What options are there for the Contractor if they don't believe a defect to be a defect?

NEC3, Option C.

If the Contractor don’t believe that a notified defect is actually a defect, what course of action is there?

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If the Project Manager has instructed you to correct (what they perceive to be) a defect then you have little choice but to carry out that instruction.

If you then believe that it is not a defect, and therefore an instruction to change the Works Information then the Contractor should notify this accordingly and seek recovery of the associated cost through the compensation event process.

If the Project Manager does not agree that it is a compensation event then this may be something the Contractor wants/will need to take to adjudication, as that is the only formal recourse the Contractor has if they can not get the PM to agree it is a CE, or if they do not agree with the PM’s assessment of time and/or cost.