We now have enough facts to make an accurate conclusion of the whole situation, the problem was caused by our future contractor, we laid down the rules and he accepted. the fact that he went behind our backs and abused, concludes he is not a team player, in the future we have to trust him with contracts that are valuable to the company, if he is ready to cheat on small things, he will playable by our companies.
You said it, Terminate his contract, all your problems disappears.
Why should you have to deal with his behaviour.
BTW, paying his rent towards his lover makes you party to the divorce and an enabler.