Although you should have asked these questions before you purchased the property, borrowed the money from a hard money lender, and before you hired this contractor who appears to be in partnership with the lender, I would suggest that you pay the interest that you contracted to pay. Furthermore, I would most likely (not knowing all the circumstances) fire the contractors and replace them with reputable ones.
Lastly, in the future, when you hire contractors for rehabs, you need to include in your contract a flat fee for the job, a deadline, and a reduction PER DAY in their fee for each day that passes the deadline when the job is not completed on time.
Rob
