Detailed modelling of contact dynamics involving a flexible space manipulator system and a payload is considered in this paper. The components undergoing direct contact (the end–effector of a manipulator and a payload) are modelled using the finite–element method, while the rest of the system is handled through the usual flexible multi–body formulation. Then, the system dynamics is composed of a set of differential equations subjected to sets of algebraic equations expressing kinematic or contact constraints. This dynamic model is then used to design a composite controller which must simultaneously achieve three goals: (i) trajectory tracking, (ii) force control and (iii) stabilization of the flexible degrees of freedom of the multi–body system. The singular perturbation method is used to obtain two reduced–order models; subsequently, the slow subsystem is used to design a hybrid position/force controller based on impedance control, and the fast subsystem is used to design a linear quadratic regulator (LQR).