An electrical system includes a voltage bus, battery pack, power inverter module (PIM), electric machine, first contactor, and controller. The PIM is connected to the battery pack and has a capacitor,voltage sensor, and semiconductor switches. The electric machine having phase legs with a corresponding phase winding and resistive path. The first contactor connects the PIM to a positive rail of the bus. The controller opens the first contactor in response to a power-off event, commands a discharge of the capacitor through the resistive paths, diagnoses a state of health (SOH) of the first contactor using a first threshold decay rate of the capacitor output voltage upon opening the first contactor, and executes a control action with respect to the electrical system using the diagnosed SOH.The three possible SOH are unhealthy/hard-welded contactor, unhealthy/soft-welded contactor, and healthy/normally-functioning contactor condition. A vehicle and method are also disclosed.