I think any marginally competent construction law attorney could successfully argue you were performing functions as a contractor and are not entitled to any compensation, including any money you were already paid and including money paid by you to the other contractors. I'd take whatever he's offering you and pray he doesn't start doing research about the ramifications for unlicensed contractors.
I would need to see the contracts with the contractors. Were they licensed?
If I were representing you, I would argue you were loaning your friend the money, and he now needs to pay back the loan. If he has a beef, he should take it up with the contractors.
There is an argument you were acting as a general contractor and hiring subs. It is difficult to analyze that issue without knowing more facts. If you were acting as an unlicensed general contractor, then you are not entitled to be paid anything at all.
I am sure I do not need to tell you what the real lesson here is.
If you were acting as a general contractor without a license, the owner could sue you for all of the money he has already paid you. Including materials and services. Also, because it's a home improvement project there are restrictions on down payments. You should consult an attorney ASAP.