URGENT: A contractor situation -- Recess installation of Tub + "Lawyer?"

Hello everybody.
A little backstory:
I hired a general contractor to do a 3rd floor renovation including a master bedroom, new bathroom, and walk-in closet. About 800 S.F. total. We agreed to a price and time of work (30 days). It is specified that the contractor is responsible for all permits. There is a "liquidated damages clause" in the contract that states that for every day past the completion date I am entitled to a 1% refund on the total contract price.
There have been a lot of issues of the workers not showing up when they're supposed to, work being done wrong the first time, and the contractor generally not being in control of the project. I feel like I need to talk to every worker who comes in the house to make sure they know what they're supposed to be doing. The contractor does not return my calls on a regular basis. The project is now 4 months and running.
About a month into the project, the contractor claimed that the plumbing needed a lot more work than originally planned, and that the only solution was to do the job without permits or "slap [me] with a change order to the tune of $3-5000." He urged me to do it without permits because he "didn't want to have to do that to [me]."
I brought in 2 plumbers to estimate the job and they agreed that it could be done for what the contractor had originally estimated (~$3000). The contractor, faced with this evidence, agreed to pull all permits and complete the project as originally specified.
------------- Well here's the latest issue. The framing, plumbing, drywall, taping, mudding and paint had all been done on the 3rd floor bathroom when I had a friend (who is also a contractor) come take a look at it for his opinion. When he inspected the tub opening, we discovered that the bathroom framing was not built to the correct dimensions. I told the contractor to make the bathroom "as wide as is necessary to make this American Standard Renaissance Whirlpool fit." (This is a whirlpool tub that is the shape and size of a standard 5' tub.)
Well, in the installation instructions, it shows two ways of installing the tub... recessed and drop-in. Since this tub will be used in a shower situation, the recessed installation is what I was after. The diagram shows the studs 60 and 1/4" apart, with the stringers nailed directly to the studs. Then the tile bead kit goes between the edge of the tub and against the studs. The drywall (or whatever) and tile then come down to (and over) the lip of the tub and are sealed, resulting in a downward slope toward the tub where the tile meets the tub lip.
The workers did not look at the installation instructions. My friend and I pulled them out of the box and they were still sealed. Instead they just built the walls a little over 62" apart. Then they drywalled everything and I painted it. When I discovered the error and brought the situation to my contractor's attention, he said that he could just tear out a section of the drywall and mount the stringers to the framing (which he has done). He says that the tile bead kit goes around the lip and then gets caulked--"won't be a problem". However, this would mean that the edge of the tub would simply abut the wall and tile (or even leave a small gap). It would not be set recessed into the drywall and tile as shown in the installation instructions.
My friend (who is also a contractor) says that I should insist that he take down drywall, move the outer wall, and do it right, or I may face serious water problems resulting from the improper sealing between the tub lip and the walls.
I am on the verge of hiring a lawyer to deal with my unruly and seemingly incompetent general contractor (and who do I call about that?) and I have no idea what should be done with this tub situation. I would like to think that there would be a way to make it work, and I am so sick of dealing with this that I would just like it to be DONE, but I do not want to agree to anything with this A$$hOl3 of a contractor that will cause me damage in the future and let him off the hook.
I used to say that "I'm not looking to screw this guy" (regarding the liquidated damages clause) but he has treated me with such disrespect that I would not be upset if he lost a handful on this job. I just want it done and I want it done right.
Please advise ASAP! I am at my wits end.
Thanks, Marc S.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

opinion.
who in their right mind would hire a "new" contractor having a friend who is one. maybe your friend should have done the job for you.
that's what FRIENDS are for!
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

HomeOwnersHub.com is a website for homeowners and building and maintenance pros. It is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.