You have two different issues. His contract with you governs his payments. I would imagine you are obligated to pay him for work done, but you would need to check the terms of your contract on that.

As a separate issue you can sue him or charge him for the theft.

I would very much doubt you can just decide to offset one with the other. That's what courts are for. Whether or not he WOULD make an issue of it is another question, but if you are obligated to pay him for work completed and don't he can sue you over it.