In the interest of all who wish to suffer a little more at the hands of ST I shall propose thusly:
An option at captain creation only applying to impossible difficulty (or if possible a similar selection like the 1k+ turns) that "gifts" the pain loving captain a -1 rep with the offering faction for every contract they unwisely reject. Seems to me that the powerful individuals manipulating entire planets would not take too kindly to rejection.
Horrifically unbalanced, yes. It is called impossible after all.
Nah -1 RP is not really a disincentive. When you're playing Impossible, you're gonna be rejecting contracts that don't suit what you're up to. Forfeiting 1 RP is much better than being forced to hunt down and capture someone from another friendly faction in the middle of an alliance conflict.
Now forfeiting 10 RP ... or or or "5 RP x your current military rank" could be good. If you're rank 21, you're sure as hell meant to be loyal to that faction - so you get penalized more if you reject a contract on a higher rank!
Disclaimer - this doesn't affect me too much because in Impossible, I don't really play the contract game that much. In fact, most of my captains only have about a dozen contracts under their belts over a 200 year span.