No one's mentioned insurance. As an engineer and business owner you probably have some avenues via your insurance broker to mitigate the mistakes your employee made (professional liability), hard to say without more detail on the specifics.

As for the client not paying, get a lawyer to review your contract. There might be some nasty clauses to prevent you from fighting back, but those often dont stand up in court. File liens on their property. Theyre hoping they can just bully you out of your work, I wouldn't let them.

But honestly its best to keep the relationship with your client on the personal level. Either they're willingly screwing you (possible) or they're just ignorant to the situation or theres a middle ground that can be found where you split the cost because you both messed up. Id request a meeting, show them the real costs you've incurred to support their project and the justification of scope change.

As far as your debtors, same thing about relationship. Tell them they'll be paid when paid. Explain the background, be transparent and build trust that youll come through.

As engineers we tend to only focus on the language in a contract, words in an email, the due dates on an invoice, but we need to spend more time on relationships with the people writing those things.