This paper interrogates impediments to post-colonial state-building through a classically liberal lens. Centering on the transactional and ideational-discursive elements of individual-state relations, it identifies two main challenges, one of establishing positive sovereignty, based on a state's legitimate capacity for action, and one of transitioning to governmentality, governance based on reason and persuasion. A liberal theory of contractualism rooted in Austrian-school and public choice frameworks is developed as a solution to the governmentality and sovereignty gaps in post-colonial states. This approach moves beyond the conventional institutionalism focus on elite actions and social responses to incentives by analytically integrating the transactional pursuit of positive sovereignty with the ideational-discursive construction of governmentality. Noting the impracticality of directly engineering governmentality through policy, the paper traces its organic development via iterative individual-state relations. Contractualism, as conceptualized here, is pivotal for facilitating political and economic transactions that shape emergent relational identities, thereby redefining individual-state dynamics. In short, the emergence of contractualist institutions is key to achieving governmentality and positive sovereignty. This redefinition of the state through contractual relationships offers a fresh perspective on tackling post-colonial state-building challenges.