On the face of it, I don't buy what he's selling. You signed an agreement for a retaining wall and that's what you should get.

Have you spoken to the first engineer to get his opinion? If he agrees, that would be a different matter.

As an aside, I prefer unit retaining walls where the engineer approves. I frequently see them replacing poured concrete walls on highway projects.

how much of a credit are you going to get if you take the retaining wall out? if you agree to take the item out - get in writing what your credit will be.

Ok, let me ask a quick question. Did the site plans have to be submitted to a planning board, or building dept? If they were, chances are they were reviewed by the town engineer's office (it's what I used to do) and the wall and drainage were recommended. if that is the case, you will need to have those features there before the town sings off on you build.

Ok, are the drains needed? Absolutely!!

Lets look why...
Drain 1.( Corner of lot near proposed wall) You have a fairly steep hill coming down from the road, it will have a good deal of runoff, a good deal of that is directed at your driveway. Even if it doesn't erode away at the base of the embankment it is going to get concentrated and run down your backyard and eventually cut it's own drainage ditch, if it doesn't cross the property line, then it's cutting a ditch in your neighbors lot. I am sure they won't be pleased about that.
Drain 2. (Your front yard, across from Drain 1.) Runoff from your driveway will collect there, and it looks like your front yard is pretty flat. The elevation of the drain is 187.0? and there is a spot elevation of 188.0 on the driveway, and about 25' to the left of the house, where the driveway meets the house, there is another spot of 188.0 This is to show whoever is grading the lot, that the yard drain should be 1 foot lower, and naturally water will collect there (at the drain). Drain 1 is connected to Drain 2, and from Drain 2, it looks like it goes to what looks like another yard drain in an easement that is part of the subdivision. (was this drain already installed by the original owner of the subdivision?)

It looks like the Engineer who designed the plans did a pretty good job making sure you would not have water issues, although I do not see foundation drainage, is there any? It looks like you have enough pitch to have the foundations drain to this 3rd Yard Drain.

What is the dark line just to the right of the driveway supposed to represent? A wall, drain, swale? I didn't see a note arrow.

Should the contractor do this work?
You said the contract says the contractor will do all normal site work, and he was aware of the site plans. That pretty much sums it up. he doesn't want to do, probably because he now has to dig across all the fill he put in where the driveway goes, and he should have done it before he graded the driveway. His error, he eats it!

The "Other Engineer" I really doubt the contractor talked to another engineer. And if he did I really doubt the engineer will sign off on no drains, or wall.

Do you need the wall and guide rail?
if by chance you forget to set your parking brake on your car. Do you want it going off the edge of the driveway, or bumping into the guide rail?

Rusty