Introspect - are you paying him too less? In your pursuit of getting the best rates, you may have hired a contractor who will compromise on ethics and mandatories. Did you make your demands for statutory obligations clear before the project was awarded? Decent contractors, if told beforehand of their obligations, will build that into costs. However, if your decision was made solely on "rates" - you may have pushed your contractor into a corner.
If you have done everything right - just issues a show cause letter, demand an audit (if your contract allows it) and if found guilty - stop paying him pending course correction window. If he continues to violate contract; terminate the contract and move on.
If the fault is in your system; issues revised requirements, make it time bound, renegotiate, include audit clauses - and proceed as above.