The compensation event process is :
Notification - Contractor notifies what they believe to be a CE justifying why it is (in accordance with 60.1) one. Project Manager responds with either no they don’t agree, or if yes they agree they invite the Contractor to provide a quotation.
Quotation - Contractor produces a quotation demonstrating (as clearly and as justifiable as possibly) what the cost AND time effects of that event is. That gets submitted to the Project Manager for assessment
Assessment - Project Manager considers if they agree with the quotation, and if not either requests a revised quote explaining why they don’t agree with it, or makes the statement that they will assess it themselves.
Implementation - the Project Manager either accepts the contractor quote or makes their assessment and confirm the cost/time agreed.
It sounds as though you have put a quotation in before getting their confirmation they agreed it was a compensation event. They need to agree yes this is a CE, before you go ahead with stage 2 above by putting in your quotation.
Whether this is a CE is the key question. The fact you have signed allocation sheets does not prove anything in terms of specific liability. The fact you said in your tender you had not allowed for hand digging around services, if this is an “exclusion” has this been specifically included within the signed contract? This is an example of this statement being clearly addressed within the contract wording rather than left as an exclusion which may or may not be an ambiguity. If this had been converted into an Employer risk, or an additional stated compensation event then this is very clear. As it stands, it is probably ambiguous at best. The Z clause states hand digging is not a CE - this should have been taken out altogether if they were agreeing to remove that risk. As it stands it could be argued that you created the ambiguity, and as such that would go in their favour.
So I would say you are not in a great position, although you can argue it was very clear from your submission that you had not allowed for it and that your tender price would have been higher had you had to price for that. If your exclusion is specifically within the signed contract then you have a better argument - but no doubt still an argument.
What I would say is you need to bring this to a head once and for all and see if you can get an agreement, and if they refuse your only real recourse is adjudication - and you would have to judge how strong your argument is to go there.