diff --git a/src/go/types/decl.go b/src/go/types/decl.go
index 46ae273131..706c1f8374 100644
--- a/src/go/types/decl.go
+++ b/src/go/types/decl.go
@@ -644,7 +644,14 @@ func (check *Checker) collectTypeParams(list *ast.FieldList) (tparams []*TypeNam
 			}
 			if targs != nil {
 				// obj denotes a valid contract that is instantiated with targs
-				check.errorf(f.Type.Pos(), "explicit contract instantiation not yet implemented")
+				// Use contract's matching type parameter bound and
+				// instantiate it with the actual type arguments targs.
+				// TODO(gri) this is not correct when arguments are permutated. Investigate!
+				for i, bound := range obj.Bounds {
+					pos := unparen(f.Type).(*ast.CallExpr).Args[i].Pos() // we must have an *ast.CallExpr
+					//check.dump("%v: bound %d = %v, under = %v, args = %v", pos, i, bound, bound.Underlying(), targs)
+					setBoundAt(index+i, check.instantiate(pos, bound, targs, nil))
+				}
 			} else {
 				// obj denotes a valid uninstantiated contract =>
 				// use the declared type parameters as "arguments"
@@ -653,8 +660,7 @@ func (check *Checker) collectTypeParams(list *ast.FieldList) (tparams []*TypeNam
 					goto next
 				}
 				// Use contract's matching type parameter bound and
-				// instantiate it with the actual type parameters
-				// (== targs) present.
+				// instantiate it with the actual type arguments targs.
 				targs := make([]Type, len(f.Names))
 				for i, tparam := range tparams[index : index+len(f.Names)] {
 					targs[i] = tparam.typ
diff --git a/src/go/types/testdata/contracts.go2 b/src/go/types/testdata/contracts.go2
index 43f228b471..2a566213a9 100644
--- a/src/go/types/testdata/contracts.go2
+++ b/src/go/types/testdata/contracts.go2
@@ -218,6 +218,32 @@ func _(type F, C FloatComplex)(c C) {
         c = C(complex(fre, fim))
 }
 
+// Use of instantiated contracts
+
+contract ABC(A, B, C) {
+        A a()
+        B b()
+        C int, float64
+}
+
+func fa(type A, B, C) (A, B, C)
+func fb(type A, B, C ABC) (A, B, C)
+func fc(type A, B, C ABC(A, B, C)) (A, B, C)
+func fd(type A, B, C ABC(B, C, A)) (A, B, C)
+
+type tA int; func (tA) a()
+type tB float64; func (tB) b()
+
+func _() {
+        var a tA
+        var b tB
+        fa(a, b, 0)
+        fb(a, b, 0)
+        fc(a, b, 0)
+        fd(a, b, 0)
+        fd(tA, tB, int)(a, b, 0) // TODO(gri) this should fail - investigate!
+}
+
 // --------------------------------------------------------------------------------------
 // Parameterized interfaces as contracts
 
diff --git a/src/go/types/testdata/tmp.go2 b/src/go/types/testdata/tmp.go2
index a7779ea8d3..2ca03ef732 100644
--- a/src/go/types/testdata/tmp.go2
+++ b/src/go/types/testdata/tmp.go2
@@ -27,8 +27,25 @@ type II interface{
 var _ I = II(nil)
 */
 
-contract C(T) {
-        T op(T) T
+contract C(A, B) {
+        A a()
+        B b()
 }
 
-func f(type T C /* ERROR not yet implemented */ (T))(x, y T) T //{ return x.op(y) }
+//func fa(type A, B, C) (A, B, C)
+//func fb(type A, B, C ABC) (A, B, C)
+//func fc(type A, B, C ABC(A, B, C)) (A, B, C)
+func fd(type A, B C(B, A)) ()
+
+type tA struct{}; func (tA) a()
+type tB struct{}; func (tB) b()
+
+func _() {
+        //var a tA
+        //var b tB
+        //fa(a, b, 0)
+        //(a, b, 0)
+        //(a, b, 0)
+        //fd(a, b, 0)
+        fd(tA, tB)() // TODO(gri) this should fail
+}
\ No newline at end of file