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Your neighbor and his lawyer are in no position to be calling the shots here. The fact of the matter is that the contractor failed to competently and timely perform as contracted and that puts the contractor in default. So, you have every right to terminate the contractor. If the lawyer thinks he wants to push this, I would let the lawyer know you are not going to pay another dime and if they pursue this, you'll be filing your own countersuit for not only breach of contract, but for gross negligence, asking for punitive damages.
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