The system is not malfunctioning, when the working light is blinking, it means that you have tripped the time delay function.
We program the two stage controllers so that there is a 5 minute time delay between hot and cold stages. That way the controller can't instantaneously switch between the heat and cold cycles before the liquid temp in the Chronical has a chance to stabilize, which can cause cycling. Cycling is when the hot and cold stages get stuck in an endless loop, switching back and forth, and fighting each other.
This feature is by design, and was integrated after months of testing.
You can change the time delay in the advanced settings by accessing the PT code. You can adjust how many minutes you would like the delay depending on your ambient climates. Here is another article on how to optimize your controller for your individual ambient climate.