With options C, D and E, the Project Manager will generally be certifying the Defined Costs that the Contractor has incurred or will incur by the next assessment date. However, there are exceptions and the first sub-bullet point of the first bullet of clause 11.2 (23) is one of them. It states : "Defined Cost is - the amount of payments due to Subcontractors for work which is subcontracted WITHOUT taking account of amounts deducted for - retention". (my capitals)
So Subcontractors' retention are not deducted from Defined Cost i.e. they are paid by the Employer to the Contractor, even though the Contractor is not paying the Subcontractor at the time.
The next question is "are they a Disallowed Cost in accordance with clause 11.2 (25) ?" You could mount an argument that, as they have not been paid to the Subcontractor, it cannot be justified by the Contractor's accounts and records (see first bullet of clause 11.2 (25)). However, my view is that, as this is a general statement and there is a specific statement in 11.2 (23) saying unpaid retentions are counted as a Defined Cost, this argument would not hold water. So, in my fairly strong view, I do not think amounts withheld as retentions under subcontracts are a Disallowed Cost under the main contract.
So the answer to your question, in brief is "Yes".