NEC ECC: Contractor has installed a lower performance item this was accepted by the PM

A Contractor has installed a lower performance item which has been accepted by the PM,
is this a compensation event?

No this would not be a compensation event, although it is unusual they will accept that lower quality item without a financial saving. The Contractor can propose not to correct a defect (as this lower performance item will not be in accordance with the Works Information/Scope) and the Project Manager can in return request a quotation for a saving (or in theory an earlier Completion Date, not that I have ever seen that). The Project Manager will then either accept the quotation for a saving or not accept it and they can request the item to be corrected. Nothing to stop the Project Manager agreeing that they will accept the defect at zero cost if they choose to.

This will require an instruction from the Project Manager to change the Works Information/Scope to be in line with what has been installed, but this instruction is an exception to one that would be a compensation event (look at 60.1(1)) as it is only being instructed due to the Contractor’s error in the first place.