Much is going to depend upon the contract that you have with the initial contractor. I would need to examine the contract before I was able to offer a more definitive opinion. I would recommend that you hire an attorney to send a letter to the contractor explaining that you will be withholding the balance of the money since the new contractor must be retained. The attorney could certainly advise the original contractor that if he demands payment or her files a lawsuit against you for nonpayment that you will file a counterclaim against him alleging fraud, negligence and violations of your state's consumer protection laws. Most state's consumer protection statutes provide for the recovery of double or triple damages in addition to payment of attorney's fees by the contractor.
Conversely, there are times when our advice to our clients is to pay the balance and then immediately sue the contractor. As I said earlier, a review of the contract or agreement between you and the original contractor is necessary in order to provide a more comprehensive opinion.
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