This paper proposes a formulation of dynamic contact problems which enables exact algorithmic conservation of linear momentum, angular momentum, and energy in finite element simulations. It is seen that a Lagrange multiplier enforcement of an appropriate contact rate constraint produces these conservation properties. A related method is presented in which a penalty regularization of the aforementioned rate constraint is utilized. This penalty method sacrifices the energy conservation property, but is dissipative under all conditions of changing contact so that the global algorithm remains stable. Notably, it is also shown that augmented Lagrangian iteration utilizing this penalty kernel reproduces the energy conserving (i.e. Lagrange multiplier) solution to any desired degree of accuracy. The result is a robust, stable method even in the context of large deformations, as is shown by some representative numerical examples. In particular, the ability of the formulation to produce accurate results where more traditional integration schemes fail is emphasized by the numerical simulations. © 1997 by John Wiley & Sons, Ltd.