As I see it, based solely on your message, you have three options:
1) Settle for $2500 and sue in Small Claims court. If you decide to go this route, you will need to read the information at:
http://www.courts.wa.gov/brochure/scc/
and at:
http://www.nwjustice.org/docs/9940.html
2) Hire an attorney and sue for the full amount. The attorney can advise whether your specific situation allows for recovery of legal fees and expenses.
3) Get a copy of "Small Claims Court Guide for Washington: How to Win Your Case!" and sue him Pro Se (on your own) in Superior Court. This is not something that I would recommend for everyone, but it seems a strong possibility that the Defendant will have NO defense in this case.
Also, I would suggest that you consider filing fraud charges against him. At the least, the threat of fraud could be sufficient to get him to come to the table.
In any case, you should send the contractor a demand letter by certified RRR mail. Detail your complaint and what you want him to do. Include a deadline for compliance (say 10 days from receipt).
And another issue.... Was this guy a licensed contractor??
If not, you may have a large problem in trying to enforce any agreement since some states (I don't know about WA) require that the contractor be licensed before the agreement is validated. Take a look at:
http://www.lni.wa.gov/scs/contractors/index.htm
