So I have a 4 unit that is under agreement to sell and the inspection report came back with some electrical issues that needed to be addressed. Electrical contractor quotes me $5k but noted he could do it on T&M at a reduced rate. I let them know, yes proceed on T&M not to exceed the original number and do not do any work above that number.

Week later contractor finds an issue and says "hey, we have another issue and we can take care of it for $500, As it stands I believe I am going to come in under my estimated total." - So we authorize the work.

Contractor submits the quote yesterday for $8k and is threatening me about it. 

We see this often. Here is how I handled it:

1. I let them know (in writing) that was not per our agreement and I am disputing the amount. (note they come back and reduced $1k off of it and threatened me again).

2. I take the invoice and I pay them the amount of the original quote. This is sometimes where people make a mistake, if you owe someone money I pay them what I believe they are owed. It is in spirit of settlement but also I agreed up to a price - so I paid that price. 

This leaves a smaller balance disputed but if you do not pay them anything until its resolved, it could lead to issues if it goes to court.

3. I am staying steadfast on my response and not backing down (I spent 25 years as a GC/developer fighting with contractors) and have seen this thousands of times. 

How would have you handled it?