As a service manager, this is a scenario that I dread. You didn't say if the head was supplied fully machined or if you sent the supplied head out for machining. If the customer supplied the head fully machined, I would explain that he got the wrong head and the labour is his responsibility, BUT in the spirit of goodwill I would split it with him and offer to finish the job using my suppliers that would give him warranty on future repairs. I would explain that warranty is given by the supplier of the parts (in this case, him) but any workmanship issues are covered by the shop. If you sublet the machining, the customer is responsible for that too. You don't say if this is a good regular customer or a new customer, and that status can affect how you want to deal with it as well. We recently supplied a good customer with a "free" $12,000 Duramax because the rebuilder reneged on his warranty. If it had been a new or difficult customer, we would have let them sue the rebuilder instead. The problem you face is that the repair will now totally exceed the value of the car and the customer may walk away leaving you with all the incurred costs with no way to recover them fully (or at all). Good luck.