My first question is where did this "side" work come from. I mean the lead that sold it. Was it from one of my jobs? If so hes fired! If not then How well do you know this person. Is he one of the good ones or not? If hes a good guy and loyal to you and would truly be grateful then i would help him out explaining that this is a one time deal. Never again! Comprende' Amigo? Of course i would have to get my money back on the deal plus at least a small profit.>>>
They are free to do as much "side" work as they want as long as they are not using your equipment. Sounds like he doesn't have any insurance either. Tough for him. What is in it for you? Does he want you to pull the permit? Does he want you to finish the job for him? Is he going to pay you? How much? Can he afford it since he doesn't have the insurance? What is your liability?
I would just contract directly with the homeowner at whatever your rates are. Sounds like he doesn't get paid for what he did. Gee, too bad. Next time he will know and you don't have to worry about setting a "policy" He will already know what the consequences are.>>>