Sounds like you have a strata or seam of sand at the 12 ft. level. Bentonite is iffy at best and you might not be able to till it into the soil sufficiently, on the side of the bank(s), to stop a leak. I think I would look into getting a liner. The contractor should have known to stop when he hit sand and deliver the bad news instead of keeping on digging. Had he stopped when he hit sand, you could have tried bentonite at that level. Anytime you hit sand, the project is over.
