Photograph everything and get a design professional involved immediately. There will be no easy or cheap answers and the contractor has an obvious conflict of interest.

Do you have photos of the window installation? What kind of flashing was specified?

And to answer your question: yes, all damp sheetrock and insulation should be replaced.

Pull out all the wet rock/insulation to let things dry out, but dont replace until you get the leaks stopped. The brick isn't going to make your house waterproof. As Macv mentioned, get a professional not attached to your project to take a look at those windows/flashing installs.

The question is how damp. When I have curved walls and vaults the drywallers leave the drywall out in the rain for a few minutes to get just the right flex to it. And some insulation is actually sprayed in damp.

In any case, better it happened now when corrections will be easier than after the veneer is on. Remember, too, it may be the windows, not the builder's techniques, that are at fault.

I would certainly insist on replacing the drywall and insulation that got wet. But before that's replaced, be sure to see how your windows were installed. You might consider contacting your window manufacturer to see if they have a rep in your area who can check them out. My concern isn't so much for the windows but for the installation job. We went through >6 mos. of major inconvenience and expense all because the builder of our spec house thought he knew better than the window makers and didn't bother installing sill pans or correctly flashing the windows. Even after the builder paid to remove/replace brick, re-caulk (multiple times), etc., he whined about the window manufacturers insisting on needless (in his opinion) and costly installation procedures. Sadly, we know that the way this house was built is no different than most other houses in our area, whether they sell for $300K or $3MM. I went up against two other builders who insisted they'd "always" built houses using shockingly slipshod methods and thought that I was just difficult and picky for wanting to conform to building code (inspections are a joke here, so there's no comfort to be gained from a house passing inspection.) It's easier and cheaper to correct the problem now than after you're living in the house. Good luck!

What ended up solving this issue? I’m having the same issue myself. Thanks

Me too…

@Klancie Madl

Why not start your own thread -- this one is 12 years old.