Disciplinary Action for Contract Employees
There are two possibilities with regard to a contract employee. If by "contract employee," you mean an employee appointed for a fixed period, then you can initiate disciplinary action while he is under suspension pending an inquiry.
On the other hand, if he is an employee engaged by a contractor, then you cannot suspend him and initiate any disciplinary action against him. This is because he is not your employee, or there exists no employee-employer relationship between him and you. If he, while being engaged in your company, has committed any misconduct, you can ask the contractor who has engaged him in your plant/office to remove him from your place. It is up to that contractor to suspend or dismiss him or take any other action, and you have nothing to take part in it.
Regards,
Madhu.T.K