Jeff, it sounds to me like the contractor 'covered his a**', as he's saying the leak is 'external to the pool'. However, $700 sounds quite a bit expensive for so easy a repair. Were you there when they 'found' the leak?, if so are you sure that's where it is? (I have a little trouble believeing that a 'spiilway' leak is causing a noticable loss of pool water) Even if it is, the repair should be fairly inexpensive, you can do it yourself.

I haven't seen the 'proposed leak' myself, but some hydrolic cement should fix the problem, if that's the only problem. There are other 'pool dudes' besides myself that frequent this site, between us, we should be able to save you most of that $700.

I'll let this sit a while and see if they will 'chime-in' before offering you the way to rectify this situation.

How much water do you loose each day? Can you post a pic of the area in question?