Is it permissible to deduct a portion of the remaining amount due to the contractor, who used unskilled laborers resulting in poor workmanship, in order to rectify this work using skilled laborers?

The employer has the right to obligate the contractor to fix the defect or to deduct from his dues by mutual agreement. If the contractor does not agree, then the judiciary is the recourse, based on Allah's saying: (O you who have believed, fulfill [all] contracts), and the Prophet's (peace be upon him) saying: "Muslims are bound by their conditions," and "There shall be no harm or reciprocating harm."