I suggest you to be flexible in this matter & take a step which would do less damage to your investment. I hope HN folks will come up with some good advices :).
However, once I'd released 40 percent of the money and it was slightly late, I'd already wasted 2 months and said goodbye to 40 percent of the funds, so I felt like I had to stick with it. A foolish move in retrospect!
You can technically reverse engineer the code (it will not look exactly like the original). Depending on the agreement though, if the coder owns the source, you're probably better off not doing that.
Next time specify who owns the source in the agreement, and make sure that you're getting the source as you release the funds.