunger removes the free will for that period of time.