Pipe is very common, but it has some drawbacks. The good thing about pipe is that it keeps the water from flowing over your dam. You never want water flowing over the dam because it erodes the dam and leads to failure. The problem with pipe is that it is limited in how much water it can handle, and it clogs up. Some very large ponds have pipes in them, and have worked flawlessly for decades. When a properly built dam fails, it is almost always related the pipe going through it.
Reasons for pipe failure are too much water coming out of the pipe and backwashing the soil around it. It doesn't take very long to lose allot of soil on the back of your dam where the water discharges from the pipe. Another real common problem is water working it's way along the sides of the pipe over time. Anti Seep Colars are really good at stoping this, but only if they are installed properly, and the soil around them is of sufficiant clay quality that is compacted properly. There is allot of "ifs" there that you just wont know if it's right for years. When it fails, you'll know why, but until then, you can only wonder what's going on.
If your pipe fails, or cannot handle the amout of water going into the pond, you will need what is called an emergancy spillway. Ideally, this should go over undesterbed soil. Sometimes that's just not possible, but if you can, that's the best way to do it. The water should flow as slowly as possible when leaving the pond. The slower it flows, the less erosion it causes.
Gravel works great if it's large enough, and if it doesn't go anywhere. It's called rip rap, and is very common for protecting soil from erosion along rivers, in ditches and shorelines. It's used all the time on dams too!!!! Very common, and good advice from your contractor.
When I built my pond, I started out thinking that I wanted to put a pipe in it because that's just what people did. The more I researched it, and realized that the emergancy spillway was so important, I realized that was all that I needed. I do have a small pipe in my pond so that I can lower the water level if I need to. At the time, this seemed like a good idea just in case I was expeting a hurricane and massive amounts of water, or I wanted to mow down the plants along the shoreline and new that after I was done mowing, the rains would fill it right up again. Now that I have it in place, I think that I wouldn't do it again. I just don't need it and think that I wasted money on putting in in there.
Keep is simple and go with the rip rap. Don't save a buck on the rock that you buy because this is what will make or break your dam. Large rock stays in place, smaller rock fills in the voids and traps sediment so the water doesn't erode the soil under the rock. The rock should be angular and sharp to lock together and stay in place.
Good luck,
Eddie