If people are really interested in self governance, they could simply declare the nation a individualist republic, with the only authority residing in individual sovereignty. No authority in social constructs would be recognized.
This would disband not only nation states, but potential any social construct that would use aggression through collective means.
In your model, the Service Providers could just as easily form aggressive conflicting factions, up to nation state levels(or even larger, Communism being one example).
Coercive force would be required to prevent peaceful people from voluntarily entering into contracts with the form of government of their choice.
I don't see anyway you could get around allowing people the freedom even to choose not to be free by signing a contract that allows a government to coerce them according to the rules of the contract.
If we all agree via consensus that aggressing against other is wrong (whereas using coercion only against those who have explicitly agreed to be coerced is not aggression) then Service Providers aggressing against each other would be no different than individuals aggressing against each other in your model. In both cases it would be recognized as illegal, and addressed accordingly.
Note above I didn't say force, or coercion. I simply stated that if people are interested in self governance they could do certain things. It is a choice, but it would be a choice to deny lending their authority to any social construct.
If government or government contract initiates force upon formation then should it even exist?
I am not asking to use force against the formations of government, I'm asking for people to use logic against the formation/support of it.
Unfortunately, my model would suffer the same failure mode as Panarchy, (this i do not deny at all) people would have to see the logic and choose a consensus of no coercion, if even unto themselves.
For Panarchy to thrive it would have to limit the authority of Providers/governments to only in act force within the social construct, which is something that hasn't really happened. Once a large enough social construct is formed it rarely abides by the limitations originally constraining it.