If a Contractor submits a design for acceptance, asking for permission to commence straight away with procuring it, if they are prepared to take all risk of the design being wrong - could the Contractor proceed? What should a Project Manager do?
The Contractor can proceed but it will be completely at their risk. Depends which option they are under - option A will be their risk entirely. Option C would probably result in a disallowed cost, so you would have to question why they would want to. If the design is accepted then they will have had a head start on time and could save them money. If the design is rejected for a valid reason then any cost they have incurred will be all down to Contractor.
It would have to be a very calculated risk from the Contractor done for good reason and where they are very confident the design will be accepted.
Project Manager could instruct them not to proceed without acceptance, but they are unlikely to give an instruction for something they do not need to give (and at the end of the day instruction or no instruction you can’t physically stop the Contractor from going ahead at their own risk).
Best advise I can offer is to talk to each other. See if you can’t get through the design acceptance jointly when there is a potential benefit to one or both Parties to do so.
In addition to this there’s the potential breach of clause 21.2 to resolve: “The Contractor does not proceed with the relevant work until the Project Manager has accepted his design.” I’d suggest an EWN to discuss this and to involve the Employer in the risk reduction meeting as the Employer and Contractor may need to agree a change to the contract under clause 12.3 in order to resolve the matter and protect the Parties and the Project Manager.