The onhit contagion effect is not functioning properly. This might just go right along the list of other onhit effects/properties through the perk system.
You are helding a weapon, and how is it not working?
Not showing at all, not activating at all, or just at times?
We need a bit more details.
The Contagion spell itself is broken. I had posted the details on that in exploitable bug reports myself as it has sensitive info in it.
Even with a held weapon, you do not get any added "on hit:contagion" property. Strangely I did notice that my gloves gain a "Only usable by Sorcerer: Temporary". I tried fighting with gloves too and still no effect.
I don't think its working at all.
Should be fixed.