The Contractor is using labour only sub-contractors and charging, correctly, them as People under SCC. However, the PM is disputing the hourly rate as he feels it is too high and not at open market tendered rates. If the PM carries out their own assessment of a CE in which this labour was used and reduces the hourly rate, is the only contractual recourse for the Contractor Adjudication?
Ultimately - yes. As with any implemented compensation event the only contractual recourse (other than trying to reason with him) is adjudication. You may have an intermediate step incorporated into your Z clauses but if not then it is only adjudication I am afraid.
This is meant to be a quick/relatively cheap process, but in particular clients take offence to anyone challenging their decisions. At the end of the day you have here a professional difference of opinion, and why not let a third party decide if that decision is fair or not rather than threatening to never work with them again??
Adjudication is usually only temporary and at Completion you could decide to go to tribunal as stated in Contract Data part one e.g. arbitration, mediation, High Court, etc. Unless of course your contract has been amended to make the outcome of an adjudicaiton binding on both Parties.
The Project Manager will need to demonstrate the basis on which he has reached his decision that the rates are too high.