@hcliston  We are still very short on facts.  What we have from you thus far is a lot of assumptions.  You need to gather the relevant facts because these will determine the proper tax treatment.  Fitting facts around certain tax treatment is not the solution.

Generally, you can't take a deduction/loss for money you have a reasonable prospect of recovering.  For a sizable commercial contract, it would be highly unusual your client doesn't have a competent attorney reviewing the terms to ensure there are legal provisions to protect his/her interest in case of contingency, especially if it's the seller's fault or there are significant defects in the structure (perhaps other than what has been priced in).  If we presume that the seller defaults on the contract and your client is not able to recover the money after pursuing all the appropriate avenues, your client may end up having a business bad debt - but that is a big IF and we just don't have the facts.