Yes AND no.
For lower ranks that have not had much experience, I don't want them making contact at all, for ippon / kihon kumite, and I don't have them free sparring just yet. Instead, I'll make the emphasis that I want them to punch / kick with full speed / power, but stop it within 6 inches of the target, at first. As they become more experienced as beginners, I'll shorten that distance. I NEVER want to see a half-hearted technique thrown.
For intermediate ranks, I feel that they are experienced enough, and coordinated enough, to land a blow at the surface of the target. Basically, tapping the gi. This never changes the fact that I want full speed techniques thrown, though.
For advanced ranks, I trust them to give each other a decent tap, going beyond the surface, but not so far as to harm each other. By this level, they should also be able to take a decent tap. After all, all of those calisthenics should have toughened them up by now! At the same time, though, everything is under control. Nobody is out to injure each other, and everyone is expected to learn from their mistakes. Anyone who does seek to deliberately injure his fellow classmate, gets the boot (and his contract shredded).
Regardless of the level, I continue to emphasize that the techniques are thrown at full speed. The karate-ka simply changes the distance at which the point of impact is. This way, they aren't afraid to throw good techniques, and have a much better mechanism of control, than to simply pull one's punch.